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Unit 3: Introduction to US-GAAP

Board (FASB) and its supporting structure in 1973. The board has also issued over 120 specific Notes
accounting standards, called Statements of Financial Accounting Standards (SFASs), as well as
numerous FASB Interpretations and Technical Bulletins.
All the above standards employed for the purpose of financial accounting and reporting are
known as Generally Accepted Accounting Principles (GAAP) also referred to as US GAAP.

3.1 Meaning and Definition of US GAAP

The Generally Accepted Accounting Principles in the US (US GAAP) refer to the accounting rules
used in United States to organize, present, and report financial statements for an assortment of
entities which include privately held and publicly traded companies, non-profit organizations,
and governments. The term is confined to the US and is, therefore, generally abbreviated as US
GAAP. But theoretically, the term “GAAP” covers the entire accounting industry, rather than
only the US.

3.1.1 GAAP

Generally Accepted Accounting Principles (GAAP) is defined as the standard guidelines of
accounting rules for financial accounting and to prepare financial statements for private companies
and the companies trading publicly in United States. It chalks down the standards, conventions,
and rules for accountants to pursue in recording and summarizing transactions, and in the
preparation of financial statements.

Example: In United States these rules are decided by the Governmental Accounting
Standards Board (GASB) which applies to local and state governments.
3.1.2 U.S. GAAP

Again, it has to be remembered that GAAP are not a rigid set of rules. These are flexible
guidelines only. Over the years, these groups of conventions and standards have evolved in the
specific need of standard common platform for the preparation and presentation of financial
statements In United States, the American Institute of Certified Public Accountants (AICPA), The
Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission
(SEC) offer guidance and assistance about standard acceptable practices of accounting.

Did u know? In the United States, the Financial Accounting Standards Board (FASB)
established in 1973 has been acting as the authoritative organization entrusted with the
task of establishing Accounting Standards under the aegis of the Securities and Exchange
Commission (SEC).

3.1.3 Necessity of GAAP

1. Acquiescence with GAAP promotes creditability with stockholders and creditors reassuring
them and outsiders that financial report of a company precisely reflect its financial position.

2. Routine auditing is done by Certified public accountants to determine the compliance of
financial statements with GAAP. Financial statements display these audit findings.
3. Even finance companies, banks and investors look for these audited financial statements
of their clients.

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