Generally Accepted Accounting Principles or GAAP refers to two sets of principles, one for the United States and the other for the United Kingdom.
A full open content treatment of GAAP can be found in the GFDL corpus and at en: wikipedia: GAAP. That is a general, publicly editable, guide.
The use of GAAP by both industry and government is one of the crucial underpinnings of reform of any kind. Without major accounting reform, for instance, any kind of full cost accounting is unlikely, difficult or impossible.
Amazingly, public accounts in Canada do not separate capital asset from total cost of operations expenses. This makes it very likely that capital, especially natural capital which is already undervalued, will be sold to pay current operating expenses. GAAP is often advocated to the Public Sector Accounting Board in Canada for this reason - see public accounts reform for more on this question.
The use of GAAP is required by law for publicly traded companies. Its main objective is to protect the integrity of capital markets by ensuring standards of financial reporting that provides comparative information that is useful to investors. The complexity of the task of providing useful and comparable information has resulted in some considerable disenchantment with financial statements as a foundation for investment decisions.
For example, the recent Enron debacle was highlighted with significant "off balance sheet" liabilities that significantly compromised the corporation with obligations for which there was no effective reporting to shareholders. Denials by the CEO and CFO in going to trial question whether it was possible to have any effective managerial control over the organization as it was structured.
Since GAAP was designed to create a reporting foundation (hopefully) for honest capital markets, GAAP has remained silent on issues relating to sustainability. GAAP was never designed for the purpose of regulating the financial incentive that corporations have, to create externalities, which in essence is, getting others to take care of the "garbage that you create". See waste as a resource on this question.
Part of this shortcoming is mathematical. The accounting system, invented before the use of negative numbers became widespread, has a conceptual problem with negative value. In essence, it does a good job of creating a system to account for the custodianship of [[goods]] but it fails completely to recognize the ownership of [[bads]], often an inevitable side effect of producing valuable commodities in use in everyday life. For example, we all use paper, and mills produce paper, and are called "paper mills". However, these same mills also produce toxic sludge, bark materials, smoke, dioxins and furans. None of these mills have been called "sludge" mills. See comprehensive outcome and public bad and other policy terms that address this question deeply.
The solution to this problem, quickly recognized by the private sector, is to give these at best "worthless" materials to everyone else. They are dumped in our rivers, air, lakes, streams and landfill sites, or simply accumulated on the site of the mill until it eventually closes down. This is most frequently done with mine tailings, among other processes.
This does not contribute to the sustainability of our global economy, since it would inevitably result in a situation where everybody ends up in possession of everybody elses waste, which indeed appears to be in process right now. See the Economics section for more on this aspect of economics.
Advocates of monetary reform and accounting reform have challenged purveyors of GAAP to write another chapter in their standards manual that incorporates stewardship and ownership of the waste stream of bads as well as the inventory of goods. This might imply treating all commodities and products as services - see service economy on this.
A zero waste society in which our accounting systems provide for stewardship of all of the outputs of the production process is some time off. The rigor of the requirements of GAAP and the necessary regulatory and accounting framework makes this difficult. In Canada the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants would do this if requested by the Governmetn of Canada. The Green Party of Canada advocates this in its some of its list of platform proposals.
There are numerous efforts in Canada, including some new ones at the Federation of Canadian Municipalities and in the office of the Auditor General that seek to apply ecological and social indicators in auditing. This however must ultimately mesh with global standards efforts in the same direction. See Beyond GAAP for proposals on this issue.
This is a cite link. When referring to GAAP as evidence of acceptance of an accounting or management principle, this page should be linked to indicate the source designers and it should be edited to reflect the argument and evidence.
A full open content treatment of GAAP can be found in the GFDL corpus and at en: wikipedia: GAAP. That is a general, publicly editable, guide.
The use of GAAP by both industry and government is one of the crucial underpinnings of reform of any kind. Without major accounting reform, for instance, any kind of full cost accounting is unlikely, difficult or impossible.
[+] capital vs. operating in the public accounts
Amazingly, public accounts in Canada do not separate capital asset from total cost of operations expenses. This makes it very likely that capital, especially natural capital which is already undervalued, will be sold to pay current operating expenses. GAAP is often advocated to the Public Sector Accounting Board in Canada for this reason - see public accounts reform for more on this question.
[+] protects investors
The use of GAAP is required by law for publicly traded companies. Its main objective is to protect the integrity of capital markets by ensuring standards of financial reporting that provides comparative information that is useful to investors. The complexity of the task of providing useful and comparable information has resulted in some considerable disenchantment with financial statements as a foundation for investment decisions.
For example, the recent Enron debacle was highlighted with significant "off balance sheet" liabilities that significantly compromised the corporation with obligations for which there was no effective reporting to shareholders. Denials by the CEO and CFO in going to trial question whether it was possible to have any effective managerial control over the organization as it was structured.
[+] doesn't address sustainability
Since GAAP was designed to create a reporting foundation (hopefully) for honest capital markets, GAAP has remained silent on issues relating to sustainability. GAAP was never designed for the purpose of regulating the financial incentive that corporations have, to create externalities, which in essence is, getting others to take care of the "garbage that you create". See waste as a resource on this question.
Part of this shortcoming is mathematical. The accounting system, invented before the use of negative numbers became widespread, has a conceptual problem with negative value. In essence, it does a good job of creating a system to account for the custodianship of [[goods]] but it fails completely to recognize the ownership of [[bads]], often an inevitable side effect of producing valuable commodities in use in everyday life. For example, we all use paper, and mills produce paper, and are called "paper mills". However, these same mills also produce toxic sludge, bark materials, smoke, dioxins and furans. None of these mills have been called "sludge" mills. See comprehensive outcome and public bad and other policy terms that address this question deeply.
[+] externalizing harm
The solution to this problem, quickly recognized by the private sector, is to give these at best "worthless" materials to everyone else. They are dumped in our rivers, air, lakes, streams and landfill sites, or simply accumulated on the site of the mill until it eventually closes down. This is most frequently done with mine tailings, among other processes.
This does not contribute to the sustainability of our global economy, since it would inevitably result in a situation where everybody ends up in possession of everybody elses waste, which indeed appears to be in process right now. See the Economics section for more on this aspect of economics.
[+] extraction, stewardship, waste
Advocates of monetary reform and accounting reform have challenged purveyors of GAAP to write another chapter in their standards manual that incorporates stewardship and ownership of the waste stream of bads as well as the inventory of goods. This might imply treating all commodities and products as services - see service economy on this.
A zero waste society in which our accounting systems provide for stewardship of all of the outputs of the production process is some time off. The rigor of the requirements of GAAP and the necessary regulatory and accounting framework makes this difficult. In Canada the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants would do this if requested by the Governmetn of Canada. The Green Party of Canada advocates this in its some of its list of platform proposals.
There are numerous efforts in Canada, including some new ones at the Federation of Canadian Municipalities and in the office of the Auditor General that seek to apply ecological and social indicators in auditing. This however must ultimately mesh with global standards efforts in the same direction. See Beyond GAAP for proposals on this issue.
This is a cite link. When referring to GAAP as evidence of acceptance of an accounting or management principle, this page should be linked to indicate the source designers and it should be edited to reflect the argument and evidence.