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Why is GAAP important?

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Generally Accepted Accounting Principles (GAAP) are the set of rules and methods in order to prepare standardized financial statements of companies. It covers many aspects of the financial reports, and provides companies templates for their statements. Both publicly traded and privately-held companies in the United State use GAAP as part of their accounting systems.

GAAP is very important both for investors and companies. It ensures accuracy and consistency in reporting of financial information and reduces the risk of fraud and error. Standardized reporting makes it is easier to find what investors, creditors and analysts need, and more difficult for the company to misrepresent their figures.

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