GAAP

DEFINITION

US Generally Accepted Accounting Principles are the rules public companies must follow when preparing financial statements filed with the SEC. The Financial Accounting Standards Board (FASB) sets and updates GAAP; the SEC has statutory authority to set accounting standards but historically defers to FASB. GAAP covers revenue recognition, lease accounting, goodwill, stock comp, and thousands of other topics.

WHY IT MATTERS FOR RETAIL INVESTORS

GAAP is what makes one company's reported numbers comparable to another's — at least in theory. In practice, management has discretion within GAAP (judgment-based revenue timing, useful-life assumptions, impairment triggers). Reading the Critical Accounting Estimates section of MD&A is how you understand where that discretion lives in any given company.

RELATED TERMS

• Non-GAAP Measures
• IFRS