Question

The accounting department of burke manufacuring prepares numerous reports at the request of, and for exclusive use by, the management of the company. is it necessary that these manegerial acoounting reports be developed in accordiance with generally accepted accounting principals (GAAP)?

Answer 1

No, it is not necessary that these managerial accounting reports be developed in accordance with GAAP. This is because GAAP, as an accounting standard, is used keeping in mind the interests of external users of financial reports and financial statements. SEC requires public companies to use GAAP so as to ensure that users of financial statements like investors, stockholders, creditors etc. get financial reports and statements that are transparent as well as consistent.

In this case the numerous reports being prepared by the accounting department of Burke Manufacturing is primarily meant for the management of the company and will not be used by external users. These reports can be in the form of flexible budgets, incremental analysis, capital budget reports etc. As such the accounting department need not develop these reports in accordance with GAAP; they should develop these reports keeping in mind the requirements of the management.