The term Generally Recognized Accounting Practices, sometimes referred to as GRAP, is a set of concepts that function as guidelines for the accounting processes. This is the public counterpart of the GAAP, or Generally Accepted Accounting Practices, which is a set of rules used by private entities.
Although the GRAP and the GAAP are used in different spheres of business and accounting, they basically have the same function. The GRAP establishes the standards used in various accounting activities, so that agencies in the public sphere are able to record and report their financial activities accurately, consistently, and reliably. These accounting activities are comprised of the creation and presentation of financial statements, as well as reports on cash flow. The GRAP also ensures that the same processes are followed when dealing with areas that can easily be sources of ambiguity, such as estimation and management of errors. This ensures transparency in the handling of funds by public entities. It is therefore important that all covered public entities strictly observe and comply with the GRAP.
On the other hand, the GAAP, which deals with accounting conventions applicable in the private sector, allows the public to make reliable and valid comparisons among various private corporations. This is because following the same accounting standards translates into producing data of the same quality. While compliance with GAAP standards may not be legally required, it is better for companies, particularly those based in the United States to do so, because this makes them more credible to investors. Since potential stockholders need to be apprised of the financial health of prospective companies, they will want to access financial statements of these. In order to make valid comparisons and informed decisions, investors need for these to be produced following the same standards and guidelines.