Generally Accepted Accounting Principles (GAAP) is the standard framework of guidelines for financial accounting. It includes the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in the preparation of financial statements.

Overview

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Financial accounting information must be assembled and reported objectively. Third-parties who must rely on such information have a right to be assured that the data are free from bias and inconsistency, whether deliberate or not. For this reason, financial accounting relies on certain standards or guides that are called "General Accepted Accounting Principles" (GAAP). In the United States, GAAP derives, in order of importance, from:

1. issuances from an authoritative body designated by the American Institute of Certified Public Accountants Council (for example, the Financial Accounting Standards Board Statements, AICPA Accounting Principles Board Options, and AICPA Accounting Research Bulletins);
2. other AICPA issuances such as AICPA Industry Guides;
3. industry practice; and
4. into paraaccounting literature in the form of books and articles.

Principles also derive from tradition, such as the concept of matching. In any report of financial statements (audit, compilation, review, etc.), the preparer/auditor/CPA must indicate to the reader whether or not the information contained within the statements complies with GAAP.

Framework or laws

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Accounting is more of an art than a science, these principles are not immutable laws like those in the physical sciences. Instead, they are guides to action and may change over time. Sometimes specific principles must be altered or new principles must be formulated to fit changed economic circumstances or changes in business.

National GAAP

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Every country has their own version of GAAP with standards set by a national governing body.

International GAAP

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Due to globalisation, International Financial Reporting Standards are required and established by International Accounting Standards Committee.

See also

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• U.S. generally accepted accounting principles
• UK generally accepted accounting principles
• Generally Accepted Accounting Principles (Canada)
• International Financial Reporting Standards
• Chinese accounting standards

Generally Accepted Accounting Principles

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