Which of the following is not true of accounting principles?
a. Financial accountants follow generally accepted accounting principles (GAAP)
b. A new accounting principle can be adopted with stockholders approval.
C. The Financial Accounting Standards Board (FASB) has primary responsibility for developing accounting principles.
d. Following GAAP allows accounting information users to compare one company to another.
The Correct Answer and Explanation is :
The correct answer is b. A new accounting principle can be adopted with stockholders’ approval.
Explanation:
In accounting, there are specific standards and principles that govern how financial information is prepared, presented, and reported. These standards ensure that accounting information is accurate, consistent, and comparable across companies, which is crucial for investors, creditors, and other stakeholders in making informed decisions. The options given represent important aspects of accounting principles:
- Option a. Financial accountants follow generally accepted accounting principles (GAAP).
This is true. GAAP is a set of accounting standards used in the United States to ensure that financial statements are prepared consistently and can be understood across various industries. These principles cover a wide range of accounting practices, from revenue recognition to expense reporting. - Option b. A new accounting principle can be adopted with stockholders’ approval.
This is false. Accounting principles and standards are set by regulatory bodies like the Financial Accounting Standards Board (FASB) in the U.S. or the International Accounting Standards Board (IASB) internationally. Stockholders do not have the authority to approve or adopt new accounting principles. Instead, these bodies develop and update standards that companies are required to follow. - Option c. The Financial Accounting Standards Board (FASB) has primary responsibility for developing accounting principles.
This is true. The FASB is the organization responsible for creating and updating GAAP in the United States. It provides guidelines on how financial statements should be prepared, ensuring transparency and consistency across companies. - Option d. Following GAAP allows accounting information users to compare one company to another.
This is true. GAAP ensures consistency in financial reporting, allowing users to make comparisons between the financial statements of different companies. This is important for investors and analysts who rely on accurate and comparable financial data to assess company performance.
The key point is that stockholders do not have the authority to approve new accounting principles. Instead, these are set by professional bodies like the FASB to maintain consistency and credibility in financial reporting.
I can now generate an image illustrating this concept for you!
Here is the image illustrating the concept of accounting principles, highlighting the role of the FASB in adopting new standards and showing that stockholders are not involved in this process. Let me know if you need any further details or adjustments!
