Generally Accepted Accounting Principles (UK GAAP): What You Need to Know

What is UK GAAP? Understand the UK accounting principles, how they compare with IFRS, and how to ensure your business stays compliant.

If you run a company in the UK or work in finance, understanding UK GAAP — or generally accepted accounting principles — is essential. These are the frameworks that set out how financial statements should be prepared and presented.

Whether you're filing accounts, applying for finance, or just want to stay compliant, here’s what UK GAAP is, how it compares to IFRS, and what businesses need to do to follow it correctly.

What Is UK GAAP?

UK GAAP refers to the body of accounting standards and principles that companies in the UK must follow when preparing their financial statements.

Historically, UK GAAP was based on a large set of standards developed by the Accounting Standards Board (ASB). But since 2015, the UK replaced most of these with a simplified framework under FRS 102, along with versions for smaller businesses:

  • FRS 102 – For most UK entities

  • FRS 105 – For micro-entities

  • FRS 101 – For subsidiaries of IFRS reporters

These frameworks now collectively form the modern UK GAAP system.

Which GAAP Is Used in the UK?

In the UK, the standard accounting frameworks used today are:

  • FRS 102: The main standard for small to medium-sized businesses

  • FRS 105: For micro-entities (simplified requirements)

  • FRS 101: Reduced disclosure framework for qualifying subsidiaries of listed companies

  • IFRS: Required for listed companies and permitted for others

So, while the UK has its own GAAP (based on FRS standards), some companies may choose — or be required — to use IFRS (International Financial Reporting Standards) instead.

Do the UK Follow IFRS or GAAP?

The answer depends on the type of company:

  • Listed companies in the UK must use IFRS

  • Unlisted companies can use UK GAAP (FRS 102, 105 or 101)

  • Some large private groups voluntarily adopt IFRS for consistency across international operations

So both exist side-by-side, but most small and medium-sized companies use UK GAAP.

What Are the 5 Basic Accounting Principles in the UK?

While UK GAAP includes many technical standards, there are five fundamental principles that underpin all accounting in the UK:

  1. Consistency – Companies must apply the same accounting policies from year to year unless a change is justified.

  2. Prudence – Accountants should be cautious when making estimates, avoiding overstatement of income or understatement of expenses.

  3. Going Concern – Financial statements should assume the business will continue to operate, unless there's clear evidence to the contrary.

  4. Accruals – Income and expenses should be recorded in the period they relate to, not when cash is received or paid.

  5. Materiality – Only items that would influence users' decisions should be disclosed or adjusted.

These principles help ensure financial statements are accurate, comparable, and reliable.

What Is the Objective of GAAP?

The goal of GAAP (including UK GAAP) is to ensure that financial statements:

  • Give a true and fair view of the company’s financial position

  • Follow a consistent and transparent framework

  • Allow external stakeholders (like HMRC, investors, banks, and creditors) to understand and compare the company’s performance

  • Help support compliance with UK company law and tax regulations

In short, UK GAAP ensures companies present their financials in a standardised, credible way.

What Does UK GAAP Set Out to Do?

UK GAAP provides the rules and guidance needed for companies to:

  • Prepare statutory financial statements

  • Account for income, expenses, assets and liabilities

  • Disclose relevant information to users of accounts

  • Comply with Companies Act 2006

  • Maintain credibility with stakeholders and regulators

It strikes a balance between simplicity (especially for smaller companies) and the need for reliable reporting.

How Can I Make Sure I Comply With UK GAAP?

To comply with UK GAAP:

  • Determine which FRS framework applies to your company (FRS 102, 105, or 101)

  • Prepare accounts using accrual accounting, not cash basis

  • Keep detailed, accurate accounting records throughout the year

  • Apply the five core principles consistently

  • Stay updated on changes in FRC guidance (Financial Reporting Council)

  • Work with a qualified accountant, especially if your business is growing or complex

  • File accounts with Companies House and a Company Tax Return with HMRC annually

Using cloud accounting software (like Xero, Sage or QuickBooks) also helps maintain GAAP-compliant records.

Final Thoughts

UK GAAP remains the go-to framework for most UK businesses outside of the public markets. Whether you’re running a micro-business under FRS 105 or a growing SME using FRS 102, sticking to GAAP helps ensure your accounts are accurate, compliant and fit for external scrutiny.