Stephen Souky, a knowledgeable accounting and tax preparation professional, is strongly familiar with and adherent to GAAP, or Generally Accepted Accounting Principles, those that ensure the highest standards of professional accountability and performance at all times. As he knows, GAAP Accounting principles are divided up into three basic areas: Assumptions, Principles and Constraints.
Below, Stephen Souky seeks to provide basic explanations of the four GAAP Constraint Principles, those that round out GAAP fundamentals and help to maintain the high professional standards set forth by GAAP.
The principle of Objectivity, says Souky, states that all company financial statements provided by the accounting professional should always be based on and produced as the result of objective evidence.
The Materiality principle, says Stephen Souky, places emphasis on the significance of a reported item, as its significance should always be a consideration of the accounting professional when making the report. Significance is determined if the item in question would affect the decision of a reasonable person.
The principle of consistency, says Souky, stipulates that the same methods and principles of professional accounting should be used during each financial period.
This principle, as stated by Souky, stipulates that when two solutions are available to choose from, the solution that will lead to the least favorable outcome is always the one that will be chosen.
Rounding out the idea of GAAP Constraint Principles is the concept of Cost Constraint, which states that the benefits of reporting financial information should always be greater than, and should justify, the costs of supplying that financial information.