GAAP (Generally Accepted Accounting Principles)
The US accounting framework governing how financial statements are prepared and reported.
Generally Accepted Accounting Principles (GAAP) are the accounting standards used in the United States, set by the Financial Accounting Standards Board (FASB). While the term "GAAP" is sometimes used generically to mean any country's accounting standards, it most commonly refers to US GAAP specifically.
US GAAP is rules-based — it provides detailed, specific guidance for most accounting scenarios. This contrasts with IFRS, which is principles-based and relies more on professional judgment. As a result, US GAAP is more voluminous (over 2,000 pages of standards) but can provide more certainty in complex situations.
Key differences between US GAAP and IFRS include inventory accounting (GAAP allows LIFO, IFRS doesn't), development costs (GAAP expenses them, IFRS capitalises when criteria are met), and lease classification (different threshold tests).
For companies outside the US, GAAP familiarity matters when dealing with US investors, listing on US exchanges, or operating US subsidiaries. Many international companies prepare dual GAAP/IFRS reconciliations for these purposes.
Related Terms
The global accounting framework used in 140+ countries for preparing financial statements.
The simplified accounting framework for private companies in Malaysia, based on IFRS for SMEs.
The accounting rules for when and how revenue is recorded in the financial statements.
Further Reading
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