The Generally Accepted Accounting Principles (GAAP) are a set of accounting rules and standards that are commonly followed. GAAP specifications, which are the standard adopted by the Securities and Exchange Commission (SEC), include definitions of concepts and principles as well as rules specific to each industry.
GAAP ensures that financial reporting is transparent and consistent across organizations.
GAAP is nothing more than a standard. While its principles aim to improve the transparency of financial statements, they do not guarantee that a company's financial statements are free of errors or omissions intended to mislead investors.
U.S. law requires businesses that release financial statements to the public and companies listed on stock exchanges and indices to follow GAAP guidelines.
The following 10 concepts are incorporated into GAAP: