Imagine a world of streets without signs,
or scales without numbers,
or ballets without choreography,
the result would be confusion, chaos, or worse.
Rules help the world run more smoothly
the same is true for financial information.
If companies, governments, or nonprofits just made up numbers to represent their revenues
to represent their revenues, profits or spending,
the result would be economic chaos.
Investors wouldn't know where to invest,
citizens wouldn't know how their city, town, or state is using tax dollars,
donors couldn't judge the financial health of a charity,
and employees wouldn't know if their retirement funds were secured.
GAAP
Fortunately there are rules and guidelines that determine how to present
financial information. In the U.S. these rules are known as GAAP
or Generally Accepted Accounting Principles.
It's the playbook that companies, governments nonprofits, and employee benefit plans
must follow when presenting their financial information.
GAAP supports the economy in many ways.
Benefits of GAAP
First, GAAP provides concise relevant financial data to global markets.
That's because high-quality financial reports make it much easier to analyze
the numbers and make informed decisions.
Second, clear financial rules give
lenders and investors greater confidence in the accuracy of financial reports
making it easier, faster, and less expensive to borrow money or secure financing.
Conclusion
Third, GAAP makes it easy to compare numbers,
both across time, and across organizations.
Investors and others can compare a company's
performance this year with last year, or against other companies
and voters can understand if their state or town's finances are getting better or worse.
GAAP financial reports make companies, governments, and other organizations
more accountable for their financial performance. That spurs better management
decisions and helps make the economy more efficient for everyone.
Maintaining and improving GAAP has been the mission of
the Financial Accounting Standards Board since 1973
and the Governmental Accounting Standards Board since 1984.
Supported by the Financial Accounting foundation these standard
setting boards listen to investors and other stakeholders to understand how to
make GAAP even stronger than it is today.
Developed over decades, GAAP has stood
the test of time driving greater clarity in the world's largest capital market.