Generally Accepted Accounting Principles (GAAP):
Generally accepted accounting principles (GAAP) are those principles
that have substantial authoritative support. The AICPA's code of
professional conduct requires that members prepare financial
statements in accordance with generally accepted accounting principles
(GAAP). Specifically rule 203 of this code prohibits a member from
expressing an opinion that financial statements conform with GAAP if those
statements contain a material departure from GAAP, unless the member can
demonstrate that because of usual circumstances the financial statements
would other wise have been misleading. Failure to follow rule 203 can lead
to loss of a CPA's license to practice.
Definition and Explanation of Generally Accepted Accounting Principles
(GAAP):
The meaning of GAAP is defined by statement of auditing standards
(SAS) NO.69, "The meanings of 'present fairly in conformity
with generally accepted accounting principles' in the independent
auditor's report." Under this standard, GAAP covered by rule 203 are
construed to be FASB standards and interpretations, APB opinions, and
AICPA accounting research bulletins.
Often however, a specific accounting transaction occurs that is not
covered by any of these documents. In this case, other authoritative
literature is used. Major examples are: FASB technical bulletins, AICPA
industry auditing and accounting guides; and considered to have
substantial authoritative support because the recognized professional
bodies, after giving interested and affected parties the opportunity to
react to exposure drafts and respond at public hearing, have voted their
issuance. If these pronouncements are lacking in guidance, then other
sources might be considered. If the accounting treatment of an event is
not specified by a category. The hierarchy of these sources is presented
in the example Below. If the accounting treatment of an event is not
specified by a category (a) pronouncement, then categories (b) through (d)
should be investigated. If there is a conflict between pronouncements in
(b) through (d), the higher category is to be followed. For example, (b)
is higher than (c).
If non of these pronouncements addresses the event, the support is
sought from other accounting literature. Examples of accounting
literatures include FASB concepts statements, International Accounting
Standards, and Accounting articles.
|
◄House
of GAAP► |
|
Category (d) |
|
AICPA
Accounting Interpretations |
FASB
Implementation
Guides (Q & A) |
Widely
recognized and prevalent industry practices |
|
|
Category (c) |
FASB Emerging
Issues Task Force |
AICPA AcSEC Practice
Bulletins |
|
Category (b) |
|
FASB
Technical
Bulletins |
AICPA Industry
Audit and Accounting Guides |
AICPA
Statement
of Position |
|
|
Category (a) |
|
FASB
Standards and Interpretations |
APB
Opinions |
AICPA
Accounting
Research Bulletins |
|
|
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