For example, Generally Accepted Accounting Principles (GAAP) standardizes a system of accounting which is used to communicate financial results. Anyone with a basic understanding of a balance sheet and income statement can easily assess the financial standing of virtually any business. In terms of communicating quantitative results, GAAP is a powerful shared business language — but, is quantitative reporting enough?
Recently, great attention has centered on the limitation of GAAP. Regulators and stakeholders are demanding greater transparency. They want to understand the story behind the numbers. For example, Sarbanes-Oxley is the reaction of an angry nation to a system of financial reporting that is easily manipulated by management.
The limitations of GAAP are easy to understand because financial reporting relates a single perspective that cannot easily communicate qualitative results. Extensive footnotes and carefully worded executive summaries attempt to fill the gap but they often fail to provide the level of transparency desired by concerned regulators, investors and other stakeholders.
GAMP would provide a parallel system of qualitative reporting to balance the quantitative information governed by GAAP. Together, GAAP and GAMP, would provide a more complete indication of a company’s current results and a more accurate predictor of future performance.
Imagine, for example, the benefit that would accrue to venture capitalists, investors, executive teams and CEO's if all interested parties had access to the same standardized reporting system:
- Overwhelmed leaders would have the means to order their chaos and regulate all the moving parts of their business. They would have a highly organized framework to focus their efforts and achieve a decisive competitive advantage.
- A company’s "parents" would have sophisticated methods to pass the baton of responsibility to succeeding generations.
- Angel investors would have transparent mean to manage their investments.
- Business leaders and their management teams would synchronize to a common strategic vision. Their efforts would be coordinated by a common management "language."
I am eager to hear your ideas and thought concerning the development and promotion of GAMP. If you would like to help me promote this idea please let me know.
Mike Kramer, CPA