Accounting principles are the rules and guidelines that companies must follow when reporting financial data.  American accounting principles are defined as Generally Accepted Accounting Principles (GAAP). Companies must regularly file financial statements according to GAAP to remain listed on the major U.S. stock exchanges. GAAP is based on three rules:

1. Basic accounting principles and guidelines that are generally accepted industry practices.

2. The detailed rules and standards issued by the Financial Accounting Standards Board (FASB) and the Accounting Principles Board (APB).

3. The  and guidelines generally accepted industry practices, and the detailed rules and standards that have been issued by the Financial Accounting Standards Board (FASB) and the Accounting Principles Board (APB).

Companies are required to follow GAAP when releasing financial statements to the public. If a company’s stock is publicly traded, federal law requires that its financial statements are audited by independent public accountants.

Generally Accepted Accounting Principles (GAAP) are a common set of accounting principles, standards and procedures that companies must follow when compiling financial statements. GAAP is a combination of standards and commonly accepted ways of recording and reporting accounting information. GAAP improves the clarity of the communication of financial information.