GAAP stands for Generally Accepted Accounting Principles, which are a set of accounting standards and guidelines that companies in the United States must follow when preparing financial statements). The Financial Accounting Standards Board (FASB) publishes and maintains the Accounting Standards Codification (ASC), which is the single source of authoritative nongovernmental U.S. GAAP). The purpose of GAAP is to ensure that financial reporting is transparent, consistent, and comparable from one public organization to another, and from one accounting period to another.
Some key points about GAAP include:
- GAAP is the default accounting standard used by companies based in the United States).
- GAAP aims to improve the clarity, consistency, and comparability of the communication of financial information.
- GAAP is used mainly in the U.S., while most other jurisdictions use the International Financial Reporting Standards (IFRS) .
- GAAP is intended to ensure complete, accurate, and consistent financial reporting between businesses, which affects investment decisions by enabling investors to objectively compare business performance.
Following GAAP ensures that financial information is consistently and accurately reported, which is important for businesses, investors, and regulators.
