GAAP stands for Generally Accepted Accounting Principles and refers to the standard accounting rules regarding the preparation, presentation, and reporting of financial statements in the United States. Unlike the international standard, IFRS, GAAP authorizes the use of both first in first out (FIFO) accounting and last in first out (LIFO) accounting.
Although GAAP rules originate from private organizations, legislators and courts often require conformance to GAAP, especially on matters relating to publicly traded company stock. For example, due to the Securities Exchange Act, all publicly traded companies must regularly disclose GAAP compliant reports on their annual 10-K. Companies are free to issue supplementary, non-GAAP performance reports if they so desire, however, those reports must adhere to the SEC’s Regulation G or face liability. Non-GAAP performance reports that are misleading as to the company’s true financial performance risk violating Rule 100 of Regulation G. See also: SEC.gov Non-GAAP Financial Measures - Questions and Answers of General Applicability
The Financial Accounting Standard Boards (FASB) develops the most influential set of GAAP rules in the United States.
[Last updated in January of 2023 by the Wex Definitions Team]