United States Generally Accepted Accounting Principles (US GAAP)

Overview

• US GAAP: Foundation of financial accounting for business entities in the U.S.
• Comprises accounting principles, standards, and procedures for preparing financial statements.

Key Organizations

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

Key Concepts of US GAAP

1. Business Entity Concept (Economic Entity Assumption)

   • Defines accounting boundaries around a business.
   • Ensures financial information is separated from owners’ or affiliated entities' transactions.

2. Cost Principle

   • Business transactions must be recorded at historical cost.
   • Promotes a conservative approach; assets are carried at cost despite increased value.

3. Objectivity Concept

   • Records should be free of bias; financial information must be objective and verifiable.

4. Monetary Unit Concept

   • All transactions must be expressed in a currency (e.g., US dollar).

5. Revenue Recognition Principle

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

6. Accounting Period Concept

   • Transactions should be recorded in the period they occur.

7. Matching Principle

   • Ensures expenses are recognized concurrently with the revenue they generate.

Conclusion

• These concepts and organizations together ensure faithful representation of financial information.
• They support accurate and unbiased financial reporting, crucial for investor protection and market integrity.