GAAP, which stands for Generally Accepted Accounting Principles, is a set of standardized guidelines and principles that govern the field of accounting.
GAAP provides a framework for preparing and presenting financial statements to ensure consistency, comparability, and accuracy in financial reporting across different organizations.
GAAP is developed and maintained by several governing bodies, including:
The FASB is the primary organization responsible for establishing and updating GAAP in the United States. It sets forth the accounting standards that companies must follow when preparing their financial statements.
As the federal agency overseeing the securities industry, the SEC has the authority to prescribe accounting principles and reporting requirements for companies under its jurisdiction. It often works in collaboration with the FASB to establish GAAP.
The IFRS Foundation is a global organization that promotes the adoption of International Financial Reporting Standards (IFRS) in various countries. While IFRS is not the same as GAAP, there are ongoing efforts to harmonize the two sets of accounting standards to facilitate international comparability of financial statements.
GAAP's development involves a rigorous process that includes research, public exposure of proposed standards, public hearings, and careful deliberation by the standard-setting bodies. This ensures that GAAP remains relevant, reliable, and reflective of the evolving business environment.
By adhering to GAAP, businesses can enhance the transparency and credibility of their financial statements, enabling stakeholders such as investors, creditors, and regulators to make informed decisions based on reliable financial information.
The FRC is the UK's independent regulator responsible for promoting high-quality corporate governance and reporting. It sets the accounting and reporting standards known as UK GAAP, which are used by most small and medium-sized companies in the UK.
The IFRS Foundation, headquartered in London, sets the International Financial Reporting Standards (IFRS). While UK GAAP is widely adopted in the UK, larger listed companies often follow IFRS standards.
The ASB is a committee of the FRC that focuses on setting accounting standards. It works to align UK GAAP with international standards and keep the accounting framework up to date.
Chartered accountants in the UK, who are members of professional bodies such as the Institute of Chartered Accountants in England and Wales (ICAEW), the Association of Chartered Certified Accountants (ACCA), and the Chartered Institute of Management Accountants (CIMA), play a vital role in applying and complying with GAAP. They ensure that businesses and organizations follow the appropriate accounting standards in their financial reporting.
