Generally accepted accounting principles (GAAP) are a common set of accounting principles, standards and procedures that companies must follow when they compile their financial statements. GAAP is a combination of authoritative standards (set by policy boards) and the commonly accepted ways of recording and reporting accounting information. GAAP improves the clarity of the communication of financial information.
GAAP (generally accepted accounting principles) is a collection of commonly-followed accounting rules and standards for financial reporting. The acronym is pronounced “gap.”
GAAP specifications include definitions of concepts and principles, as well as industry-specific rules. The purpose of GAAP is to ensure that financial reporting is transparent and consistent from one organization to another.
There is no universal GAAP standard and the specifics vary from one geographic location or industry to another.
In the United States, the Securities and Exchange Commission (SEC) mandates that financial reports adhere to GAAP requirements.
In India, the Institute of Chartered Accountants of India (ICAI) mandates the GAAP requirements.
Many countries around the world have adopted the International Financial Reporting Standards (IFRS). IFRS is designed to provide a global framework for how public companies prepare and disclose their financial statements. Adopting a single set of worldwide standards simplifies accounting procedures for international countries and provides investors and auditors with a cohesive view of finances.