If a company is a “public” company, the firm must follow a certain set of guidelines in reporting it financial statements to the Securities and Exchange Commission.

This set of standards is called Generally Accepted Accounting Principles (GAAP).

All public companies must also employ an outside firm to audit these financial statements. If you are a manager in a public company, you have probably had your own company’s auditors (“internal auditors”), in your department from time to time.

The reason for GAAP accounting and auditors is to prevent fraud and make sure the company is following the rules. Most all companies want to follow the rules and have no intention of trying to commit fraud.

However, companies are run by people, and some of them could be dishonest or misunderstand the rules. There are also some gray areas. The internal and external auditors do their audits to uncover items that may not be correct.

There is a new law, called Sarbanes Oxley, which is now forcing companies to have much tighter control. This new law was introduced as a result of the large problems at some of the biggest companies.

The course does not go into detail on GAAP accounting, as it is not something most managers use on the job.