Accounting technology / Glossary / US GAAP

What is US GAAP?

Definition

US GAAP, or US generally accepted accounting principles, is the set of accounting standards used by US companies to prepare their financial statements. It is issued by the Financial Accounting Standards Board (FASB), an independent private-sector body, and organised by topic in the FASB Accounting Standards Codification, such as ASC 606 for revenue and ASC 842 for leases.

Also calledGAAPgenerally accepted accounting principles

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Set by: FASB
Organised in: Accounting Standards Codification
Required for: US listed companies

How US GAAP works

The Securities and Exchange Commission has recognised FASB standards as authoritative since the FASB was formed in 1973, and US listed companies must report under US GAAP. Since 2009 the standards have been organised in the Accounting Standards Codification, numbered by topic: ASC 230 for cash flows, ASC 330 for inventory, ASC 606 for revenue, ASC 740 for income taxes, ASC 842 for leases. The FASB amends the Codification through Accounting Standards Updates. US GAAP is more rules-based than IFRS and has more industry-specific guidance; differences include LIFO inventory, which only US GAAP allows, and the operating lease expense pattern under ASC 842. Private companies often use US GAAP because lenders and investors ask for it, with some simplifications from the Private Company Council; state and local governments follow separate GASB standards.

Common questions

Who sets US GAAP?+

The Financial Accounting Standards Board, a private, independent body overseen by the Financial Accounting Foundation. The SEC recognises its standards for listed companies and keeps its own reporting rules for them.

Is US GAAP the same as IFRS?+

No, though both share many concepts and the revenue standards were written together. US GAAP has more detailed rules and differs on points such as LIFO inventory, development costs and lease expense.

Do private US companies have to use GAAP?+

No law requires it for most private companies, but banks, investors and auditors usually ask for GAAP financial statements. Some small businesses use the cash or tax basis instead.