Generally Accepted Accounting Principles, otherwise known as GAAP, is a collection of accounting rules that are used for financial reporting. The specification of GAAP depends on different principles and concepts and there are specific industry rules that are identified in the process. The main purpose of GAAP is to assure that all financial statements are consistent and transparent from one industry to other.
GAAP standards and concepts
There is no a universal GAAP accounting standard that is used around the globe. The rules often vary because of industry or geographic location of different companies. However, it has been noticed that the concept of GAAP CPA always remains the same. Here are the 10 key concepts of GAAP
- Permanence of methods
- Good faith
In the US, it is assured that all the reports are generated according to the requirements of GAAP. The governmental authorities assure that even they will generate the files and reports that are based on the GAAP concepts. However, when it comes to the small business organizations that use the help of startup accounting they have to submit their reports that follow both SEC and GAAP rules.
Importance of GAAP
According to the US government the publicly traded companies have to follow the GAAP. Here are some of the benefits they can get from GAAP.
- Consistency in presentation of financial information
- Avoid fraud and reduce risk of misrepresentation
- Companies can implement proper security and control over the projects
- When information is presented using GAAP, it gets easier to gain the trust of stakeholders
- With the standardized guideline investors can compare the financial information of different companies
Practical application of GAAP
The practical application of GAAP is very simple. It provides perfect guidelines of implementation of different rules and regulations so that the company can present and manage their accounts properly. With the help of GAAP it gets easier to explain different upcoming projects and how they will be beneficial for the company.