Generally Accepted Accounting Principles, otherwise knows as U.S. GAAP, or just GAAP, are rules governing the financial reporting of firms which issue financial securities in the United States.
The rules and guidelines which constitute GAAP are promulgated by the Financial Accounting Standards Board (FASB), a rule-setting body operating under the authority of the Securities and Exchange Commission (SEC). In addition, the SEC directly issues Staff Accounting Bulletins on matters which FASB has not addressed.
FASB maintains a database of all of the standards which make up GAAP. This database is called the Accounting Standards Codification.
The FASB and SEC’s primary concern when creating GAAP is the reporting of financial information to providers of capital. In other words, GAAP is concerned with providing investors with the information needed to make informed decisions about whether to lend to a company or to invest in the company’s equity.
Both business operators and investors should be familiar with GAAP. Business operators who are looking to raise capital must be familiar with how to report financial information to outside stakeholders. Likewise, investors must become familiar with GAAP accounting in order to make intelligent investment decisions.
