US GAAP

US GAAP – Meaning, History, Importance And Mor

Generally Accepted Accounting Principles or GAAP?is also known as US GAAP as it is in use in the US. These are the set of rules in place meant for governing corporate accounting and financial reporting in the United States. The Financial Accounting Standards Board (FASB) laid the foundation of GAAP by designing a comprehensive list of methods and practices that the companies operating in the US must follow.

The companies can also report their financial statements in other formats as per the information they want to disclose to the stakeholders. However, the GAAP way of reporting is mandatory for all public companies in the United States. As per the law, companies that trade on stock exchanges and indices must follow GAAP’s method of accounting.

Table of Contents
How US GAAP was Born?
Who Follows GAAP?
Importance of US GAAP
10 Key Principles of US GAAP
Basic Principles of GAAP
Alternatives to GAAP
What About UK GAAP?
How US GAAP was Born?

The birth of GAAP standards goes all the way to the 1929 financial crisis (Stock Market Crash and Great Depression). To restore public confidence, the United States government looked for ways to regulate the practices of public companies. The Securities and Exchange Commission (SEC) was given the authority to set accounting standards. SEC, in turn, delegated this responsibility to the private sector auditing company – the American Institute of Accountants.

As a result, the Committee on Accounting Procedure (CAP) came into being. After 20 years, CAP was replaced by the Accounting Principle Board (APB). The very motive of APB was to release the opinion on significant accounting topics that were later converted into law (if deemed fit) for the public companies by the SEC.

Also Read:?Importance of GAAP

Who Follows GAAP?

The US GAAP applies throughout the fifty US states. If you are doing business in the US, or plan to do business in the US, or plan to get funds from American sources, then you should follow these standards.

All public companies must follow these standards. Private companies can use any method of their choice. However, since private companies also require loans and funds, it is advisable that they also follow such standards. Banks and other financial institutions have more trust in companies following GAAP.

Importance of US GAAP

Let us see the?importance of US-GAAP:

Companies have various stakeholders, both in the form of people and organizations. Also, a major portion of the capital for public companies comes from equity shareholders. Therefore, it is the obligation of the companies to accurately disclose all financial transactions to these stakeholders since they hold ownership in the company.

However, the absence of standards and a uniform set of procedures might confuse the stakeholders. Further, it would open a lot of space for the companies to manipulate the numbers and misguide shareholders about their financial health. Thus, GAAP standards make financial reporting transparent and uniform.