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Example of GAAP
Acronym for General Accepted Accounting Principles. These are primary working principles of accounting practice:
Principle of regularity
Principle of consistency
Principle of sincerity
Principle of non-compensation
Principle of permanence of methods
Principle of prudence
Principle of continuity
Principle of periodicity
Principle of full disclosure
Principle of good faith
Each of these principles relates to the conventions and form of operational accounting practices.These are ethical, as well as professional practices, and they're designed to achieve transparency and accountability as well as good procedural practice.
GAAP standards and investment:
For investment purposes, GAAP financial results may be considered a good baseline approach to comparing measurable results across industries.
That said, GAAP is ultimately a set of principles, and that accounts are formulated under the requirement of law. The GAAP principles are also subject to interpretation and in some cases manipulation. International GAAP standards also vary, and it's important to understand the differences between US GAAP standards and the IFRS GAAP standards.
Professional market analysts in fact often use non-GAAP information and measures rather than rely on GAAP-based data. The GAAP data is essentially a baseline approach, and in some sectors non-GAAP information includes benchmark data for evaluation. This information, including cashflow and sector-representative measures like operational or asset valuations based on industry norms like the mining industry, is more specific.
GAAP has a role, however, in creating a series of fundamental measures. US GAAP standards are in many cases more strict than the IFRS, and based on the laws and conventions of US account reporting.
For example, differences between the US GAAP and IFRS GAAP include:
US GAAP describes repairs and maintenance of assets as ''expenses''. The IFRS equivalent considers these costs to be additional capital value. The US version is based on traditional accountancy.
US GAAP adopts a 3-year comparative financial statement while IFRS allows a year to year comparative statement. The US method is based on SEC reporting conventions.
US GAAP provides costs for inventory depreciation. The IFRS equivalent has no provisions for this costing.
US GAAP values unlisted equities at cost. The IFRS permits variation and expression of market value of these equities, if appropriate and deemed realistic as realizable values.