Generally Accepted
Accounting Principles (GAAP)
Guide Sheet
Grant Financial Management What topics should be included for
Requirement GAAP compliance?
The Uniform Guidance for federal awards requires f What accounting methods, at a minimum, have to be
allowable costs, rental costs, interest, depreciation, in place to satisfy requirements set by federal, tribal,
compensation and fringe, and audits to be in or state laws or by regulations and guidelines such
accordance with GAAP. The first example is found in as GAAP?
2 CFR 200.403, which states that cost must meet the What additional accounting methods must be put
following general criteria in order to be allowable in place to meet government accounting standards
under Federal awards: “Be determined in accordance such as GASB and FASB, whichever
with generally accepted accounting principles (GAAP), is applicable?
except, for state and local governments and Indian f What procedural issues should be considered in a
tribes only, as otherwise provided for in this part.” GAAP policy?
While 2 CFR 200.515 states that the auditor’s report(s)
f What are the end of the month procedures to ensure
must state that the audit was conducted in accordance
GAAP compliance?
with this part and include the following: “The type of
report the auditor issued on whether the financial f What are the end of the fiscal year procedures to
statements audited were prepared in accordance ensure GAAP compliance?
with GAAP….” f How is GAAP monitored internally and by whom?
What are the principles of the GAAP framework?
Important Information to Know
There are 10 main principles (shown in figure 1), which
What is GAAP?
can help you remember the main mission of GAAP.
GAAP consists of a common set of accounting
rules, requirements, and practices issued by the FIGURE 1: 10
Financial Accounting Standards Board (FASB) and the MAIN PRINCIPLES OF THE GAAP FRAMEWORK
Governmental Accounting Standards Board (GASB).
The organization’s accounting
GAAP sets out to standardize the classifications,
Principle of regularity adhered to the standards of
assumptions and procedures used in accounting in GAAP.
industries across the US. The purpose is to provide
The organization’s accounting
clear, consistent and comparable information on Principle of practices are consistent and
organizations financials. consistency comparable every reporting
period.
Why should an organization follow GAAP?
The organization’s accounting
Following GAAP ensures financial information Principle of sincerity is accurate and correct depic-
is consistently and accurately reported. It is an tion of the financials.
accounting practice required by for profits, not-for-
Principle of The organization’s accounting
profits, and government entities. permanence practices are constant across
of methods financial periods.
1
Conducting monthly reconciliations will ensure that
All aspects of an organiza-
Principle of tion’s performance are fully errors are identified and rectified for the purpose
non-compensation reported with no prospect of of accurate reporting. These measures are some of
debt compensation. the ways recipients can verify that they are providing
The accounting entries are transparent and consistent financial records, despite
Principle of prudence
timely and realistic. the structure of their organization.
Short-term and long-term
If recipients do not submit accurate and timely SF-425
classifications of financial
Principle of continuity information are based on the Federal Financial Reports, an automatic hold can be
idea the entity will remain in placed on the remaining federal funds awarded, and
business. any payments requests that are submitted through the
Automated Standard Application for Payments (ASAP)
The accounting periods are
Principle of will be denied. If a recipient does not have their reports
regular, routine, and consis-
periodicity current, adjustments to current awards can be affected
tent.
and restrictions can be placed on any new award.
Assets are valued at cost and
Principle of Awards are subject to conditions of fiscal, program,
all financial reports are based
materiality and general administration to which the recipient
on truthful information.
expressly agrees upon acceptance of the award. Per 2
Every person involved in the CFR 200.514, prepared financial statements should be
Principle of utmost
accounting process is acting “presented fairly in all material respects in accordance
good faith
honestly.
with generally accepted accounting principles.”
Adapted from Investopedia
How This Applies to Your Grant References
GAAP are standardized accounting practices utilized in Financial Accounting Standard Board. (unk.) FASB Accounting Standards Codification.
[Link]
ensuring that financials are accurately recorded and
IRS. (2019, January). Publication 538 (01/2019), changes in accounting method.
managed. Recipients of federal awards are required to [Link]
accurately maintain their financial records; hence, they Miller, S. (2020, October 1). Generally accepted accounting principles. Greater
Washington Society of CPAs. [Link]
would need to follow GAAP. bookkeeping/generally-accepted-accounting-principles
If an organization is using the accrual method, it
must continue using this method, unless it acquires
approval from the Internal Revenue Service to
switch. Organizations should have appropriate
internal controls for checks and balances and to
keep everyone in their accounting process honest.
About the OJP Territories
Financial Support Center
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OJPTFSC@[Link] via our Virtual Support Center. the official position or policies of the U.S. Department of Justice.
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