Generally Accepted Accounting Principles
The term "generally accepted accounting principles" has a specific meaning for accountants and auditors. The AICPA Code of Professional Conduct prohibits members from expressing an opinion or stating affirmatively that financial statements or other financial data "present fairly... in conformity with generally accepted accounting principles," if such information contains any departures from accounting principles promulgated by a body designated by the AICPA Council to establish such principles.
The AICPA Council designated FASAB as the body that establishes generally accepted accounting principles (GAAP) for federal reporting entities. As such, the FASAB is responsible for identifying the “GAAP hierarchy” for federal reporting entities. The GAAP hierarchy consists of the sources of accounting principles used in the preparation of financial statements of federal reporting entities that are presented in conformity with GAAP and the framework for selecting those principles. The hierarchy lists the priority sequence of sources that an entity should look to for accounting and reporting guidance and is discussed in SFFAS 34, The Hierarchy of Generally Accepted Accounting Principles for Federal Entities, Including the Application of Standards Issued by the Financial Accounting Standards Board. The sources of accounting principles that are generally accepted are categorized in descending order of authority as follows:
- Officially established accounting principles consist of FASAB Statements of Federal Financial Accounting Standards (Standards) and Interpretations. FASAB Standards and Interpretations will be periodically incorporated in a publication by the FASAB.
- FASAB Technical Bulletins and, if specifically made applicable to federal reporting entities by the AICPA and cleared by the FASAB, AICPA Industry Audit and Accounting Guides.
- Technical Releases of the Accounting and Auditing Policy Committee of the FASAB.
- Implementation guides published by the FASAB staff, as well as practices that are widely recognized and prevalent in the federal government.
