Gaap meaning in accounting stands for "Generally Accepted Accounting Principles." These principles serve as the fundamental framework for financial accounting requirements in the United States.
GAAP comprises precise rules and principles for creating, presenting, and reporting financial statements, and its goal is to promote consistency and openness in financial reporting across firms and industries.
Compliance with GAAP is required for businesses to offer accurate and dependable financial information to investors, creditors, and regulatory bodies.
These principles and standards are only adopted and used in the USA. The rest of the countries are governed by an international standard, they are based on the IFRS (International Financial Reporting Standards), also called IFRS (International Financial Reporting Standards).
The term US GAAP refers to the 'Generally Accepted Accounting Principles' which translated would be: accounting principles generally accepted in the US.
Understanding Gaap Meaning in Accounting
US GAAP is used by companies that have to present accounts and accounting results reports in the US, either because they originate there, or because they operate and are listed on a stock exchange. An example would be the New York Stock Exchange.
The main objective of the US GAAP is to harmonize and homogenize the accounting and financial information of companies to faithfully reflect their status and promote transparency in the accounts.
US GAAP Principles
As in other international or national accounting standards, there are a series of principles that US GAAP establishes for its correct use:
- Good faith
- Prudence
- Sincerity
- Regularity
- Continuity
- Periodicity
- Consistency
- Materiality
- No compensation
- Consistency in methodology
As we can see, there are a total of ten principles by which US GAAP is governed. Some principles, such as prudence among others, can also be found in IFRS.
Regulation and control of US GAAP
These standards and principles are not developed by a single American institution, but are governed by the guidelines and agreements of the following entities and institutions:
- Financial Accounting Standard Board (FASB).
- American Institute of Certified Public Accountants (AICPA).
- Securities and Exchange Commission (SEC).
- Governmental Accounting Standards Board (GASB).
- Government Finance Officer Association (GFOA).
Each of the institutions or associations are ordered from greatest to least influence in the rectification or development of new guidelines and standards.
US GAAP Equivalent Examples
Although IFRS are the most accepted international principles and standards worldwide, they are not always followed in the same way in the more than 70 countries to which they are subscribed.
Examples are Mexico and Spain, which respectively created the NIF GG (General Government Financial Reporting Standards) and the PGC (General Accounting Plan). Both regulations are adaptations of the IFRS that adapt to national needs, although the objectives and principles discussed in the US GAAP usually coincide with the rest of the adaptations, since the purpose is the same: to achieve transparency and clarity at the level accountant.