Defining GAAP

GAAP refers to Generally Accepted Accounting Principles maintained by the Financial Accounting Standards Board (FASB). FASB was created in 1973 to establish financial reporting standards for all organizations outside government. These standards are recognized by the Securities and Exchange Commission (SEC), a government agency that sets rules and regulations for financial markets intended to protect investors.

GAAP are uniform, minimum standards and guidelines companies use for financial accounting and reporting. Publicly-owned companies are required by the SEC to use GAAP standards in their financial statements. (Publicly-owned companies are those that sell stock to the public through one or more stock exchange, such as the New York Stock Exchange or the American Stock Exchange.) Many private companies use GAAP standards as well, although their financial statements are not as important for investors.

The American Institute of Certified Professional Accountants (AICPA) created a panel to work with the FASB to develop standards for private companies to fill in a gap (no pun intended!) where GAAP is not relevant to them. In January 2011, the AICPA panel recommended organizing a new group to make changes and modifications to GAAP for private companies, with an eventual overhaul in the future. This group would be independent from FASB.

Anthem College Online offers an Associate of Science degree in Accounting Technology that helps students prepare for entry-level positions that directly support accountants, such as clerks, bookkeepers, and payroll and inventory specialists. For more information on the program, please visit our web site or call us at 1.866.837.1010.

Sources:

“Facts About FASB.” Financial Accounting Standards Board. Web. 17 June, 2011.

“Financial Accounting Standards Advisory Council.” Financial Accounting Standards Board. Web. 17 June, 2011.

“FAQ: Private Company Financial Reporting.” American Institute of Certified Public Accountants. Web. 17 June, 2011.