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Lady Godiva Accounting Principles Definition (LGAP)

What are Lady Godiva Accounting Principles (LGAP)?

The term Lady Godiva Accounting Principles (LGAP) refers to a theoretical set of accounting principles that require full disclosure. This means that all information must be disclosed by companies under the LGAP, which includes information that is not generally disclosed to investors under generally accepted accounting principles (GAAP).

The term was coined by a financial analyst in response to the Enron scandal and is not an industry standard.

Key points to remember

  • Lady Godiva’s Accounting Principles are a theoretical set of accounting principles that require full disclosure from companies.
  • The term was coined by Rick Wayman, a financial analyst, after the Enron scandal.
  • LGAP is not an industry standard.
  • Nonprofit organizations, private business entities and all public enterprises use generally accepted accounting principles.
  • GAAP requires companies to report on their financial condition, results of operations and disclosures.

Understanding Lady Godiva’s Accounting Principles (LGAP)

Lady Godiva’s history dates back to the 11th century. The nobleman was married to Leofric, the Lord of Coventry in England. Her husband imposed heavy taxes on the citizens of the area, which confused Lady Godiva. Leofric has promised to cut taxes if she rides naked through town on a horse. Lady Godiva rose to the challenge by covering only her hair.

Using her caption as an example, financial analyst Rick Wayman coined the term Lady Godiva Accounting Principles in the wake of the Enron scandal. Once the darling of Wall Street, Enron was an energy and utilities company that perpetrated one of the biggest accounting scandals in company history.

The company has used mark-to-market (M2M) methods for its cost accounting as well as special purpose vehicles (SPVs) and other tricks to hide its debt and losses. This kept the company’s stock price high, leading investors and analysts to believe the company was profitable.

Enron declared bankruptcy after discovering his financial and accounting manipulation and nearly two dozen executives and associates have pleaded guilty or been convicted of charges.

The idea behind Lady Godiva’s accounting principles is that just as she has provided full disclosure to help her fellow citizens, companies should do the same with their financial disclosures to maintain a level of credibility with investors. The concept suggests that the following should be fully disclosed:

Lady Godiva Accounting Principles (LGAP) vs. Generally Accepted Accounting Principles (GAAP)

LGAP may be a simple theoretical idea, but the accounting world generally follows generally accepted accounting principles. These are the accounting and reporting principles, standards and procedures established by the Financial Accounting Standards Board (FASB). The FASB regularly updates these standards which are used by non-profit organizations as well as private and public companies.

The Securities and Exchange Commission (SEC) recognizes the organization for its role in setting standards for publicly traded companies.As such, all public companies are required to file financial statements that comply with GAAP rules.Even though private companies are not required to do so, it helps their financial future with creditors and lenders.

Companies are required to report the following under GAAP:

  • The company’s financial situation, including its balance sheet
  • Operating results, which include items such as statements of income and statements of comprehensive income
  • Disclosures

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Definition of statutory accounting principles (SAP)

What are the statutory accounting principles (SAP)?

Statutory Accounting Principles (SAP) are a set of accounting rules prescribed by the National Association of Insurance Commissioners (NAIC) for the preparation of the financial statements of an insurance company. SAP’s overall goal is to help state regulators monitor the creditworthiness of insurance companies.

Key points to remember

  • Statutory Accounting Principles (SAP) are accounting rules for preparing the financial statements of an insurance company.
  • The objective of SAP is to ensure the solvency of insurance companies so that they are able to meet the obligations towards their policyholders.
  • State law oversees the implementation of SAP.
  • SAP focuses on three core values ​​namely conservatism, recognition and consistency.

Understand statutory accounting principles (SAP)

Returns prepared using statutory accounting principles are submitted to the regulatory bodies in each state, which check the solvency levels of insurance companies, so that they can ensure that all obligations are met by policyholders and policyholders. policy holders, as well as any other legal obligation that may arise. State regulators seek sufficient capital and surplus in a business, as required by SAP to provide a safety net.

SAP is built under generally accepted accounting principles (GAAP), but SAP’s main focus is recording and maintaining solvency measurements, while GAAP is primarily designed to meet the best standards for accurate representation. of a company’s operations for the benefit of investors, creditors, and other users of financial statements. Thus, the books prepared by SAP are more useful to insurance regulators than the accounts prepared by GAAP and mainly focus on the balance sheet.

Pillars of statutory accounting principles (SAP)

The NAIC developed SAP to adhere to three main values: conservatism, recognition and consistency.

  1. Conservatism: The objective is to conduct valuations in a prudent manner that protects policyholders against any negative movement in the financial situation of a company in order to regulate financial solvency.
  2. Acknowledgement: The emphasis is on taking into account liquid assets capable of meeting the company’s obligations as they fall due. Any asset that is illiquid or unavailable due to any other obligation should not be taken into account. These assets should be marked against the excess.
  3. Consistency: SAP should be applied consistently when used to assess insurance companies so that regulators are able to compare claims at all levels in a meaningful way.

Real world example

American International Group, Inc. (AIG) presents “Statutory Financial Data and Restrictions” in Note 20 in its Consolidated Financial Statements 10-K for the fourth quarter of 2019. The table in Note 20 presents the actual statutory capital and surplus the insurer’s life and property and pensions business lines in relation to the statutory capital and minimum required surplus.

As of December 31, 2019, for the P&C segment, AIG had capital and a surplus of approximately $ 33.7 billion over the minimum required amount of $ 12.8 billion. For the life and retirement insurance segment, AIG had $ 14.5 billion in capital and surplus over the minimum required amount of $ 4.6 billion. These figures indicate a comfortable safety margin in terms of solvency.

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How should a change in accounting principles be recorded and reported?

A change in accounting principle is the term used when a company chooses between different generally accepted accounting principles or changes the method by which a principle is applied. Changes may occur in the accounting frameworks of generally accepted accounting principles (GAAP) or international financial reporting standards (IFRS). American companies use GAAP.

For investors, security analysts, or other users of financial statements, changes in accounting principles can be confusing to read and understand. They need adjustments in order to compare, from apples to apples, the numbers before and after change, so that they can derive the correct information. Adjustments are a lot like bug fixes, which often have negative interpretations.

Changing an accounting principle is different from changing an accounting estimate or an accounting entity. The accounting principles have an impact on the methods used, while an estimate refers to a specific recalculation. An example of a change in accounting principles occurs when a company changes its inventory valuation system, perhaps moving from LIFO to FIFO.

Key points to remember

  • A change in accounting principles refers to a company that changes its method of compiling and presenting its financial statements.
  • Specifically, the business will choose between a variety of generally accepted accounting principles or change the process by which a principle is implemented.
  • When a change is made, it should be applied retroactively to all previous declarations, as if the method had always been used, unless this is not possible.
  • If the adoption of the new principle results in a substantial change in an asset or liability, the change should be reported in opening retained earnings.

Recording and declaration of a change in accounting principles

Whenever a change in principles is made by a company, the company should retrospectively apply the change to all previous reporting periods, as if the new principle had always been in place, unless this cannot be done. to do. This is called the “turnaround”. Keep in mind that these requirements only impact the direct effects, not the indirect effects.

If the adoption of a new accounting policy results in a material change in an asset or liability, the adjustment should be reported in opening retained earnings. In addition, the nature of any change in accounting principles should be disclosed in the footnotes of the financial statements, along with the rationale used to justify the change. The FASB issues accounting change and error correction statements that detail how to reflect changes in financial reports.

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Explanation of the steps in the accounting cycle: 8 steps to know


The eight-step accounting cycle is important to know for all types of bookkeepers. It breaks down the entire process of an accountant’s responsibilities into eight basic steps. Many of these steps are often automated using accounting software and technology programs. However, knowing and using the steps manually can be essential for small business accountants working on books with minimal technical support.

Key points to remember

  • The accounting cycle is a process designed to facilitate financial accounting of business activities for business owners.
  • There are generally eight steps to follow in an accounting cycle.
  • Closing the accounting cycle provides business owners with comprehensive financial performance reports that are used to analyze the business.
  • The eight stages of the accounting cycle are: Identify Transactions, Record Transactions in a Journal, Post, Unadjusted Trial Balance, Spreadsheet, Adjust Journal Entries, Financial Statements, and Close Books.

What is the accounting cycle?

The accounting cycle is a basic eight-step process for accomplishing a company’s accounting tasks. It provides a clear guide for recording, analyzing and final reporting of a company’s financial activities.

The accounting cycle is used exhaustively throughout a full reporting period. Thus, staying organized throughout the period of the process can be a key part of helping to maintain overall efficiency. The periods of the accounting cycle will vary depending on reporting needs. Most companies seek to analyze their performance on a monthly basis, although some may focus more on quarterly or annual results.

Either way, most accountants will have knowledge of the day-to-day financial situation of the business. Overall, determining the length of each accounting cycle is important because it sets specific opening and closing dates. Once an accounting cycle ends, a new cycle begins, restarting the eight-step accounting process.

Understanding the accounting cycle in 8 steps

The eight-step accounting cycle begins with recording each business transaction individually and ends with a comprehensive report of business activities for the designated cycle period. Many companies use accounting software to automate the accounting cycle. This allows accountants to schedule cycle dates and receive automated reports.

Depending on the system of each company, more or less technical automation can be used. Typically, bookkeeping involves some technical support, but a bookkeeper may be involved in the accounting cycle at various times.

Each individual business will typically need to modify the eight-step accounting cycle in certain ways to suit their business model and accounting procedures. Changes in accrual accounting versus cash accounting are usually a major concern.

Businesses can also choose between single-entry and double-entry bookkeeping. Double-entry bookkeeping is required for businesses to prepare the three main financial statements: income statement, balance sheet, and cash flow statement.

The 8 stages of the accounting cycle

The eight stages of the accounting cycle are:

Step 1: Identify Transactions

The first step in the accounting cycle is to identify the transactions. There are many transactions that businesses will make throughout the accounting cycle. Each must be properly recorded in the company’s books.

Record keeping is essential for recording all types of transactions. Many businesses will use point-of-sale technology linked to their books to record sales transactions. Beyond sales, there are also expenses that can come in many forms.

Step 2: Record transactions in a journal

The second step in the cycle is creating journal entries for each transaction. Point-of-sale technology can help combine steps one and two, but businesses also need to track their spending. The choice between accrual accounting and cash accounting will dictate when transactions are officially recorded. Keep in mind that accrual accounting requires the matching of income with expenses, so both must be accounted for at the time of sale.

Cash accounting requires that transactions be recorded when money is received or paid. Double-entry accounting requires the recording of two entries for each transaction in order to manage a well-developed balance sheet as well as an income statement and a cash flow statement.

With double-entry bookkeeping, each transaction has equal debit and credit to each other. Single-entry accounting is like managing a checkbook. It gives a balance report but does not require multiple entries.

Step 3: Publication

Once a transaction is posted as a journal entry, it should be posted to a general ledger account. The general ledger provides a breakdown of all accounting activities by account. This allows an accountant to monitor financial positions and statuses by account. One of the most common accounts referenced in the general ledger is the cash account which details the amount of money available.

Step 4: Unadjusted trial balance

At the end of the posting period, a trial balance is calculated as the fourth step of the posting cycle. A trial balance tells the business about its unadjusted balances in each account. The unadjusted trial balance is then carried over to step five for testing and analysis.

Step 5: Worksheet

Analyzing a spreadsheet and identifying the accrual entries is the fifth step in the cycle. A spreadsheet is created and used to ensure debits and credits are equal. If there are any discrepancies, adjustments will need to be made.

In addition to identifying errors, adjusting postings may be required for the reconciliation of income and expense when using accrual accounting.

Step 6: Adjust the journal entries

In step six, an accountant makes adjustments. Adjustments are saved as journal entries if necessary.

Step 7: Financial statements

After the business has made all of the adjusting postings, it then generates its financial statements in step seven. For most businesses, these statements will include an income statement, a balance sheet, and a cash flow statement.

Step 8: Close the books

Finally, a business completes the accounting cycle at step eight by closing its books at the end of the day on the specified closing date. Closing statements provide an analysis report of performance over the period.

After closing, the accounting cycle starts again from the beginning with a new reporting period. At close, it’s usually a good time to file documents, plan for the next reporting period, and review a schedule of future events and tasks.

The bottom line

The eight-step accounting cycle process makes accounting easier for busy bookkeepers and entrepreneurs. This can help take the guesswork out of how to handle accounting activities. It also helps to ensure consistency, accuracy and efficiency in the analysis of financial performance.

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‘Weak’ accountant job – NationNews Barbados – nationnews.com


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ACCOUNTING PRACTICES in “many” government departments and ministries fall short. Acting General Accountant Dane Coppin expressed concern about the “weakness” of internal controls in these agencies. He also pointed out the lack of internal controls and surprise inspections.

The issues were raised in the Accountant General’s report for fiscal year 2014-2015. The investigations revealed that similar concerns were highlighted in the 2013-2014 report, which, like the most recent, contained financial statements that were “presented to the Auditor General for audit”.

Reporting on internal reviews of government departments and ministries, the accountant general said: “Audits carried out during the year revealed that internal controls within many departments and ministries remain weak and greater attention should be paid to improving these systems.

“Electronic accounting and reporting systems, which are an integral part of management and accounting functions, are still not used by many senior managers in the accounting section.

“This results in many errors and omissions, which should be identified early, undetected until identified by Treasury staff or the Auditor General during their reviews and audits.”

He added: “The Financial Management and Auditing Act requires internal checks and surprise inspections to be carried out by the various ministries and departments, but they are still not carried out.

Coppin also said there was “a continued need for management training at the supervisory level in most ministries / departments”. The “lack of training at this level has a negative impact, in many cases, on the functioning of these departments,” he added.

He noted, however, that “there has been some improvement with regard to the level of application and / or implementation of the recommendations made by the Accountant General in the audit reports prepared and sent to the accountants of the various ministries ”.

These recommendations are based on the requirements of the Financial Management Audit Act and Financial rules, as well as on international internal audit standards.

Ongoing assistance “continues to be provided to departments on the basis of individual requests and as part of the internal audit unit’s normal review cycle”.

However, the accountant general said “with the increase in the number of requests and the limited resources of the department, it is still an uphill struggle to reach the level of assistance required by the ministries and departments”.

The training of staff in the area of ​​internal audit “also remains a challenge”.

In April 2007, the government moved its accounting and reporting systems from cash to accrual accounting. This saw the Financial Management and Audit Act repealed and replaced by the Financial Management and Auditing Act.

New reporting requirements have been established, including the General Accountant to submit a “full set of accruals statements, including a statement of financial performance, statement of financial position, statement of cash flows, a statement of accounting policies and supporting notes to the financial statement. declaration”.

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The principles of global management accounting seek to guide better benchmarking, decision making


Effective management accounting practices can improve decision-making in organizations, which need solid fundamentals but also speed when deciding which strategic paths to take. In short, organizations need principles that can be applied to help produce favorable results.

The Global Principles of Management Accounting, released Wednesday, represent the first set of universal principles to guide the practice of managerial accounting.

The principles, prepared in a comprehensive report published by the AICPA and the Chartered Institute of Management Accountants (CIMA), are based on the ideas of a global cross-section of CEOs, CFOs, academics and other professionals.

The four principles, focused on four outcomes, aim to provide senior managers with strategic and financial oversight with a means to compare their management accounting processes and identify areas where the processes can be improved. The objective of the principles is to establish values, qualities and standards which represent the best practices of the profession.

The objective of the principles, in four key points, is to:

  • Describe the core values ​​and qualities that represent management accounting.
  • Better understand the profession of management accountant.
  • Increase recognition of the crucial role of management accounting in organizations and ensure that it is used at the highest levels.
  • Enabling the realization of the potential of management accounting.

Need for change in decision making

A global survey commissioned by CIMA and AICPA and conducted in August by Longitude Research shows that organizations are rethinking their decision-making processes and hope to make better use of available information. But few (36%) said they can easily ensure consistent, quality decisions at all levels of the organization, and 89% said a stronger partnership with finance in decision-making would help them. to better manage their organizations in the future.

“We work with a wide range of organizations around the world and may find that decision making becomes increasingly difficult as complex information flows much faster,” said CIMA Managing Director Charles Tilley , CGMA, in a press release. “Too often impulse replaces insight, and we need a dramatic improvement in the way decisions are made at all levels.”

The principles are intended to be applied at all levels and types of organizations: large or small, public or private. Barry Melancon, CPA, CGMA, President and CEO of AICPA, said the principles “will help structure chaotic complexity and strengthen evidence-based decision making that prioritizes long-term success over short-term gains ”.

The four principles:

Communication provides insight that is influential.
Good management accounting begins and ends with conversations, allowing management to break through silos and create a path to integrated thinking.

The information is relevant. One of the central roles of management accounting is to provide decision-makers with the right information at the right time. If the needs of the decision maker are understood, then timely identification, collection, validation, preparation and storage of information can be done.

The impact on value is analyzed. This principle requires a thorough understanding of the economic model and the macroeconomic environment. Strong management accounting functions are able to transform information into insight by evaluating the impact of scenarios under consideration.

Stewardship builds trust. The principles require active management of relationships and resources “so that the financial and non-financial assets, reputation and value of the organization are protected”.

The principles provide guidance on the core competencies required of management accountants, which are detailed in the CGMA skills framework. The principles are intended to be applied in 14 practice areas of the management accounting function (see below).

“The principles of management accounting bring a new dimension of value: understanding, identifying and capturing value accounting,” said Anant Nadkarni, member of the Global Management Accounting Principles Advisory Panel and former group vice president responsible for corporate social responsibility. and sustainability within the Tata group in India.

According to the report, three factors play a role in the effective application of the principles:

  1. Understand the need. First, top management needs to be aware of and appreciate the ability of management accounting to help the organization achieve lasting success. The test for each principle is its ability to contribute to organizational success.
  2. Tools and techniques. In the practical application of the principles, individuals should use appropriate tools and techniques which are refined as the objectives change.
  3. Diagnostic. People skills, principles, areas of practice, and performance management systems can help an organization assess the effectiveness of its management accounting function and identify areas for improvement.

“It’s training for CEOs, COOs, the people who make most of the decisions related to strategy and developing a business plan. They need to understand the skills that finance brings to the table, ”said Jim Blake, CPA, CGMA, another member of the Global Advisory Group. “If they don’t and only allow them access to a certain element of the decision-making process, they’re really short-sighted. There is an educational process that has to take place.

Neil amato (

[email protected]
) is a JofA senior editor.

14 areas of practice

The Global Management Accounting Principles are intended to guide best practices. According to the report, a combination of skilled people, clear principles, well-managed performance and strong practices constitute an effective management accounting function. Here are the 14 areas of practice:

  • Transformation and cost management
  • External reports
  • Financial strategy
  • Internal control
  • Investment valuation
  • Budget management and control
  • Decisions on prices, discounts and products
  • Project management
  • Regulatory compliance and compliance
  • Resource management
  • Risk management
  • Strategic tax management
  • Treasury and cash management
  • Internal Audit

Regarding internal audit, the report states: “This is not an area of ​​practice that falls under the management accounting function, but management accounting makes a significant contribution to the internal control system as tested. and evaluated by the internal audit function. “

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