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{{short description|Accounting principles and rules}}
{{short description|Accounting principles and rules}}
{{Accounting}}
{{Accounting}}
'''Generally Accepted Accounting Principles''' ('''GAAP'''){{efn|Also known as '''U.S. GAAP''' or '''GAAP (USA)''', and pronounced like "gap".}} is the [[accounting standard]] adopted by the [[U.S. Securities and Exchange Commission]] (SEC),<ref>{{Cite journal|last=Posner|first=Elliot|date=2010-10-01|title=Sequence as explanation: The international politics of accounting standards|journal=Review of International Political Economy|volume=17|issue=4|pages=639–664|doi=10.1080/09692291003723748|s2cid=153508571|issn=0969-2290}}</ref> and is the default accounting standard used by companies based in the United States.
The '''Generally Accepted Accounting Principles''' ('''GAAP'''){{efn|Pronounced "gap"}} are the set of default [[Accounting standard|accounting standards]] used by companies based in the United States.  


The [[Financial Accounting Standards Board]] (FASB) publishes and maintains the [[Accounting Standards Codification]] (ASC), which is the single source of authoritative nongovernmental U.S. GAAP.<ref>{{cite web|url = https://asc.fasb.org/Home|title = Accounting Standards Codification|author = <!--Not stated-->|website = FASB.org| publisher = Financial Accounting Standards Board| access-date = December 20, 2022}}</ref> The FASB published U.S. GAAP in [[Extensible Business Reporting Language]] (XBRL) beginning in 2008.
Published and maintained by the [[Financial Accounting Standards Board]] (FASB), the [[Accounting Standards Codification]] outlines the specific and authoritative rules governing GAAP for non-governmental organisations. GAAP [[sources of law]] for [[Government agency|government agencies]] and [[United States Securities and Exchange Commission|Securities and Exchange Commission]] (SEC) registrants are found in federal securities law and SEC directions.


==Sources==
Since 2008, the FASB has published U.S. GAAP in [[XBRL|Extensible Business Reporting Language]] (XBRL).
The FASB Accounting Standards Codification is the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC [[Securities Exchange Act of 1934|registrants]]. In addition to the SEC's rules and interpretive releases, the SEC staff issues Staff Accounting Bulletins that represent practices followed by the staff in administering SEC disclosure requirements, and it utilizes SEC Staff Announcements and Observer comments made at Emerging Issues Task Force meetings to publicly announce its views on certain accounting issues for SEC registrants.<ref>ASC 105-10-05-1</ref>


Examples of nonauthoritative accounting guidance and literature include the following:<ref>ASC 105-10-05-3</ref>
==Principles==
* Practices that are widely recognized and prevalent either generally or in the industry
* FASB Concepts Statements
* American Institute of Certified Public Accountants (AICPA) Issues Papers
* International Financial Reporting Standards of the International Accounting Standards Board
* Pronouncements of professional associations or regulatory agencies
* Technical Information Service Inquiries and Replies included in AICPA Technical Practice Aids
* Accounting textbooks, handbooks, and articles.


The FASB issues an Accounting Standards Update (Update or ASU) to communicate changes to the FASB Codification, including changes to non-authoritative SEC content. ASUs are not authoritative standards.<ref>{{cite web |title=Accounting Standards Updates Issued |url = https://fasb.org/page/PageContent?pageId=/standards/accounting-standards-updates-issued.html|website = FASB.org|access-date = December 20, 2022}}</ref> Each ASU explains:
There are ten overarching principles of GAAP:<ref>https://www.ojp.gov/sites/g/files/xyckuh241/files/media/document/GAAP_Guide_Sheet_508.pdf</ref><ref>{{Cite web |last=Colson |first=Abby |date=2024-02-01 |title=Understanding GAAP rules |url=https://tax.thomsonreuters.com/blog/understanding-gaap-rules/ |access-date=2025-09-27 |website=Tax & Accounting Blog Posts by Thomson Reuters |language=en-US}}</ref>
* How the FASB has changed U.S. GAAP, including each specific amendment to the FASB Codification
* Why the FASB decided to change U.S. GAAP and background information related to the change
* When the changes will be effective and the transition method.


==Basic concepts==
* Regularity
** Accounting complies with GAAP.
* Consistency
** Accounting remains consistent and comparable across periods.
* Sincerity
** Accounting is [[Subjectivity and objectivity (philosophy)|objective]], factual, and accurate.
* Permanence of methods
** Accounting does not change across periods.
* Non-compensation
** Accounting abides by the [[convention of disclosure]], "with no prospect of debt compensation"
* Prudence
** Accounting abides by the [[convention of conservatism]], is "timely and realistic".
* Continuity
** Accounting assumes [[going concern]], that is, that the company will continue its business indefinitely. This validates the methods of asset capitalization, [[depreciation]], and [[Amortization (accounting)|amortization]]. Only when liquidation is certain is this assumption not applicable.
* Periodicity
** Accounting periods are regular and consistent.
* [[Materiality (auditing)|Materiality]]
** Accounting is based on factual information, and assets are valued at [[historical cost]] rather than [[fair market value]].
* Utmost [[good faith]]
** Accounting is honest.


To achieve basic objectives and implement fundamental qualities, GAAP has four basic assumptions, four basic principles, and five basic constraints.
===Accrual accounting===
According to the [[revenue recognition]] principle, companies should record revenue when earned and not when received; [[Cash flow|cash flows]] do not control for the recognition of revenue. Rather, the [[basis of accounting]] is on an accrual basis rather than on a cost basis. At the same time, by the convention of conservatism, losses must be recognized when their occurrence becomes probable, whether or not they have actually occurred.  


===Assumptions===
=== Matching principle ===
* '''Business entity''': assumes that the business is separate from its owners or other businesses. Revenue and expense should be kept separate from personal expenses.
The [[matching principle]] states that [[expense]]s have to be matched with revenues as long as it is reasonable to do so. Expenses are recognized not when work is performed or when products are produced, but when the work or the product actually makes a contribution to revenue. Only if no connection with revenue can be established may costs be charged as expenses to the current period. This principle allows greater evaluation of actual profitability and performance.
* '''[[Going concern]]''': assumes that the business will be in operation indefinitely. This validates the methods of asset capitalization, depreciation, and [[Amortization (accounting)|amortization]]. Only when liquidation is certain is this assumption not applicable. The business will continue to exist in the unforeseeable future.
* '''Monetary unit principle''': assumes a stable [[currency]] is going to be the unit of record. The [[FASB]] accepts the nominal value of the [[US dollar]] as the monetary unit of record unadjusted for inflation.
* '''Time-period principle''': implies that the economic activities of an enterprise can be divided into artificial time periods.


===Principles===
=== Inventory ===
* '''[[Historical cost]] principle''': requires companies to account and report assets' and liabilities' acquisition costs rather than [[fair market value]]. This principle provides information that is reliable (removing opportunity to provide subjective and potentially biased market values), but not very relevant. Thus there is a trend to use fair values. Most debts and securities are now reported at market values.
GAAP allows for [[FIFO and LIFO accounting|FIFO]], LIFO, and [[weighted inventory]] methods.<ref>{{Cite web |date=2019-08-30 |title=GAAP vs. IFRS: What's the Difference? {{!}} HBS Online |url=https://online.hbs.edu/blog/post/gaap-vs-ifrs |access-date=2025-09-27 |website=Business Insights Blog |language=en}}</ref>
* '''[[Revenue recognition]] principle''': holds that companies should record revenue when earned but not when received. The flow of cash does not have any bearing on the recognition of revenue. This is the essence of [[accrual basis accounting]]. Conversely, however, losses must be recognized when their occurrence becomes probable, whether or not it has actually occurred. This comports with the constraint of '''conservatism''', yet brings it into conflict with the constraint of '''consistency''', in that reflecting revenues/gains is inconsistent with the way in which losses are reflected.
* '''[[Matching principle]]''': [[expense]]s have to be matched with revenues as long as it is reasonable to do so. Expenses are recognized not when the work is performed, or when a product is produced, but when the work or the product actually makes its contribution to revenue. Only if no connection with revenue can be established may cost be charged as expenses to the current period (e.g., office salaries and other administrative expenses). This principle allows greater evaluation of actual profitability and performance (shows how much was spent to earn revenue). Depreciation and Cost of Goods Sold are good examples of application of this principle.
* '''Full disclosure principle''': Amount and kinds of information disclosed should be decided based on trade-off analysis as a larger amount of information costs more to prepare and use. Information disclosed should be enough to make a judgment while keeping costs reasonable. Information is presented in the main body of financial statements, in the notes or as supplementary information


===Constraints===
=== Departures ===
* '''Objectivity principle''': The company financial statements provided by the accountants should be based on objective evidence.
Under the [[AICPA]]'s Code of Professional Ethics under ''Rule 203 – Accounting Principles'', a member must depart from GAAP if following it would lead to a material misstatement on the financial statements, or otherwise be misleading. In the departure, the member must disclose, if practical, the reasons why compliance with the accounting principle would result in a misleading financial statement. Under ''Rule 203-1 –&nbsp;Departures from Established Accounting Principles'', the departures are rare, and usually take place when there is new legislation, the evolution of new forms of business transactions, an unusual degree of materiality, or the existence of conflicting industry practices.<ref>{{cite book |last1=Arens |first1=Alvin |title=Auditing : An Integrated Approach |last2=Loebbecke |first2=James |publisher=Prentice Hall |year=1980 |isbn=0-13-051656-2 |page=56}}</ref>
* '''Materiality principle''': The significance of an item should be considered when it is reported. An item is considered significant when it would affect the decision of a reasonable individual.  
* '''Consistency principle''': The company uses the same accounting principles and methods from period to period.
* '''Conservatism principle''': When choosing between two solutions, the one which has the less favorable outcome is the solution which should be chosen (see [[convention of conservatism]])
* '''Cost constraint''': The benefits of reporting financial information should justify and be greater than the costs imposed on supplying it.


==Required departures==
==Sources of law==


Under the [[AICPA]]'s Code of Professional Ethics under ''Rule 203 – Accounting Principles'', a member must depart from GAAP if following it would lead to a material misstatement on the financial statements, or otherwise be misleading. In the departure, the member must disclose, if practical, the reasons why compliance with the accounting principle would result in a misleading financial statement. Under ''Rule 203-1 –&nbsp;Departures from Established Accounting Principles'', the departures are rare, and usually take place when there is new legislation, the evolution of new forms of business transactions, an unusual degree of materiality, or the existence of conflicting industry practices.<ref>{{cite book |page=56 |title=Auditing : An Integrated Approach |first1=Alvin |last1=Arens |first2=James |last2=Loebbecke |year=1980 |publisher=Prentice Hall |isbn=0-13-051656-2 }}</ref>
=== Authoritative ===
The [[Financial Accounting Standards Board]] (FASB) [[Accounting Standards Codification]] is the source of authoritative GAAP to be applied by nongovernmental entities.<ref>{{cite web |author=<!--Not stated--> |title=Accounting Standards Codification |url=https://asc.fasb.org/Home |access-date=December 20, 2022 |website=FASB.org |publisher=Financial Accounting Standards Board}}</ref> Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC [[Securities Exchange Act of 1934|registrants]].<ref>{{Cite journal |last=Posner |first=Elliot |date=2010-10-01 |title=Sequence as explanation: The international politics of accounting standards |journal=Review of International Political Economy |volume=17 |issue=4 |pages=639–664 |doi=10.1080/09692291003723748 |issn=0969-2290 |s2cid=153508571}}</ref> In addition to the SEC's rules and interpretive releases, the SEC issues Staff Accounting Bulletins that represent practices followed by SEC staff in administering SEC disclosure requirements.<ref>{{Cite web |title=SEC.gov {{!}} Staff Accounting Bulletins |url=https://www.sec.gov/rules-regulations/staff-guidance/staff-accounting-bulletins |access-date=2025-09-27 |website=www.sec.gov}}</ref> The SEC also utilizes SEC Staff Announcements and Observer comments made at Emerging Issues Task Force meetings to publicly announce its views on certain accounting issues for SEC registrants.<ref>ASC 105-10-05-1</ref>


==History==
Other organizations involved in determining United States accounting standards include the [[Governmental Accounting Standards Board]] (GASB) and [[Federal Accounting Standards Advisory Board]] (FASAB).<ref>{{cite web |date=25 April 2011 |title=History of FASAB |url=http://fasab.gov/the-history-of-fasab/ |website=fasab.gov}}</ref>
Accounting standards are currently set by the [[Financial Accounting Standards Board]] and were historically set by the [[American Institute of Certified Public Accountants]] (AICPA) subject to [[U.S. Securities and Exchange Commission]] (SEC) regulations.<ref>[http://www.quickmba.com/accounting/fin/standards/ Financial Accounting Standards]. QuickMBA.</ref> Auditors took the leading role in developing GAAP for business enterprises.<ref>{{cite book|title=Governmental Accounting, Auditing, and Financial Reporting|author=Gauthier, Stephen J.}}</ref>


===Standard-setting prior to the creation of the FASB===
=== Non-authoritative ===
The '''[[United States Securities and Exchange Commission]]''' ('''SEC''') was created as a result of the [[Great Depression]]. At that time, there was no organization setting accounting standards. The SEC encouraged the establishment of private standard-setting bodies through the [[AICPA]] and later the [[FASB]], believing that the private sector had the proper knowledge, resources, and talents. Currently, the SEC works closely with various private organizations setting GAAP, but does not set GAAP itself.
Examples of nonauthoritative accounting guidance and literature include the following:<ref>ASC 105-10-05-3</ref>
 
* [[Industry practice]]
In 1939, urged by the SEC, the '''[[American Institute of Certified Public Accountants]] (AICPA)''' appointed the '''Committee on Accounting Procedure''' (CAP). During 1939 to 1959, CAP issued 51 Accounting Research Bulletins that dealt with a variety of timely accounting problems. However, this problem-by-problem approach failed to develop the much needed structured body of accounting principles. Thus, in 1959, the AICPA created the '''Accounting Principles Board''' (APB), whose mission it was to develop an overall conceptual framework. It [[List of Accounting Principles Board Opinions|issued 31 opinions]] until it was dissolved in 1973.
* FASB Concepts Statements<ref>{{Cite web |title=Non-Authoritative Concepts Statement No. 8 |url=https://www.fasb.org/standards/concept-statements |access-date=2025-09-27 |website=[[Financial Accounting Standards Board]]}}</ref>
 
* [[American Institute of Certified Public Accountants]] (AICPA) Issues Papers and Technical Practice Aids
Realizing the need to reform the APB, leaders in the accounting profession appointed a Study Group on the Establishment of Accounting Principles (commonly known as the '''[[Wheat Committee]]''' for its chairman Francis Wheat). This group determined that the APB must be dissolved and a new standard-setting structure created.
* [[International Financial Reporting Standards]] of the [[International Accounting Standards Board]]
* Professional and academic literature, including accounting textbooks, handbooks, and articles.
Influential organizations include the Government Finance Officer's Association (GFOA), American Accounting Association, Institute of Management Accountants, and Financial Executives Institute.


===Financial Accounting Standards Board (FASB)===
==== Accounting standards updates ====
In 1973, the APB was replaced by the '''[[Financial Accounting Standards Board]] (FASB)''' under the supervision of the [[Financial Accounting Foundation]] with the Financial Accounting Standards Advisory Council serving to advise and provide input on the accounting standards.<ref>[http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1218220137466 Financial Accounting Standards Advisory Council (FASAC)]. FASB FASAC.</ref>
The FASB issues periodic non-authoritative Accounting Standards Updates (ASU) to communicate changes to the FASB Codification, including changes to non-authoritative SEC content.<ref>{{cite web |title=Accounting Standards Updates Issued |url=https://fasb.org/page/PageContent?pageId=/standards/accounting-standards-updates-issued.html |access-date=December 20, 2022 |website=FASB.org}}</ref> Each ASU explains specific amendments, reasons and background information, and the timing of the change.


After the creation of the FASB, the AICPA established the '''Accounting Standards Executive Committee''' (AcSEC). It publishes:
The FASB also currently publishes the following:
*'''Audit and Accounting Guidelines''', which summarizes the accounting practices of specific industries (e.g. casinos, colleges, and airlines) and provides specific guidance on matters not addressed by FASB or the '''Governmental Accounting Standards Board''' (GASB).
* Technical Bulletins or Staff Positions, guidelines on applying standards, interpretations, and opinions. Usually solve some very specific accounting issue that will not have a significant, lasting effect or respond to questions from practitioners.
*'''Statements of Position''', which provides guidance on financial reporting topics until the FASB or GASB sets standards on the issue.
* Exposure Documents, where the FASB issues Exposure Documents to solicit an ASU to communicate changes to the FASB Codification, including changes to non-authoritative SEC content.
*'''Practice Bulletins''', which indicate the AcSEC's views on narrow financial reporting issues not considered by the FASB or the GASB.


In 1984, the FASB created the '''Emerging Issues Task Force''' (EITF). The mission of the EITF is to "assist the FASB in improving financial reporting through the timely identification, discussion, and resolution of financial accounting issues within the framework of the FASB Accounting Standards Codification."<ref>{{Cite web |url=https://www.fasb.org/eitf |title=FASB Emerging Issues Task Force |website=FASB.org |access-date=December 20, 2022}}</ref>
== Financial Accounting Standards Board ==


The FASB currently publishes the following:
=== History ===
* '''Accounting Standards Codification''', the only source of authoritative nongovernmental U.S. GAAP. In 2009, the Codification superseded the FASB's '''Statements of Financial Accounting Standards'''. 168 standards had been issued before the Codification.
Accounting standards are currently set by the [[Financial Accounting Standards Board]] and were historically set by the [[American Institute of Certified Public Accountants]] (AICPA), subject to [[U.S. Securities and Exchange Commission]] (SEC) regulations.<ref>[http://www.quickmba.com/accounting/fin/standards/ Financial Accounting Standards]. QuickMBA.</ref> Auditors took the leading role in developing GAAP for business enterprises.<ref>{{cite book|title=Governmental Accounting, Auditing, and Financial Reporting|author=Gauthier, Stephen J.}}</ref>
* '''Concepts Statements''', first issued in 1978. They are part of the FASB's conceptual framework project and set forth fundamental objectives and concepts that the FASB use in developing future standards. As they are not part of the Codification, they are not authoritative GAAP. There have been [[List of FASB Statements of Financial Accounting Concepts|8 concepts published to date, of which 5 have been superseded]].<ref>{{Cite web |url=https://www.fasb.org/page/PageContent?pageId=/standards/concepts-statements.html |title=FASB Concepts Statements |website=FASB.org |access-date=December 20, 2022}}</ref>
* '''Technical Bulletins or Staff Positions''', guidelines on applying standards, interpretations, and opinions. Usually solve some very specific accounting issue that will not have a significant, lasting effect or respond to questions from practitioners.
* '''Accounting Standards Updates (ASU)''', where the FASB issues an ASU to communicate changes to the FASB Codification, including changes to non-authoritative SEC content.
* '''Exposure Documents''', where the FASB issues Exposure Documents to solicit an ASU to communicate changes to the FASB Codification, including changes to non-authoritative SEC content.


====FASB Accounting Standards Codification====
The United States Securities and Exchange Commission was created as a result of the [[Great Depression]]. At that time, there was no organization setting accounting standards. The SEC encouraged the establishment of private standard-setting bodies through the AICPA and later the FASB, believing that the private sector had the proper knowledge, resources, and talents.
Circa 2008, the FASB issued the FASB Accounting Standards Codification, which reorganized the thousands of U.S. GAAP pronouncements into roughly 90 accounting topics.<ref>{{Cite journal|title=AICPA Applauds FASB's Issuance of GAAP Codification|publisher=The CPA Letter|date=February 2008|author=AICPA}}</ref>


The Codification is effective for interim and annual periods ending after September 15, 2009. All existing accounting standards documents are superseded as described in FASB Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. All other accounting literature not included in the Codification is non-authoritative.
In 1939, urged by the SEC, the AICPA appointed the Committee on Accounting Procedure (CAP). During 1939 to 1959, CAP issued 51 Accounting Research Bulletins that dealt with a variety of timely accounting problems. However, this problem-by-problem approach failed to develop the much needed structured body of accounting principles. Thus, in 1959, the AICPA created the Accounting Principles Board (APB), whose mission it was to develop an overall conceptual framework. It issued [[List of Accounting Principles Board Opinions|31 opinions]] until it was dissolved in 1973.


The Codification reorganizes the thousands of U.S. GAAP pronouncements into roughly 90 accounting topics and displays all topics using a consistent structure. It also includes relevant [[U.S. Securities and Exchange Commission|Securities and Exchange Commission]] (SEC), guidance that follows the same topical structure in separate sections in the Codification.
Realizing the need to reform the APB, leaders in the accounting profession appointed a Study Group on the Establishment of Accounting Principles (commonly known as the [[Wheat Committee]]). This group determined that the APB must be dissolved and a new standard-setting structure created.


To prepare users for the change, the AICPA<ref>{{citation |url=http://www.iasplus.com/en-us/standards/fasb |title=FASB Accounting Standards Codification |date=2009 |access-date=April 30, 2016 |work=Deloitte Global Services Limited }}</ref> has provided a number of tools and training resources.
===Organisational structure===
In 1973, the APB was replaced by the Financial Accounting Standards Board under the supervision of the [[Financial Accounting Foundation]] with the [[Financial Accounting Standards Advisory Council]] serving to advise and provide input on the accounting standards.<ref>[http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1218220137466 Financial Accounting Standards Advisory Council (FASAC)]. FASB FASAC.</ref>


While the Codification does not change GAAP, it introduces a new structure—one that is organized in an easily accessible, user-friendly online research system. The FASB expects that the new system will reduce the amount of time and effort required to research an accounting issue, mitigate the risk of noncompliance with standards through improved usability of the literature, provide accurate information with real-time updates as new standards are released, and assist the FASB with the research efforts required during the standard-setting process.
After the creation of the FASB, the AICPA established the Accounting Standards Executive Committee (AcSEC). It currently publishes Audit and Accounting Guidelines that summarize the accounting practices of specific industries and provide specific guidance on matters; Statements of Position that provide guidance on financial reporting topics; and Practice Bulletins that indicate the AcSEC's views on narrow financial reporting issues.


===Other organizations===
In 1984, the FASB created the Emerging Issues Task Force (EITF). The mission of the EITF is to "assist the FASB in improving financial reporting through the timely identification, discussion, and resolution of financial accounting issues within the framework of the FASB Accounting Standards Codification."<ref>{{Cite web |url=https://www.fasb.org/eitf |title=FASB Emerging Issues Task Force |website=FASB.org |access-date=December 20, 2022}}</ref>
Other organizations involved in determining United States accounting standards include:
* '''[[Governmental Accounting Standards Board]] (GASB)'''. Created in 1984, the GASB addresses state and local government reporting issues. Its structure is similar to that of the FASB's, and the FASB and GASB are located together and share resources.
* '''[[Federal Accounting Standards Advisory Board]] (FASAB)'''. Created in 1990, the FASAB addresses federal government financial reporting issues. The FASAB issues federal financial accounting standards and provides guidance to federal reporting entities.<ref>{{cite web|url=http://fasab.gov/the-history-of-fasab/|title=History of FASAB|website=fasab.gov|date=25 April 2011 }}</ref>


Other influential organizations include the Government Finance Officer's Association (GFOA), American Accounting Association, Institute of Management Accountants, and Financial Executives Institute.
=== Accounting Standards Codification ===
In 2008, the FASB issued the FASB Accounting Standards Codification, which reorganized the thousands of U.S. GAAP pronouncements into roughly 90 accounting topics.<ref>{{Cite journal|title=AICPA Applauds FASB's Issuance of GAAP Codification|publisher=The CPA Letter|date=February 2008|author=AICPA}}</ref><ref>{{citation |title=FASB Accounting Standards Codification |date=2009 |work=Deloitte Global Services Limited |url=http://www.iasplus.com/en-us/standards/fasb |access-date=April 30, 2016}}</ref> It also includes relevant [[U.S. Securities and Exchange Commission|Securities and Exchange Commission]] (SEC), guidance that follows the same topical structure in separate sections in the Codification. All existing accounting standards documents prior to 2009 have superseded.<ref>FASB Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles</ref>


===Convergence with International Financial Reporting Standards===
== International Financial Reporting Standards ==
{{See also|Convergence of accounting standards#United States}}
{{See also|Convergence of accounting standards#United States}}


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{{Library resources box}}
{{Library resources box}}


*[https://www.sec.gov/interps/account.shtml SEC Accounting Bulletins] – United States
*[https://fasab.gov/accounting-standards/ The FASAB Handbook of Accounting Standards and Other Pronouncements]
*[https://www.sec.gov/divisions/corpfin.shtml SEC Division of Corporate Finance] – United States
*[http://www.fasb.org/ Financial Accounting Standards Board Website (FASB)]
*[http://www.fasb.org/ Financial Accounting Standards Board Website (FASB)] – United States
*[https://xbrl.us/xbrl-taxonomy/2022-us-gaap/ US GAAP XBRL Taxonomy]
*[http://www.gasb.org/ Government Accounting Standards Board Website (GASB)] {{Webarchive|url=https://web.archive.org/web/20190919100930/https://www.gasb.org/ |date=2019-09-19 }} – United States
* [https://rsmus.com/insights/financial-reporting/us-gaap-vs-ifrs-comparisons-series.html U.S. GAAP vs. IFRS comparisons] from [[RSM US]]
*[https://xbrl.us/xbrl-taxonomy/2022-us-gaap/ US GAAP XBRL Taxonomy] – United States


[[Category:United States Generally Accepted Accounting Principles|*]]
[[Category:United States Generally Accepted Accounting Principles|*]]

Latest revision as of 18:05, 30 October 2025

Template:Short description Template:Accounting The Generally Accepted Accounting Principles (GAAP)Template:Efn are the set of default accounting standards used by companies based in the United States.

Published and maintained by the Financial Accounting Standards Board (FASB), the Accounting Standards Codification outlines the specific and authoritative rules governing GAAP for non-governmental organisations. GAAP sources of law for government agencies and Securities and Exchange Commission (SEC) registrants are found in federal securities law and SEC directions.

Since 2008, the FASB has published U.S. GAAP in Extensible Business Reporting Language (XBRL).

Principles

There are ten overarching principles of GAAP:[1][2]

  • Regularity
    • Accounting complies with GAAP.
  • Consistency
    • Accounting remains consistent and comparable across periods.
  • Sincerity
    • Accounting is objective, factual, and accurate.
  • Permanence of methods
    • Accounting does not change across periods.
  • Non-compensation
  • Prudence
  • Continuity
    • Accounting assumes going concern, that is, that the company will continue its business indefinitely. This validates the methods of asset capitalization, depreciation, and amortization. Only when liquidation is certain is this assumption not applicable.
  • Periodicity
    • Accounting periods are regular and consistent.
  • Materiality
  • Utmost good faith
    • Accounting is honest.

Accrual accounting

According to the revenue recognition principle, companies should record revenue when earned and not when received; cash flows do not control for the recognition of revenue. Rather, the basis of accounting is on an accrual basis rather than on a cost basis. At the same time, by the convention of conservatism, losses must be recognized when their occurrence becomes probable, whether or not they have actually occurred.

Matching principle

The matching principle states that expenses have to be matched with revenues as long as it is reasonable to do so. Expenses are recognized not when work is performed or when products are produced, but when the work or the product actually makes a contribution to revenue. Only if no connection with revenue can be established may costs be charged as expenses to the current period. This principle allows greater evaluation of actual profitability and performance.

Inventory

GAAP allows for FIFO, LIFO, and weighted inventory methods.[3]

Departures

Under the AICPA's Code of Professional Ethics under Rule 203 – Accounting Principles, a member must depart from GAAP if following it would lead to a material misstatement on the financial statements, or otherwise be misleading. In the departure, the member must disclose, if practical, the reasons why compliance with the accounting principle would result in a misleading financial statement. Under Rule 203-1 – Departures from Established Accounting Principles, the departures are rare, and usually take place when there is new legislation, the evolution of new forms of business transactions, an unusual degree of materiality, or the existence of conflicting industry practices.[4]

Sources of law

Authoritative

The Financial Accounting Standards Board (FASB) Accounting Standards Codification is the source of authoritative GAAP to be applied by nongovernmental entities.[5] Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.[6] In addition to the SEC's rules and interpretive releases, the SEC issues Staff Accounting Bulletins that represent practices followed by SEC staff in administering SEC disclosure requirements.[7] The SEC also utilizes SEC Staff Announcements and Observer comments made at Emerging Issues Task Force meetings to publicly announce its views on certain accounting issues for SEC registrants.[8]

Other organizations involved in determining United States accounting standards include the Governmental Accounting Standards Board (GASB) and Federal Accounting Standards Advisory Board (FASAB).[9]

Non-authoritative

Examples of nonauthoritative accounting guidance and literature include the following:[10]

Influential organizations include the Government Finance Officer's Association (GFOA), American Accounting Association, Institute of Management Accountants, and Financial Executives Institute.

Accounting standards updates

The FASB issues periodic non-authoritative Accounting Standards Updates (ASU) to communicate changes to the FASB Codification, including changes to non-authoritative SEC content.[12] Each ASU explains specific amendments, reasons and background information, and the timing of the change.

The FASB also currently publishes the following:

  • Technical Bulletins or Staff Positions, guidelines on applying standards, interpretations, and opinions. Usually solve some very specific accounting issue that will not have a significant, lasting effect or respond to questions from practitioners.
  • Exposure Documents, where the FASB issues Exposure Documents to solicit an ASU to communicate changes to the FASB Codification, including changes to non-authoritative SEC content.

Financial Accounting Standards Board

History

Accounting standards are currently set by the Financial Accounting Standards Board and were historically set by the American Institute of Certified Public Accountants (AICPA), subject to U.S. Securities and Exchange Commission (SEC) regulations.[13] Auditors took the leading role in developing GAAP for business enterprises.[14]

The United States Securities and Exchange Commission was created as a result of the Great Depression. At that time, there was no organization setting accounting standards. The SEC encouraged the establishment of private standard-setting bodies through the AICPA and later the FASB, believing that the private sector had the proper knowledge, resources, and talents.

In 1939, urged by the SEC, the AICPA appointed the Committee on Accounting Procedure (CAP). During 1939 to 1959, CAP issued 51 Accounting Research Bulletins that dealt with a variety of timely accounting problems. However, this problem-by-problem approach failed to develop the much needed structured body of accounting principles. Thus, in 1959, the AICPA created the Accounting Principles Board (APB), whose mission it was to develop an overall conceptual framework. It issued 31 opinions until it was dissolved in 1973.

Realizing the need to reform the APB, leaders in the accounting profession appointed a Study Group on the Establishment of Accounting Principles (commonly known as the Wheat Committee). This group determined that the APB must be dissolved and a new standard-setting structure created.

Organisational structure

In 1973, the APB was replaced by the Financial Accounting Standards Board under the supervision of the Financial Accounting Foundation with the Financial Accounting Standards Advisory Council serving to advise and provide input on the accounting standards.[15]

After the creation of the FASB, the AICPA established the Accounting Standards Executive Committee (AcSEC). It currently publishes Audit and Accounting Guidelines that summarize the accounting practices of specific industries and provide specific guidance on matters; Statements of Position that provide guidance on financial reporting topics; and Practice Bulletins that indicate the AcSEC's views on narrow financial reporting issues.

In 1984, the FASB created the Emerging Issues Task Force (EITF). The mission of the EITF is to "assist the FASB in improving financial reporting through the timely identification, discussion, and resolution of financial accounting issues within the framework of the FASB Accounting Standards Codification."[16]

Accounting Standards Codification

In 2008, the FASB issued the FASB Accounting Standards Codification, which reorganized the thousands of U.S. GAAP pronouncements into roughly 90 accounting topics.[17][18] It also includes relevant Securities and Exchange Commission (SEC), guidance that follows the same topical structure in separate sections in the Codification. All existing accounting standards documents prior to 2009 have superseded.[19]

International Financial Reporting Standards

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In 2006, the FASB began working with the International Accounting Standards Board (IASB) to reduce or eliminate the differences between U.S. GAAP and the International Financial Reporting Standards (IFRS), known as the IASB-FASB convergence project.[20] The scope of the overall IASB-FASB convergence project has evolved over time. The IASB and FASB issued converged standards for accounting topics including Business combinations (2008), Consolidation (2011), Fair value measurement (2011), and Revenue recognition (2014). Other convergence projects have been discontinued. As of 2022, the convergence project is coming to an end and no new projects will be added to the agenda.

In 2008, the Securities and Exchange Commission issued a preliminary "roadmap" that indicated it was considering whether to adopt or allow domestic issuers to use IFRS instead of U.S. GAAP.[21] In 2010, the SEC expressed their aim to fully adopt International Financial Reporting Standards in the U.S. by 2014.[22] However, standards under IFRS differ considerably from U.S. GAAP, so progress was slow and uncertain.[23][24] In 2017, the SEC has acknowledged that there is no longer a push to move more U.S companies to IFRS, so the two sets of standards will "continue to coexist" for the foreseeable future.[25]

See also

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Notes

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References

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External links

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es:Principios de Contabilidad Generalmente Aceptados he:עקרונות חשבונאיים מקובלים

  1. ↑ https://www.ojp.gov/sites/g/files/xyckuh241/files/media/document/GAAP_Guide_Sheet_508.pdf
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  4. ↑ Script error: No such module "citation/CS1".
  5. ↑ Script error: No such module "citation/CS1".
  6. ↑ Script error: No such module "Citation/CS1".
  7. ↑ Script error: No such module "citation/CS1".
  8. ↑ ASC 105-10-05-1
  9. ↑ Script error: No such module "citation/CS1".
  10. ↑ ASC 105-10-05-3
  11. ↑ Script error: No such module "citation/CS1".
  12. ↑ Script error: No such module "citation/CS1".
  13. ↑ Financial Accounting Standards. QuickMBA.
  14. ↑ Script error: No such module "citation/CS1".
  15. ↑ Financial Accounting Standards Advisory Council (FASAC). FASB FASAC.
  16. ↑ Script error: No such module "citation/CS1".
  17. ↑ Script error: No such module "Citation/CS1".
  18. ↑ Script error: No such module "citation/CS1".
  19. ↑ FASB Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles
  20. ↑ Progress Report on Commitment to Convergence of Accounting Standards—June 24, 2010. FASB.
  21. ↑ Script error: No such module "citation/CS1".
  22. ↑ Script error: No such module "Citation/CS1".
  23. ↑ "IFRS: Current situation and next steps" Template:Webarchive, pwc.com
  24. ↑ "New mechanisms eyed by FASB, IASB in long march toward global comparability" Template:Webarchive, Ken Tysiac, January 10, 2013, journalofaccountancy.com
  25. ↑ "A U.S. Imperative: High-Quality, Globally Accepted Accounting Standards", SEC January 5, 2017, sec.gov
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