GAAP

Definition
• GAAP is the abbreviation of Generally Accepted Accounting Principle.

• GAAP are the common set of accounting principles, standards and procedures
that companies use to compile their financial statements.

• GAAP are a combination of authoritative standards (set by policy boards) and

simply the commonly accepted ways of recording and reporting accounting
information.
Related Information
• In USA, GAAP standard are set by Financial Accounting Standards Board
(FASB).

• Outside the US, the equivalent of GAAP is IAS - International Accounting

Standards - which is maintained by the International Accounting Standards Board
(IASB).

• Financial statements submitted to the SEBI by publicly traded companies are

required to meet GAAP standards.
Why GAAP?
• GAAP are imposed on companies so that investors have a minimum level of
consistency in the financial statements they use when analyzing companies for
investment purposes.

• GAAP cover such things as revenue recognition, balance sheet item classification
and outstanding share measurements.

• Companies are expected to follow GAAP rules when reporting their financial
data via financial statements.

• If a financial statement is not prepared using GAAP principles, be very wary!

Important points
• When comparing financial statements from different years, it is important to note
any changes in GAAP over the intervening period.

• Since GAAP is only a set of guidelines, it cannot guarantee financial statements

are not fraudulent. So, even when a company uses GAAP, we still need to
scrutinize its financial statements.

• If company management provides the auditing firm with incorrect data, the
resulting financial statements may be GAAP compliant yet still incorrect.
Contents of GAAP
• ACCOUNTING FRAMEWORK
• FINANCIAL STATEMENTS
• CONSOLIDATED FINAL STATEMENTS
• BUSINESS COMBINATIONS
• REVENUE RECOGNITION
• EXPENSE RECOGNITION
• ASSETS
• LIABILITIES
• EQUITY
• DERIVATIVES & HEDGING
 • OTHER ACCOUNTING & REPORTING TOPICS
-FOREIGN CURRENCY TRANSLATION
-EARNING PER SHARE
-RELATED-PARTY TRANSACTION
-SEGMENT REPORTING
-DISCONTINUED OPERATIONS
-POST BALANCE SHEET EVENTS
-INTERIM REPORTING
Money Measurement Concept