What does “GAAP” stand for in financial reporting?

The correct interpretation of "GAAP" is Generally Accepted Accounting Principles, which is a framework of accounting standards, principles, and procedures defined by the professional accounting industry. This framework is essential for ensuring consistency, reliability, and transparency in financial reporting across various organizations and industries. GAAP serves as a guideline for accountants and companies when preparing financial statements, which helps stakeholders such as investors, regulators, and the public understand and compare the financial performance of different entities more effectively.

The use of GAAP is fundamental in maintaining uniformity in financial reporting, which enhances the credibility of financial statements and aids stakeholders in making informed decisions. Hence, the importance of GAAP in financial reporting cannot be overstated, as it supports integrity and accountability within the financial system.