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What is GAAP?
GAAP is the Generally Accepted Accounting Principle. GAAP includes all of the accounting rules and standards that companies use to prepare their financial statements.
- GAAP is primarily governed by the Financial Accounting Standards Board (FASB). The FASB is a private, not-for-profit organization that sets accounting standards in the United States.
- GAAP is used by all businesses, whether they are public or private, for-profit or non-profit. GAAP is also used by state and local governments, as well as by federal agencies.GAAP is important because it provides guidance on how businesses should report their financial information.
- GAAP promotes consistency and comparability in financial reporting, which helps investors and other users of financial statements understand and compare financial information across companies. GAAP also helps to ensure that companies report their financial information fairly and accurately.
What is Statutory Accounting?
Statutory accounting refers to the rules and regulations regarding financial reporting that are set by governmental or other regulatory agencies. Statutory accounting generally includes requirements related to the format, content, and frequency of financial reports, as well as guidelines for disclosures and audit procedures. While the specific requirements of statutory accounting vary by jurisdiction, they typically aim to ensure that financial reports are accurate and informative. As a result, statutory accounting plays an important role in protecting investors and other stakeholders from fraud and mismanagement.
Difference between GAAP and Statutory Accounting
GAAP is the Generally Accepted Accounting Principle, while Statutory Accounting is a set of accounting standards put forth by various governing organizations.
- GAAP covers general financial reporting standards, whereas Statutory Accounting specifically governs insurance companies.
- Because GAAP is more general, it doesn’t provide the same level of detail as Statutory Accounting.
- For example, GAAP only requires that insurance companies report their premiums and expenses on an annual basis, but Statutory Accounting requires companies to report this information on a quarterly basis.
As a result, Statutory Accounting provides a more accurate picture of an insurance company’s financial health. While GAAP is more widely used, Statutory Accounting is considered to be the more accurate accounting method.
Conclusion
Statutory accounting is the term used to describe the specific rules and principles that govern financial reporting for businesses in a particular country or region. GAAP, or Generally Accepted Accounting Principles, is a set of global standards that provide guidance on financial reporting. While there are some similarities between the two, there are also key differences.
In most cases, statutory accounting principles will be more stringent than GAAP, meaning companies must adhere to stricter guidelines when preparing their financial statements. If you’re interested in learning more about statutory accounting and how it differs from GAAP, we suggest checking out one of our previous blog posts on the subject.
