Article — Generally Accepted Accounting Principles

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As a US investor, you want GAAP in your financial statements. These generally accepted accounting principles are the standards and procedures certified public accountants apply when preparing the financial statements on which you base investing decisions.

Image Source: Dave Dugdale via Wikimedia Commons

Image Source: Dave Dugdale via Wikimedia Commons

GAAP came into existence after the stock market crash of 1929 in order to restore investor confidence in US financial markets. The goal: Make financial information consistent and reliable from year to year. GAAP generally applies to companies whose stock you purchase on public exchanges, though the financial statements of smaller companies can also follow GAAP.

In the US, the Financial Accounting Standards Board sets GAAP standards. Though the US Securities and Exchange Commission has delegated authority for GAAP to the Financial Accounting Standards Board, the board is not a government entity, and the SEC maintains regulatory oversight.

GAAP has evolved over the years to meet the needs of investors in changing financial markets. As globalization increases, the next step is an integration with International Financial Reporting Standards, the framework of accounting principles used by most foreign countries.

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