APPENDIX 12 A
Some Notes on GAAP
Many readers of Painting with Numbers will be professionally involved with preparing or interpreting the financial statements of publicly traded companies, or of other organizations required to report their financial results in accordance with generally accepted accounting principles (GAAP). For those who aren't, this Appendix is intended to provide enough background on GAAP that the topics discussed in Chapter 12 will make sense to all readers. And please understand that while I've had extensive experience with the accounting issues discussed in this chapter, I am neither a CPA by training nor a GAAP expert. So while I believe the discussions in this chapter are factually accurate, they are nonetheless simplifications of complex topics and should be understood as such.
What Is GAAP?
Generally accepted accounting principles (GAAP) is the set of rules that governs all aspects of the financial statements that companies publicly traded in the United States are required to provide to their stockholders. The GAAP documentation is the most revered canon of the accounting profession, at least in the United States. It is not terse: it consists of approximately 25,000 densely worded pages,8. and those pages are dwarfed by the volume of further explanations and clarifications generated by accounting firms and by academics. This “feature” of GAAP has exposed it to a fair amount of ridicule (some of it good-natured), but GAAP is a set of rules that enables ...