Generally accepted accounting principles or GAAP are the minimum standards and guidelines for financial accounting and reporting.
Different standards setting bodies establish GAAP for different types of entities. The Governmental Accounting Standards Board or GASB sets GAAP for state and local governmental entities. The Financial Accounting Standards Board or FASB sets GAAP for all non-governmental entities, including nonprofit organizations.
Reporting in accordance with GAAP ensures consistency and comparability among like entities. The audit report of a department store should include the same types of information as the audit report of another department store; and the audit report of a city should include the same types of information as the audit report of another city.
However, the audit report of a department store would not look like the audit report of a city; nor should it. This is because the purpose and activities of a department store are not the same as those of a city. The audit reports of local government agencies and nonprofits will also look different.
The audit law (Louisiana Revised Statute 24:514) requires the reports of local auditees to be prepared in accordance with GAAP. There is an exception in the law for local auditees that, under Louisiana law, cannot issue bonds.
- What is the difference between generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS).