What are the problems with using GAAP?

The disadvantage in implementing accounting principles is that the accounting officer must deal with an uncompromising structure. GAAP is extremely straightforward and precise about how things are to be handled in order to ensure precision and continuity. Each organization has diverse perspectives working to regularly meet GAAP standards. Errors or omissions in applying GAAP can be costly in a business transaction; impacting credibility with lenders and leading to incorrect decisions. These violations can cause inaccurate reporting for internal and budgeting purposes, as well as a reduced reliance on prepared financial statements.

While the commonly agreed accounting standards seek to minimize misleading financial statements and direct firms to plan detailed and consistent financial data, there are drawbacks to these principles that should be taken into consideration before using them. These are the most common drawbacks that may occur when using GAAP.

• GAAP is not internationally accepted

GAAP appears to take a "one-size-fits-all" approach rather than to take into consideration the tremendous variation that is often seen between firms. As a result, it can be difficult for companies in many sectors as well as for smaller firms to use these values. A small business, for instance, using the widely agreed accounting rules, may find GAAP too difficult and fail to integrate all

• One-size-fits-all approach

GAAP appears to take a "one-size-fits-all" approach rather than to take into consideration the tremendous variation that is often seen between firms. As a result, it can be impossible for businesses in some industries, as well as for smaller firms, to apply these standards. For example, a small business using commonly agreed accounting standards can find GAAP too difficult and fail to integrate all of it.

• Long wait times for new standards

The GAAP Policy Boards are undertaking thorough deliberation and a lengthy mechanism to set new requirements for widely agreed accounting principles. As a result, organizations who apply these criteria would be adversely impacted when new requirements are placed in force and they will have to wait for the standards to be accepted before they could be enforced.