US-GAAP – Accounting Under American Standards
What Is US-GAAP?
United States Generally Accepted Accounting Principles (US-GAAP) are US accounting regulations and generally accepted accounting practices. They were developed to better inform potential capital providers and, alongside IFRS, are one of the internationally recognized accounting standards. Many German companies also often still prepare financial statements according to the rules of the German Commercial Code (HGB).
US-GAAP is thus the definitive standard for stock analysis of the US stock market – that is, for stocks from the S&P 500, Nasdaq or Dow Jones.
History
US-GAAP was developed by the Governmental Accounting Standards Board (GASB), a privately organized accounting body for the accounting of US states and cities and municipalities. Historically, the US-GAAP standards of the FASB arose from numerous individual case rulings, which were systematically compiled in the Accounting Standards Codification.
Structure of Financial Statements Under US-GAAP
A financial statement under US-GAAP consists of five parts:
- Statement of Financial Position → Balance sheet
- Statement of Earnings → Income statement
- Statement of Cash Flow → Cashflow statement
- Statement of Investments and Distribution to Owners → Statement of changes in equity
- Notes → Notes and, where applicable, a detailed management report
US-GAAP vs. IFRS
Unlike IFRS, US-GAAP rules are less principles-based and regulate matters in great detail and precision. Both standards pursue the goal of transparent, comparable financial statements, but differ in details relevant to ratios:
| Aspect | IFRS | US-GAAP |
|---|---|---|
| Approach | Principles-based | Rules-based |
| Inventory valuation | FIFO or average | LIFO also permitted |
| Development costs | Can be capitalized | Immediate expense |
| Cashflow presentation | More flexible | More strictly regulated |
| Prudence principle | Lower significance | Lower significance than in HGB |
Discussion
The goal of financial statements under US-GAAP is always the information of external investors. Through the principle of "fair presentation," a company's economic position and earnings potential should be described as accurately as possible.
Unlike under HGB, US-GAAP financial statements have no distribution-measurement function. No tax liability or dividends are derived from the statement – in the US there is a clear separation between commercial and tax financial statements. The amount of distributions is determined solely by the board of directors.
In general, it can be observed that the significance of US-GAAP relative to IFRS has continuously decreased in recent years. In particular, the increasing requirement for European companies to apply IFRS in consolidated financial statements has led to a shift here. The G20 nations have long sought convergence of US-GAAP and IFRS.
Relevance for Stock Analysis
For the international comparison of stocks, it is important to know which standard a company follows. Most DAX companies report under IFRS, while US companies use US-GAAP. Ratios such as P/E ratio, equity ratio or free cashflow can therefore differ slightly in direct comparison.
Finanzoo normalizes fundamental data from various sources (including SEC EDGAR) for a consistent presentation.