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Who Started the GAAP?

Who Started the GAAP? thumbnail
Who Started the GAAP?

Accounting practices and standards are specific and highly regulated to allow uniform compliance and unilateral codes of proper etiquette and form within accounting law. From the collation to the presentation of information, public and private entities are held to the same standards when it comes to the handling of financial statements. This is to protect the interest of the public as well as the business and its investors; this is also true for government entities. Motivated by such as need, accounting auditors devised the Generally Accepted Accounting Principles, also known as the GAAP, to establish regulation and create topics specific to accounting practices in the United States.

  1. History

    • As accounting practices are largely processed in the private sectors, auditors are recognized as the contributing founders and authors of the Generally Accepted Accounting Principles (GAAP) model that is practiced by private and public companies as well as government and non-profit outfits. In 2008, FASB (Financial Accounting Standards Board) created the FASB Accounting Standards Codification, a model that grouped the formal accounting conventions outlined by the GAAP into a unilateral 90-point document.

    Objective

    • The basic mandate of the GAAP was that all information provided within financial documentation provided to appropriate parties within the business or those making financial decisions on behalf of the business, such as a creditor or investor, be relevant and able to aid in the determination of credit, investment potential and all other business related decisions. Additionally, the GAAP found that all such information should effectively project accurate information about potential cash receipts, financial resources, claimants of financial resources and any changes made therein.

    The GAAP Hierarchy

    • The GAAP is made up specific mandates and regulations that are organized in a prioritized table divided into four categories. Category A includes FASB Standards and Interpretations, Accounting Principles Board (APB) Opinions and AICPA Accounting Research Bulletins (ARBs). Category B includes FASB Technical Bulletins, AICPA Industry Audit and Accounting Guides and AICPA Statements of Position (SOPs). Category C includes FASB Emerging Issues Task Force (EITF) and AICPA AcSEC Practice Bulletins. Category D includes AICPA Accounting Interpretations, FASB Implementation Guides and widely recognized and prevalent industry practices. Category A is the highest ranking of all four categories, while Category D is the lowest.

    Expert Insight

    • The GAAP issues industry guides and practice codes as part of industry literature and accounting resource materials. This information can be found on the GAAP website or in such reference materials as the AICPA Industry Guides. These guides detail the "assumptions," "constraints" and "principles" of the GAAP (see Resources below).

    Warning

    • The United States will follow the lead of over 100 countries around the world and abandon the GAAP in favor of the London-based International Financial Reporting Standards. A formal statement of intent was issued by the Securities and Exchange Commission in 2008; disbanding the U.S. GAAP, as it is known, permanently within the United States by 2016.

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