A recent study found that most businesses, whether publicly traded or privately held, follow U.S. Generally Accepted Accounting Principles (GAAP) — and not just because it’s required by the U.S. Securities and Exchange Commission or lenders. Many business owners and finance leaders actually prefer GAAP over other reporting frameworks. But it’s not right for every situation.
Over time, your business may outgrow its existing accounting method. Here’s what you should know to help ensure your financial reporting aligns with your business goals and stakeholder expectations.
Survey says …
Accounting Basis and Verification: Survey Evidence from U.S. Private Firms is the first large-scale modern effort to address the gap between how private businesses and public companies report their financial results. After surveying more than 500 CFOs at private businesses, it turns out that the differences aren’t as significant as you might expect. The results were discussed during a March 2026 meeting of the Private Company Council, which advises the Financial Accounting Standards Board on financial reporting standards and concerns for small businesses.
Notably, the multi-university study found that many private companies follow GAAP, though some use carve-outs for certain complex rules, such as the lease guidance. Roughly two-thirds of respondents (68%) strictly follow GAAP, and one-quarter follow GAAP with some exceptions.
The study also found that less than half of private businesses (49%) follow GAAP exclusively, and many organizations use multiple reporting methods simultaneously. For instance, some follow GAAP for external financial reporting purposes, then use tax- or cash-basis reports internally. This approach can give management more timely insight, because GAAP financials may require adjustments and footnote disclosures that take time to prepare. Similarly, some respondents that operate globally follow both GAAP and the International Financial Reporting Standards (IFRS).
Benefits of using GAAP
Lenders often influence a private business’s decision to prepare GAAP financials. But even when GAAP isn’t required under a business’s loan covenants, management may voluntarily follow it for operational and strategic reasons. In fact, the survey found that 64% of respondents without bank financing still use GAAP.
Besides improved access to bank financing and enhanced loan terms, the survey identified the following top five ways GAAP financials help private businesses work with external stakeholders:
- Aiding in preparing for a business sale or initial public offering,
- Improving access to equity capital and enhancing equity investment terms,
- Reducing litigation risks,
- Enhancing terms with suppliers, and
- Increasing sales with customers.
From an internal perspective, GAAP financials help managers prepare budgets and forecasts; assess profitability by product, business segment or customer; gauge employee and team performance; allocate resources; and benchmark results against competitors.
GAAP typically requires more resources than other accounting frameworks. But it’s often perceived as the “gold standard” in financial reporting.
Financial reporting options
You might be wondering: How do the financial reporting frameworks compare? Below is an overview of common accounting methods:
Accrual method. Businesses that issue GAAP financial statements use the accrual method of accounting. Under accrual-basis accounting, revenue is recognized when earned (regardless of when cash is received), and expenses are recognized when incurred (not necessarily when bills are paid). This methodology matches revenue to the corresponding expenses in the proper period. So it’s generally considered the most reliable reporting method for long-term financial planning and decision-making, particularly for businesses with complex operations or external reporting needs.
Cash method. Under cash-basis accounting, transactions are recorded only when money changes hands. For example, if you buy a new computer on credit, you’d record it as an expense when you pay for it. Although simple, the cash method can make it difficult to get a complete picture of financial performance. Telltale signs that a business is using cash-basis accounting can be found on the balance sheet: It won’t show any accrual-basis items, such as accounts receivable, prepaid assets, accounts payable or deferred expenses.
It’s common for startups and sole proprietorships to use the cash method of accounting because it’s simple and provides an immediate picture of available funds. But it may not provide enough information to manage a larger, more complicated business.
Tax method. Another financial reporting option is to use the same accounting method for book and tax purposes. Under tax-basis accounting, financial statements are prepared using tax accounting rules rather than GAAP. As a result, income and expenses may be recognized differently than under accrual-basis financial reporting. Contrary to GAAP, tax laws generally tend to favor accelerated gross income recognition and don’t allow taxpayers to prematurely deduct expenses until the amounts are known and other deductibility requirements have been met. Tax-basis accounting can be beneficial if your business doesn’t have complex financial affairs and you don’t need up-to-date financial information.
Additionally, your business may be eligible to use the cash method of accounting for tax purposes if its average annual gross receipts were below an inflation-adjusted threshold for the prior three-year period. For 2026, the gross-receipt threshold is $32 million. This can allow smaller entities to simplify recordkeeping and defer taxes.
Additionally, businesses with global operations may issue financial statements that conform to IFRS, another accrual-basis financial reporting framework that’s similar to GAAP. The primary difference is that GAAP tends to be prescriptive and rules-based, whereas IFRS is generally more subjective and principles-based. There are also subtle differences in the accounting methods that are allowed under each standard. For example, the last-in, first-out inventory (LIFO) method is common in the United States, but it’s not permitted under IFRS.
No method fits all businesses
U.S. public companies are generally required to issue audited GAAP financial statements (currently on a quarterly basis). However, private companies may use alternative methods, unless their lenders require GAAP reporting. The optimal financial reporting approach depends on your business’s size, resources, planned internal and external uses, and long-term goals. The method you’ve used in the past may not be appropriate for your current situation. Contact your accountant to discuss your options.
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