GAAP (Generally Accepted Accounting Principles)

1. Definition

GAAP refers to a common set of accounting rules, standards, and procedures issued by the Financial Accounting Standards Board (FASB). While the term can apply to any country's standard, it most commonly refers to US GAAP. Public companies in the United States must follow GAAP when their accountants compile their financial statements.

2. Key Features (vs. IFRS)

2.1. Rule-based

While IFRS is principle-based, US GAAP is rule-based. It provides very specific, detailed guidelines and rules for various accounting situations, leaving less room for interpretation or professional judgment compared to IFRS.

2.2. No Asset Revaluation

US GAAP generally does not allow for the revaluation of tangible assets (Property, Plant, and Equipment) to fair value. Assets are typically held at historical cost.

2.3. LIFO Permitted

US GAAP allows the Last-In, First-Out (LIFO) method for inventory valuation, which IFRS explicitly prohibits. This method can result in lower taxable income during periods of inflation.

3. Status

The United States continues to use US GAAP rather than adopting IFRS, although there have been ongoing efforts by the FASB and IASB to converge the two standards to minimize differences.