02 February 2010
The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (issued by the regulator/ controlling professional bodies) and simply the commonly accepted ways of recording and reporting accounting information. GAAP are imposed on companies so that any one who uses such financial statement or compares the financials of two organisations is not mislead because of inconsistency and differet policies followed in compiling these financial statements. Investors can thus rely 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. Keep in mind that GAAP is only a set of standards.
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