GAAP (Generally Accepted Accounting Principles) is primarily used in the United States for public and private companies, mandated by the SEC. While many countries use their own local GAAP, U.S. GAAP is distinct from the IFRS standards used in over 140 other countries.
GAAP, on the other hand, is only used in the United States. Companies that operate in the U.S. and overseas may have more complexities in their accounting.
GAAP stands for Generally Accepted Accounting Practice in the UK and Generally Accepted Accounting Principles in the US, although the meaning is broadly the same.
Since GAAP is primarily only used within the United States, the IFRS standards have a much wider scope. Several countries have their own accounting standards.
GAAP is used mainly in the U.S., while most other countries follow the international financial reporting standards (IFRS). GAAP is also used by states and other government entities in the U.S. to prepare their financial statements.
In India, companies primarily use Indian GAAP (Generally Accepted Accounting Principles) for their financial reporting. However, listed companies and certain entities are transitioning to International Financial Reporting Standards (IFRS) as part of India's efforts to align with global accounting practices.
GAAP and IFRS define global accounting norms: GAAP is U.S.-specific and rules-based, while IFRS is principles-based and adopted by 167 countries worldwide.
Accountants use the following 12 principles as guidelines for recording and organizing financial data properly:
Financial Accounting Standards Board
The FASB, which has its own staff, is overseen by the private nonprofit Financial Accounting Foundation (FAF). The FASB manages and updates GAAP.
GAAP is a rule-based system that all domestic publicly traded companies must follow when filing financial statements. Although Canada once mirrored GAAP, its publicly accountable enterprises fully adopted IFRS in 2011. Now, only certain rate-regulated or SEC filers may still use GAAP in Canada.
All publicly-traded companies are required to use GAAP for accounting. While they can complement it with non-GAAP measures, their financial statements must be in accordance with GAAP. However, private companies are not required to use GAAP financial reports.
On the one side, the German Generally Accepted Accounting Principles (German GAAP) are primarily codified in the German Commercial Code (Handelsgesetzbuch or HGB) and are used by all legal entities in their single financial statements.
Accounting Standards are developed by the Accounting Standards Board of Japan (ASBJ) and are designated as Japanese GAAP by the Financial Services Agency of Japan.
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The Bottom Line. All public companies are required to follow generally accepted accounting principles. The goal is to provide the public with accurate, consistent, and transparent financial statements. Although GAAP isn't law, it can lead to problems for companies that don't follow it.
Students may find GAAP difficult to learn at first. GAAP includes many complex principles that require deep, technical accounting knowledge. However, you can master GAAP with diligence, persistence, and hard work.
Who uses GAAP and IFRS? GAAP is primarily used by companies in the United States, as required by the SEC. On the other hand, IFRS is used in over 140 countries, including the European Union, Canada, and Australia, to maintain consistency in international financial reporting.
Their subsidiaries in other countries have to follow the local standards – such as the China GAAP (Generally Accepted Accounting Principles) – while at the same time also preparing a financial statement that suit the requirements of HGB, so that a consolidated statement for the holding company can be produced.
UK Generally Accepted Accounting Practice. There is no formal definition of UK GAAP, but in simple terms it has been understood to mean compliance with UK company law, UK accounting standards and best practice.
GAAP can be expensive for companies lacking robust accounting infrastructure to implement and maintain. The need for specialized staff, auditing services, and continuous training to remain up-to-date with evolving standards can significantly strain financial resources.
Established in 1973, the Financial Accounting Standards Board (FASB) is the independent, private- sector, not-for-profit organization based in Norwalk, Connecticut, that establishes financial accounting and reporting standards for public and private companies and not-for-profit organizations that follow Generally ...
The SEC (Securities & Exchange Commission) only requires publicly traded companies and companies obligated to publicly release their financial statements to adhere to GAAP. However, most finance professionals including accountants, CPAs, bookkeepers, controllers, and CFOs still choose to follow these guidelines.
There are five most referenced fundamentals of accounting. They include revenue recognition principles, cost principles, matching principles, full disclosure principles, and objectivity principles. This principle states that revenue should be recognized in the accounting period that it was realizable or earned.