Generally Accepted Accounting Principles (GAAP) are accounting standards that govern how companies prepare and report financial statements. The term often refers to US GAAP, the framework used by companies reporting under United States regulation.
Many countries maintain their own accounting frameworks. These are commonly referred to as local GAAP.
In private markets, consistent accounting standards support reliable fund accounting and investor reporting.
What is local GAAP?
Local GAAP refers to accounting standards issued by national regulators or standard-setting bodies. These frameworks apply to statutory reporting and regulatory compliance within a specific jurisdiction.
Examples include:
- German GAAP (HGB)
- UK GAAP
- French GAAP
Local GAAP is often used for:
- statutory financial statements
- tax reporting
- regulatory filings
GAAP vs IFRS
GAAP and International Financial Reporting Standards (IFRS) both define how financial information is recognised, measured and disclosed. However, they differ in scope and application.
- US GAAP is primarily rules-based and applies to companies reporting in the United States.
- IFRS is principles-based and widely adopted across Europe and international markets.
- Many European companies use IFRS for consolidated reporting whilst maintaining local GAAP accounts for statutory purposes.
Regardless of whether US GAAP, IFRS or local GAAP applies, consistent accounting principles ensure that:
- portfolio valuations remain comparable
- capital account statements are accurate
- performance metrics such as IRR and TVPI withstand audit scrutiny
For private equity and venture capital funds operating across Europe, understanding the applicable accounting framework is essential when working with institutional investors and meeting compliance requirements.
