What Are Generally Accepted Accounting Principles?

An Indiana University graduate, where he earned his bachelor’s degree in accounting, Curtis “Curt” Coonrod is a certified public accountant (CPA). Since 1991, he has served as the principal owner of Curtis L. Coonrod & Company, where he provides several financial services to clients. These services include helping clients prepare financial statements per Generally Accepted Accounting Principles (GAAP).

GAAP is a set of accounting principles created and issued by the Financial Accounting Standards Board (FASB). All public companies in the United States must follow these principles when compiling financial statements. They exist to ensure consistency, clarity, and comparability in the communication of key financial information.

Ten key concepts are built into the GAAP principles. These include principles related to sincerity, regularity, consistency, prudence, and continuity. They also include principles for working in good faith, materiality, relevant periodicity, consistent methods, and non-compensation. Failure to provide GAAP-compliant financial statements means a company cannot remain publicly listed on the stock exchange. This also means that non-public companies do not need to create GAAP-compliant statements, though doing so is often helpful when dealing with lenders.