US and UK GAAP: Important differences for financial statement preparers and users

Generally Accepted Accounting Principles (GAAP) differ significantly in the United States and the United Kingdom, primarily because of deep-seated differences in the size of the economies, in their legal and cultural systems (particularly their educational systems), in the stringency of their monitoring and enforcement, and in their differing abilities to tolerate ambiguity. The technical differences, detailed at length in this article, mean that financial statements produced under each kind of GAAP are not easily comparable. Understanding the differences, however, can protect financial statement preparers and users from mistakes in decision-making based on simplistic assumptions about the statements. Knowledge of these important differences can aid the investor, security analyst, or money manager in making important decisions related to valuation effects, accuracy and timeliness of disclosures as well as potential effects on mergers and acquisitions. In addition, financial statement preparers and users can take heart from indications that the gulf between the GAAPs is closing.