GAAP and impact on startup

One of the main criticisms of Generally Accepted Accounting Principles (GAAP) is its complexity and lack of flexibility. Critics argue that GAAP’s rigid structure often fails to adapt to the fast-paced changes in modern industries, particularly in technology and startups. This can result in financial reports that don’t fully capture the dynamic nature of these businesses. Additionally, GAAP relies heavily on historical cost accounting, which some critics believe undervalues assets over time, especially in industries where market values fluctuate rapidly. Moreover, the principle of conservatism under GAAP tends to emphasize the risk of losses over potential gains, which may provide a distorted view of a company’s potential. As such, many believe that GAAP should evolve to become more principles-based, like International Financial Reporting Standards (IFRS), to better reflect modern financial realities.