Question

1. Mr. Saeed has a small bakery in Matrah; he believes it is foolish to report financial information on a yearly basis. Instead, he thinks that financial information should be disclosed only when significant new information is available related to his business. Can Mr. Saeed ignore the daily transactions that may occur in his business? Explain the reason by justifying the result which relates to GAAP. (1 Mark)

Answer 1

As per the GAAP -'time period principle' every business entity should prepare the financials in short distant time interval, say half yearly or yearly. This principle is not take in account that any material transaction has been occured or not. Every transaction within this time span must be disclosed in the financials.

Also Mr. Saeed cannot avoid daily transaction. As per GAAP - 'materiality principle' only those items which are immaterial from user standpoint can be avoided. Daily transactions doesn't fall under the limit of immateriality therefore he cannot avoid to record these transactions.