The Handbook of Financing Growth: Strategies, Capital Structure, and M&A Transactions, Second Edition

APPENDIX F

Accounting Principles—GAAP and IFRS

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

The accounting principles have developed over the years to guide accounting professionals, investors, lenders, and other interested parties in their understanding of financial statements in a standardized manner. In the United States these rules are known as generally accepted accounting principles (GAAP). The usage of these principles is called GAAP accounting and is mandatory for all public companies. Many private companies voluntarily comply with GAAP accounting because it enhances the understanding of their financial data by owners, bank and other lenders, and management in their business decision making.

This book has numerous paragraphs in several chapters where GAAP is referred to in the explanation of the importance of compliance in various business matters. The accounting and business community has the GAAP accounting ingrained in their day-to-day conduct of business in the United States.

Similarly, in Europe and other countries, there are sets of accounting rules generally accepted in the preparation of financial statements. Many rules are the same in the United States and internationally, but there are others that differ, creating additional accounting work for global companies. For instance, American companies with subsidiaries in Europe prepare their financial statements following the international accounting principles. For the presentation of consolidated financial statements ...