The preparation and presentation of corporate financial statements is governed by the standards of financial accounting. Within the guidelines provided by generally accepted accounting principles (GAAP), the objective of financial accounting is to present fairly the financial position of a company to present and potential stockholders, creditors, security analysts, and other interested parties. Financial statements of larger companies normally are certified by independent certified public accountants (CPAs) as having been audited using generally accepted auditing standards and (in most cases) found to fairly present the financial condition of the company, in accordance with generally accepted accounting principles.
The term generally accepted accounting principles is somewhat debatable in the field of financial accounting. Although the phrase has enjoyed common usage for many decades, there is no single definition or all-inclusive listing of principles that are universally acceptable to theorists and practitioners. As a working definition, we may define GAAP as a set of objectives, conventions, and principles that have evolved over the years to govern the preparation and presentation of financial statements. These principles apply to the area of financial accounting as distinct from other areas of accounting such as tax accounting, managerial accounting, and cost accounting.
This working definition of GAAP emphasizes the evolutionary nature of accounting rules and regulations. Generally accepted accounting principles are subject to varying interpretations and