BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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U.S. GAAP is the body of accounting knowledge followed by all countries in the world
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changes in GAAP can affect the interests of managers and stockholders
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GAAP is the abbreviation for generally accepted auditing procedures
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changes to GAAP must be approved by the Senate Finance Committee
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Detailed explanation-1: -The correct choice is option B: Changes in GAAP could affect the manager’s & stockholders’ interests. Changes in GAAP could affect the stockholders’ & managers’ interests when a publicly traded firm is an endeavor to maximize the recognized value to the decision makers who are external to the firm.
Detailed explanation-2: -GAAP compliance makes the financial reporting process transparent and standardizes assumptions, terminology, definitions, and methods. External parties can easily compare financial statements issued by GAAP-compliant entities and safely assume consistency, which allows for quick and accurate cross-company comparisons.
Detailed explanation-3: -The four basic constraints associated with GAAP include objectivity, materiality, consistency and prudence. Objectivity includes issues such as auditor independence and that information is verifiable.
Detailed explanation-4: -GAAP use mandates: The SEC requires publicly traded and regulated companies to follow GAAP with their financial reporting. Companies that issue stock are held to this standard by the Securities Act of 1933 and the Securities Exchange Act of 1934, which require yearly external audits by independent accountants.
Detailed explanation-5: -Answer and Explanation: A) It shows a company’s stock issuances and dividends paid to shareholders is true of the statement of stockholders’ equity.