GAAP Principles

The 10 GAAP Principles

Principle of Regularity

Strict adherence to established GAAP rules and regulations as the standard framework for all financial reporting. This principle ensures that all financial statements are prepared consistently over time, allowing for comparability across periods

Principle of Consistency

Application of the exact same accounting methods and standards across all reporting periods to ensure financial statements remain comparable over time. This principle requires that once an accounting method is adopted, it should be used consistently throughout subsequent periods

Principle of Sincerity

Unbiased reporting of a company’s financial reality, requiring accountants to act with complete honesty and transparency. This principle emphasizes that financial statements should reflect the true and fair view of the company's financial position and performance

Principle of Permanence of Methods

Commitment to using stable, unaltering accounting practices so that internal historical analysis remains meaningful

Principle of Non-Compensation

Clear disclosure of all financial details—both positive and negative—without attempting to offset expenses against revenues or debts against assets

Principle of Prudence

Factoring in healthy skepticism by recognizing expenses and liabilities immediately while only recording revenues when they are completely certain

Principle of Continuity (Going Concern)

Assuming the business operating entity will continue to function indefinitely into the foreseeable future without plans to liquidate

Principle of Periodicity

Dividing financial activities into distinct, equal time intervals (such as quarters or fiscal years) for standard reporting

Principle of Materiality

Disclosing all significant financial facts and figures that could realistically influence the economic decisions of an investor or stakeholder

Principle of Utmost Good Faith

Operating under the legal and ethical assumption that all parties involved in the financial reporting process are acting honestly