Reference no: EM132615757

Question - A big weakness in GAAP is discrepancy in GAAP and non-GAAP earnings for companies, and how some of these companies manipulate these numbers to make themselves look better on paper for its stakeholders. Although there are requirements under GAAP that require companies to reconcile the differences between GAAP and non-GAAP earnings, this has not stopped companies from choosing the earnings numbers that make their company look financially stronger (usually non-GAAP earnings). This weakness in reporting poses the biggest threat to investors who may see a certain company to be strong but they are not really seeing the true GAAP earnings. Also having these GAAP standards but only requiring a simple explanation to use non-GAAP estimates on paper seems a bit counter-productive when it comes to requiring these standards for measuring earnings.

Required - Find how this weakness of GAAP could be addressed and explain why this would fix the issue. Find a solution to fix this problem.