Tangible net worth must be computed based on what accounting principles?

The calculation of tangible net worth is grounded in Generally Accepted Accounting Principles (GAAP). GAAP provides a standardized framework and set of guidelines that ensures consistency and transparency in financial reporting. This means that when determining tangible net worth, the assessment must adhere to these established rules to ensure that the net worth is accurately represented and comparable across different entities.

Tangible net worth specifically refers to the value of a company's physical assets, excluding intangible assets like goodwill or intellectual property. Using GAAP allows for a reliable calculation method, taking into account how assets and liabilities are recorded, thus providing a clear picture of financial health and stability.

Other accounting principles mentioned—such as cash basis accounting, tax accounting, and International Financial Reporting Standards (IFRS)—do not provide the same consistency or comprehensiveness as GAAP when it comes to this specific measure. Cash basis accounting, for example, records income and expenses only when cash changes hands, which could lead to misrepresentations of tangible net worth. Tax accounting focuses on compliance with tax laws rather than consistent financial reporting. IFRS, while also an established accounting standard, operates independently of GAAP and may include different methodologies that are not specifically aligned with computing tangible net worth as per U.S. practices.