What is GAAP?
GAAP, or Generally Accepted Accounting Principles, defines the standards by which accounting should be performed. GAAP ensures that when a company is audited, the auditor can make statements about the accuracy of the company's financial statements.
GAAP is also important because you have consistency across industries and companies. When a company follows GAAP, you can compare their financials with other companies who use GAAP.
GAAP is a set of guidelines so there is still a chance for unscrupulous business people to falsify results.
GAAP is set by the Financial Accounting Standards Board (FASB).
