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The use of GAAP is not mandatory for all businesses, but SEC requires publicly traded and regulated companies to follow GAAP for the purpose of financial reporting.Ĭompanies that issue stock are held to this standard by SEC, which requires yearly external audits by independent accountants, but companies without external investors are not obliged to follow this standard. While GAAP itself is not government-regulated, it exists because of the combined efforts of government and business. ( See International Financial Reporting Standards (IFRS).) But the latter differ considerably from GAAP and progress toward adoption or convergence has been slow. The SEC has stated that it intends to move from GAAP to the International Financial Reporting Standards (IFRS).
ELEMENTS OF THE GENERALLY ACCEPTED AUDITING STANDARDS FREE
Although its principles work to improve the transparency in financial statements, they do not provide any guarantee that a company's financial statements are free from errors or omissions that are intended to mislead investors. The purpose of GAAP is to ensure that financial reporting is transparent and consistent from one organization to another. Securities and Exchange Commission (SEC), include definitions of concepts and principles, as well as industry-specific rules. The specifications of GAAP, which is the standard adopted by the U.S. Generally Accepted Accounting Principles (GAAP or US GAAP) are a collection of commonly-followed accounting rules and standards for financial reporting.