US GAAP Overview

Introduction

• US GAAP (United States Generally Accepted Accounting Principles): Foundation of financial accounting for business entities in the U.S.
• Purpose: Governs the preparation of financial statements through principles, standards, and procedures.

Key Organizations

• FASB (Financial Accounting Standards Board)
  • Role: Develops, establishes, and communicates standards of financial accounting and reporting.
• SEC (Securities and Exchange Commission)
  • Role: Regulates financial reporting and disclosures by public companies.
  • Requires quarterly and annual submission of audited financial statements from publicly traded entities.
• PCAOB (Public Company Accounting Oversight Board)
  • Created by Congress via the Sarbanes-Oxley Act of 2002.
  • Role: Oversees audits of public companies to protect investors' interests.

Key Concepts of US GAAP

1. Business Entity Concept (Economic Entity Assumption)

   • Defines an accounting boundary around a business.
   • Ensures financial transactions are reported separately from owners or other entities.

2. Cost Principle

   • Business transactions must be recorded at historical cost.
   • Promotes a conservative approach to financial statements.
   • Assets are carried at cost, regardless of value changes over time.

3. Objectivity Concept

   • Ensures accounting records are free from bias.
   • Financial information should be objective and verifiable, not misleading.

4. Monetary Unit Concept

   • Transactions should be expressed in a currency (e.g., US dollar).

5. Revenue Recognition Principle

   • Determines when revenue is recorded.
   • Affects the timing of revenue recognition, impacting the company's bottom line.

6. Accounting Period Concept

   • Transactions should be recorded in the period they occur.

7. Matching Principle

   • Aligns expenses with the revenue they help generate.