GAAP is the set of guidelines which provides how the balance sheet should be prepared and it provides that companies can issue a classified or a non classified balance sheet as long as the basic rules of preparing a balance sheet under the GAAP are followed.
Moreover the company needs to be consistent in its financial reporting on a year to year basis and that any change in this consistency needs to be made public through disclosure. The case revealed that Microsoft made the disclosure to opening announce the changes in its 10-k balance sheet which resulted in no change in the earnings per share for the shareholders.
Pertaining to the case, the research questions which are being sought for include the following.
- Determine the need for reclassification and the justification provided by Microsoft for the reclassification of the balance sheet.
- Identify the relationship between business strategy and classification of the revenue and expenditures of a company.
- Determine the role of GAAP in classification of financial repots like the balance sheet.
- Identify the type of disclosure required by Microsoft in order to be compatible and comply with the GAAP.
- What does the consistency principle dictate according to the GAAP and the association of the principle with the Microsoft case?
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