GAAP Full Form
What is the full form of GAAP?
The full form of GAAP is “Generally Accepted Accounting Principles.” It is defined as a collection of accounting rules that are followed commonly and standards for financial reporting. These rules are issued by FASB(Financial Accounting Standards Board). The main aim of GAAP is to ensure complete, consistent and comparable financial statements of a company.
GAAP rules are used by accountants and financial professionals to organize financial reporting required by companies within the U.S. GAAP is not a universal standard and varies from one location to another or one industry to another. The purpose of GAAP is to ensure transparent and consistent financial reporting from one industry to another.
Key Principles of GAAP:
Regularity: The GAAP rules and regulations must be applied as standard practice by accounting staff.
Consistency: Through each step of the reporting process the same standards must be applied from one reporting period to another. Behind any changed standards in the financial statements, a full explanation of the reason is expected by the accountant.
Sincerity: Accurate information about business must be provided by the accountant.
The permanence of Methods: Financial reporting procedures should be consistent from one report to another.
Non-Compensation: Complete transparency of both positive and negative factors must be provided without the debt compensation expectation by the accountant.
Prudence: Financial data representation must be based on documented facts.
Continuity: Financial asset valuations should not disrupt normal business operations.
Periodicity: Organized financial data should be reported according to the corresponding period.
Materiality: All financial data and accounting information in financial reports must depend on material facts and fully disclose.
Good Faith: Honest and complete collection and reporting of financial data is expected.
Frequently Asked Questions (FAQs)
It helps in maintaining trust in the financial markets, and companies provide more reluctant information.
IFRS(International Financial Reporting Standards) is an international standard, whereas GAAP is used within the U.S.
All publicly traded companies in the U.S. must follow GAAP, but privately traded companies can use alternative accounting methods.
The basic assumptions on which GAAP rely on are: economic entity, monetary unit and time.
The primary sources of GAAP are: The GASB(Governmental Accounting Standards Board) and AICPA(American Institute of Certified Public Accountants).