What do I need to know about GAAP as a credit professional?

Answer: Some company’s financial statements are created using Generally Accepted Accounting Principles (GAAP) established by the Financial Accounting Standards Board (FASB). The FASB rules focus on improving the usefulness of financial reporting by focusing on the primary characteristics of relevance and reliability, and on the qualities of comparability and consistency.

Publicly traded firms must use GAAP when presenting financial information to the Securities and Exchange Commission (SEC) in order to comply with U.S. securities laws. As a credit professional, please remember that GAAP is flexible in some reporting areas. For example, it may allow a choice from among several different accounting methods that can result in significantly different financial reports.