Generally Accounting Accepted Principles (GAAP) is a widely used term in the practice of accounting, financial reporting, auditing, and business literature. Researchers differentiate between “big” and “little” GAAP and others reference alternatives to GAAP such as Other Comprehensive Basis of Accounting (OCBOA) or Statutory Accounting Principles (STAT/SSAP). Sister disciplines to accounting such as auditing also use terms like Generally Accepted Auditing Standards (GAAS) that parallel GAAP in the accounting discipline. In practice, trading in goods, services, and securities (debt or equity instruments) lead to accounting and financial reporting to ensure continuity of operations, analysis of results for planning and control, and decision-making. In order to improve the legitimacy of accounting information and ensure its reliability and relevancy, accountants use a body of literature and/or a set of practices and “pronouncements with substantial authoritative support” called GAAP. GAAP, however, varies from country to country, and often allow for alternative methods for treating the same set of transactions. GAAP is not static, but a growing body of accounting knowledge in response to business needs; mimicking the national history, economic, social, cultural, political, trading (products/securities), and technological backgrounds.

Underlying U.S. and International Accounting Statement (IAS) GAAP are a set of assumptions, principles, concepts, and conventions that are not GAAP by themselves. However, the conceptual frameworks are critical to GAAP development and provide guidance, and serve as referent points for conflict resolution. In the U.S. and U.K., IAS and GAAP fundamental accounting concepts are historical cost, conservatism (prudence), consistency, matching (accruals), materiality (substance over form), dual aspect (double entry), recognition, and others. Research reveals that in the case of conceptual conflicts, prudence or the concept closely aligned to conservatism should apply. One good example of the application of the concepts under both IAS and U.S. GAAP is the golden rule of inventory (stock) valuation, an application of prudence principle. The golden rule states that inventory should be valued at the lower of cost or net realizable value (market) in accordance with the principle of conservatism.

The Statements of Financial Accounting Concepts (SFAC) is the conceptual basis for U.S. GAAP whereas IAS-1, Presentation of Financial Statements, contains the IAS concepts. The statements also define and explain the elements of financial statements, characteristics of useful financial information (relevant and reliable), users of financial statements (internal and external), and identify the fundamental accounting concepts. For instance, Financial Accounting Standards Board’s (FASB) SFAC is strikingly similar to U.K.’s and International Accounting Standards Board’s (IASB) conceptual framework of accounting. The conceptual frameworks define assets, liabilities, equity, revenue, expense, realized gain, realized loss, profit, loss, as well as the relevance and reliability of financial information. Concepts are the bedrock for the development and application of GAAP.

GAAP refers to pronouncements made by appropriate accounting bodies and accounting literature that has substantial authoritative support in a particular jurisdiction. GAAP often comes in the form of statements of financial accounting standards (SFAS), statement of financial accounting interpretation (SFIN), accounting opinions, statement of positions (SOP), accounting research bulletin (ARB), financial reporting standards (FRS), standard statement of accounting practice (SSAP), or simply international accounting statements, depending on the country, jurisdiction, or body issuing the GAAP. GAAP varies from country to country in terms of its sources, level of authority, allowable alternatives, and body issuing it. For example, there is U.S. GAAP, U.K. GAAP, International GAAP (IAS), German GAAP, Chinese GAAP, Canadian GAAP, and Mexican GAAP. The authorities responsible for setting GAAP are generally the International Accounting Standards Board, and/or some national accounting standards board, such as the Financial Accounting Standards Board in the U.S. and in the U.K., the Accounting Standards Board (ASB). Professional accounting bodies like the American Institute of Certified Public Accountants (AICPA), the Consultative Committee of Accountancy Bodies (CCAB) in the U.K., the International Federation of Accountants (IFAC), and the Australian Society of Certified Public Accountants (ASCPA) with the Australian Institute of Chartered Accountants in Australia (ICAA), among other jurisdictional bodies, also contribute to setting accounting standards. Significant accounting studies and research that have a reasonable possibility of being sustained when challenged are acceptable as GAAP.

With representatives from over 91 countries, the IASB sets Global GAAP/IASs. The IASB took over from setting standards from the IASC in July 2001, with the goal to set high quality standards, which are consistently applied and advance the convergence of all accounting standards. The IASB is made up of trustees, the board, interpretations committee, and advisory committee. To date, a total of 41 IAS statements have been issued. Underlying the IAS statements are the fundamental accounting concepts and conventions enshrined in the IAS-1, Presentation of Financial Statements. Examples of the concepts are materiality, prudence, consistency, historical cost, accruals, and others. In general, the IAS have been described as providing a set of minimal accounting standards, and allowing for more alternative methods that U.S. GAAP. IASs are used either carte blanche in some jurisdictions or as an alternative to the national accounting standard. For example, Ghana, Nicaragua, and other nations use only IAS as their GAAP whereas 87% of Australians believe using the IAS together with their own national standards is a preferable.

Currently, the FASB is the primary body responsible for issuing U.S. GAAP in the form of statements of financial accounting standards, FASB Interpretations (FIN), Staff Positions (FSP), AICPA statements of positions and interpretations, accounting research bulletins, and others. The hierarchy displaying the sources and levels of authority of U.S. GAAP is called the House of GAAP. In the case of conflict between the sources of U.S. GAAP, the first, second, and third level GAAP take precedence in that order. Kieso and Weygandt (2001) showed the structure of the U.S. Accounting Profession from the Financial Accounting Foundation and FASB and other bodies. The Statement of Financial Accounting Concepts underpins the development of U.S. GAAP much like IAS. In general, U.S. GAAP has been described as containing voluminous disclosures, rule-based and comprehensive mandates, with Anglo-Saxon historical origins, reflecting economic activity and political pressures.

Several research studies have been done on the main differences between U.S. GAAP and IAS. Choi et al. (2002) has also summarized the differences in the U.S., U.K., and IAS GAAPs, however, the standards appear more similar than different. In addition to the similarities previously discussed, IAS and U.S. GAAP are very similar in the areas of conceptual framework, and treatments of related party transactions, post balance sheet events, contingencies, and provisions. The financial ratios used to analyze financial statements are also very similar under the IAS and U.S. GAAP.