Business, Legal & Accounting Glossary
a collection of rules and procedures and conventions that define accepted accounting practice; includes broad guidelines as well as detailed procedures.
GAAP – Generally Accepted Accounting Principles – are a collection of guidelines and practices used by the accounting community. In the US, GAAP standards are set by the Financial Accounting Standards Board (FASB). FASB continually updates GAAP as new accounting issues and concerns arise. Outside the US, the equivalent of GAAP is IAS – International Accounting Standards – which is maintained by the International Accounting Standards Board.
Financial statements submitted to the SEC by publicly-traded companies are required to meet GAAP standards. When comparing financial statements from different years, it is important to note any changes in GAAP over the intervening period. Since GAAP is only a set of guidelines, it cannot guarantee financial statements are not fraudulent. If company management provides the auditing firm with incorrect data, the resulting financial statements may be GAAP compliant yet still incorrect.
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This glossary post was last updated: 30th March, 2020