Regularity Principle
The Regularity Principle establishes that accountants must strictly adhere to established accounting rules and standards when preparing financial statements. Under GAAP, this means following the authoritative guidance set by the Financial Accounting Standards Board (FASB) and enforced by the Securities and Exchange Commission (SEC) for public companies.
This principle ensures that financial reporting remains consistent, disciplined, and credible across organizations. By requiring compliance with GAAP, Regularity eliminates the possibility of accountants inventing personal or improvised methods of accounting.
Example:
When a company prepares its annual financial statements, the Regularity Principle requires it to follow GAAP rules for areas such as revenue recognition, expense reporting, and disclosure. An auditor would expect to see GAAP standards applied throughout, and any deviation would need to be justified and disclosed.
Purpose:
The aim is to provide investors, creditors, regulators, and other stakeholders with financial statements they can rely on—knowing that all entities are held to the same standards.