Generally Accepted Accounting Principles, commonly abbreviated to GAAP, are the set of standardised principles accountants are required to follow in the preparation of financial documents. GAAP accounting practice is mandatory for CPAs in all publicly traded companies and are commonly-followed in the private sector.
Specific GAAP standards vary between jurisdictions, but typically require basic compliance in the following three categories:
- general assumptions
- rules or principles
- constraints or restrictions
GAAP principles are set in place to ensure consistency and transparency across organisations and to eliminate the potential for misleading financial reporting practices. These general accounting principles promote uniformity between organisations and allow for the accurate comparison of financial documents.