What principles are companies required to follow for proper accounting?

Companies are required to follow Generally Accepted Accounting Principles, commonly referred to as GAAP, to ensure a consistent and transparent approach to financial reporting. GAAP encompasses a set of guidelines and conventions that govern how accounting should be practiced in the United States. These principles help maintain the accuracy and integrity of financial statements, allowing stakeholders, investors, and regulatory bodies to comprehend financial information more effectively.

GAAP covers a wide range of principles, including the recognition of revenue, measurement of assets and liabilities, and the structuring of financial statements. By adhering to GAAP, companies provide a clear and reliable picture of their financial performance and position, which is crucial for decision-making by investors and other stakeholders.

While International Financial Reporting Standards (IFRS) are important in a global context and are adopted in many countries outside the U.S., the question pertains specifically to the principles required for proper accounting in the U.S., where GAAP is the standard. Standard Operating Procedures (SOP) and Financial Accountability Standards (FAS) play roles in operational and accountability contexts but do not serve as overarching frameworks for financial reporting like GAAP does.