Short notes: GAAP; adjusting and non-adjusting events

Two notes are written, as the question allows: (i) GAAP and (ii) adjusting and non-adjusting events.

(i) Generally Accepted Accounting Principles (GAAP)

GAAP are the rules and conventions of accounting that are generally accepted, so that statements are prepared on a common basis. Accounting statements are understood and relied on widely only if they are prepared in conformity with generally accepted accounting principles; without common agreement every accountant could follow his own definition of revenue and expense. An accounting principle may be seen as a "rule of action or conduct" that changes with business practice. GAAP cover the concepts (entity, going concern, accrual, money measurement) and conventions (consistency, conservatism, materiality, full disclosure); accounting standards codify them.

(ii) Adjusting and non-adjusting events

Events occurring after the balance sheet date are significant events, favourable or unfavourable, that occur between the balance sheet date and the date on which the financial statements are approved.

• Adjusting events give additional information about conditions that existed at the balance sheet date; the assets and liabilities are adjusted for them. Example: a customer becomes insolvent after the year end, confirming a loss on a debt that existed at the balance sheet date.
• Non-adjusting events do not relate to conditions at the balance sheet date, so no adjustment is made; if significant, they are disclosed. Example: a fall in the market value of investments after the year end.