What it is
GAAP, or Generally Accepted Accounting Principles, is a standardized framework of accounting rules and procedures that U.S. public companies must follow when preparing their financial statements. These principles ensure consistency, comparability, and transparency across different companies' financial reports, making it easier for investors and analysts to understand and compare financial performance. The Securities and Exchange Commission (SEC) mandates adherence to GAAP.
All public companies in the U.S. release their official financial results, including revenue, net income, and balance sheets, in accordance with GAAP. While companies may also present non-GAAP figures, GAAP numbers are the legally required and audited baseline. Investors rely on GAAP figures as the most reliable and consistent measure of a company's financial health, crucial for informed investment decisions and regulatory oversight.
Why it matters
GAAP ensures financial reports are standardized and comparable, providing a reliable and transparent foundation for evaluating a company's true financial health. It's the gold standard.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice