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Generally Accepted Accounting Principles is a collection that consists of rules and regulations which affect the financial reporting of the company. The financial statement is prepared and presented on the basis of the guidelines externally. These guidelines vary from country to country. The main purpose of following these guidelines is to have transparency and consistency with other organizations.
Financial Accountants must make sure that they prepare the financial statement in compliances with the principles. The Financial Accounting Standards Board (FASB) stipulates GAAP overall and the Governmental Accounting Standards Board (GASB) stipulates GAAP for state and local government. GAAP covers such things as revenue recognition, balance sheet item classification and outstanding share measurements. If statements are not according to the principles then the investor must be cautious as the financial statements can be wrong.
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