Generally accepted accounting principles (GAAP) are formulated by the
A. Financial Accounting Standards Board (FASB).
B. Securities and Exchange Commission (SEC).
C. Institute of Management Accountants (IMA).
D. American Institute of Certified Public Accountants (AICPA).
The Correct Answer and Explanation is :
The correct answer is A. Financial Accounting Standards Board (FASB).
Explanation:
Generally Accepted Accounting Principles (GAAP) refer to the set of accounting standards, principles, and procedures used to prepare and standardize financial statements. These principles aim to ensure consistency, transparency, and comparability in the financial reporting of businesses, so that stakeholders such as investors, creditors, and regulators can make informed decisions based on financial data.
The Financial Accounting Standards Board (FASB) is the primary body responsible for the formulation of GAAP. The FASB, an independent, private-sector organization, establishes and improves accounting standards in the United States. It is recognized by the U.S. Securities and Exchange Commission (SEC) as the designated standard-setting body for financial accounting and reporting. FASB’s role is to ensure that accounting principles and financial reporting practices are effective in providing useful financial information to investors, creditors, and other users.
The Securities and Exchange Commission (SEC), while overseeing the securities industry and enforcing federal securities laws, does not formulate GAAP directly but rather relies on the FASB for this purpose. The SEC also has the authority to prescribe accounting principles, but it generally delegates the responsibility to the FASB.
The Institute of Management Accountants (IMA) primarily focuses on promoting the profession of management accounting, including areas like cost management, budgeting, and decision support. It does not set GAAP, although its members are involved in accounting practice and implementation.
The American Institute of Certified Public Accountants (AICPA) is a professional organization for CPAs in the U.S. It historically played a role in developing accounting standards but now mainly focuses on providing education, resources, and professional development for accountants.
Therefore, the FASB is the organization responsible for creating and updating GAAP to maintain the integrity of financial reporting in the United States.
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