Accounting principles are also referred to as generally accepted accounting principles or GAAP. Accounting principles range from general guidelines to very detailed rules established by the Financial Accounting Standards Board (FASB).
The general guidelines, or basic accounting principles, include the cost principle, matching principle, full disclosure principle, going concern assumption, economic entity assumption, monetary unit assumption, materiality, and industry peculiarities or practices. The specific rules issued by the FASB include more than 150 statements of financial accounting standards and interpretations. (These are available at www.fasb.org.) Often, industries that are regulated by government agencies will have unique reporting standards or requirements. Many of the rules established by the FASB's predecessors continue to be part of GAAP.
Financial statements that are distributed outside of a company are to be prepared in accordance with generally accepted accounting principles. Corporations whose stock is publicly traded must have their financial statements audited by independent certified public accountants. These CPAs give assurance that the financial statements were prepared in accordance with generally accepted accounting principles.
The Securities and Exchange Commission (SEC), a U.S. government agency, has the ultimate authority over the reporting requirements of publicly traded corporations. However, the SEC allows the FASB to develop accounting rules or standards.