Meaning of Generally Accepted Accounting Principles
Daily News article (article concerning lawsuit over generally accepted accounting principles)
The House of GAAP  (The House of GAAP has been demolished!)
Appendix A, APB Opinion No. 6--Special Bulletin
(a) If not, the accountant would either qualify his opinion, disclaim an opinion or give an adverse opinion as appropriate.
(b) If it does have substantial authoritative support, he would give an unqualified opinion and disclose the fact of departure from the Opinion.
*source: "Some Thoughts on Substantial Authoritative Support." by Marshall S. Armstrong, Journal of Accountancy, April, 1969.

APB Statement No. 4, Chapter 6:

Financial statements are the product of a process in which a large volume of data about aspects of the economic activities of an enterprise are accumulated, analyzed, and reported. This process should be carried out in accordance with generally accepted accounting principles. Generally accepted accounting principles incorporate the consensus at a particular time as to which economic resources and obligations should be recorded as assets and liabilities by financial accounting, which changes in assets and liabilities should be recorded, when these changes should be recorded, how the assets and liabilities and changes in them should be measured, what information should be disclosed and how it should be disclosed, and which financial statements should be prepared.

 
Generally accepted accounting principles therefore is a technical term in accounting. Generally accepted accounting principles encompass the conventions, rules and procedures necessary to define accepted accounting practice at a particular time. The standard of "generally accepted accounting principles" includes not only broad guidelines of general application, but also detailed rules and procedures.

 
Generally accepted accounting principles are conventional--that is, they become generally accepted by agreement...rather than formal derivation from a set of postulates or basic concepts. The principles have developed on the basis of experience, reason, custom, usage, and to a significant extent, practical necessity.
Arthur Andersen's confrontation with the SEC
Concerning Accounting Series Release No. 150
Accounting Series Release No. 150, ( ASR 150), issued by the SEC in 1973 reaffirmed a previous rule issued in 1938 that financial statements prepared in accordance with accounting principles for which there is on "substantial authoritative support" are presumed to be misleading.
ASR 150 states as a new rule that accounting standards, principles and practices promulgated by Statements and Interpretations of the Financial Accounting Standards Board (FASB), the Opinions of the Accounting Principles Board (APB), and the Accounting Research Bulletins of the Committee on Accounting Procedure that are still in effect will be considered by the Commission as having "substantial authoritative support."
Whatever meaning the undefined term "substantial authoritative support" may have had originally when used by the Commission in 1938, such meaning would be vastly different today. The Committee on Accounting Procedure ... issued its first pronouncement in 1939, and many developments concerning accounting principles have occurred since that time.
A subcommittee of the Accounting Principles Board worked diligently on a definition of that term. However, the project was abandoned more than three years prior to the time that ASR 150 was issued because the conclusion was reached that the term could not be defined in a meaningful manner. Since the Commission and its staff continue to use that term to mean whatever they want it to mean, it is now particularly urgent that the term be defined or abandoned.
While registrants and their auditors may follow the 700 pages of designated professional pronouncements and be reasonably confident that they will satisfy the "authoritative support test," ASR 150 also states that any standards, principles, and practices contrary to such pronouncements are considered misleading under the Securities Acts. Any departures in unusual circumstances are to be handled on an ad hoc basis which would not have the status or protection of a rule. This requirement represents the most significant and sweeping rule relating to accounting principles ever issued by the Commission.
There is a vast difference between (a) independent auditors voluntarily following professional pronouncements, and (b) independent auditors being required to follow such pronouncements by a rule of the Commission. The Commission in issuing ASR 150 not only failed to follow the rule-making procedure (including public exposure for comment) prescribed by the Administrative Procedure Act, but also followed the highly questionable practice of adopting as part of a current rule, all future pronouncements of the FASB. As a result, ASR 150 appears to have been adopted contrary to law.
Hendricksen and van Breda:
"...the term generally accepted accounting principles (GAAP), despite its appearance in every auditor's report, is as empty of meaning today as it was when it was first coined.  There is still no consensus on what constitutes a principle, how principles relate to postulates, nor how either  can be used to derive accounting standards."
"In practice, ... the term GAAP means... no more than accounting practices with substantial authority."
Hendricksen and van Breda, Accounting Theory, 5th Edition, Richard D. Irwin, 1992
      
Rule 203 of the AICPA concerning the meaning of Generally Accepted Accounting Principles

The AICPA's code of professional conduct requires that members prepare financial statements in accordance with generally accepted accounting principles (GAAP). Rule 203 of this code specifically prohibits a member from expressing an opinion that financial statements conform with GAAP if those statements contain a material departure from GAAP, unless the member can demonstrate that because of usual circumstances the financial statements would otherwise have been misleading. Failure to follow rule 203 can lead to loss of a CPA's license to practice.


The meaning of GAAP was at one time defined by Statement of Auditing Standards (SAS) NO.69, "The meaning of 'present fairly in conformity with generally accepted accounting principles' in the independent auditor's report." The FASB, however, believed that the GAAP hierarchy should be directed to entities (as opposed to auditors) because it is the entity (not its auditor) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP. Accordingly, the Board concluded that the GAAP hierarchy should reside in the accounting literature established by the FASB and issued Statement of Financial Accounting Standards No. 162 to achieve that result.

Under this standard, GAAP covered by rule 203 are construed to be FASB standards and interpretations, APB opinions, and AICPA accounting research bulletins.

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