Role of GAAP in Fair & Accurate Accounting

GAAP establishes how accounting is performed in the United States.

Accounting in the United States is governed by Generally Accepted Accounting Principles or GAAP. GAAP represents objectives and conventions that have evolved over time to govern how financial statements are prepared and presented. These principles are designed to ensure that published financial reports are fair, accurate and impartial.

The Nature of GAAP

GAAP is a structured set of accounting principles set up by the Financial Accounting Standards Board (FASB) for publicly traded and private companies as well as nonprofit organizations. The principles outline ethical accounting practices for business firms in regards to their shareholders and to the government for tax reasons. The Financial Accounting Standards Advisory Board (FASAB) establishes GAAP for federal reporting entities. For local and state governments, GAAP is determined by the Governmental Accounting Standards Board (GASB),

Agencies

A complex interaction between independent agencies keeps GAAP in place. The American Institute of Certified Public Accountants, or AICPA, works with FASB, GASB and the FASAB on a hierarchy of GAAP accounting rules and norms. Meanwhile, the Securities and Exchange Commission (SEC) protects consumers from inaccurate accounting reporting.

Future of GAAP

By 2016, the SEC has proposed switching the United States away from GAAP to International Financial Reporting Standards, which are more geared toward the international economy.

References

• "Wall Street Journal": Closing the Information Gap
• FASB: Facts about FASB
• SEC: Division of Corporation Finance
• FASAB: GAAP
• GASB: Facts about GASB