Which of the following is not recognized as a source of generally accepted accounting principles?
A. Widespread and long-term use of a particular practice.
B. The Financial Accounting Standards Board (FASB).
C. The American Institute of Certified Public Accountants (AICPA).
D. Statements of the Committee of Sponsoring Organizations (COSO).
The Correct Answer and Explanation is :
The correct answer is D. Statements of the Committee of Sponsoring Organizations (COSO).
Explanation:
Generally Accepted Accounting Principles (GAAP) are the standard framework of guidelines for financial accounting used in the preparation of financial statements. These principles provide a foundation for ensuring consistency and comparability in the financial reporting process.
Here is a breakdown of each option:
- A. Widespread and long-term use of a particular practice:
This refers to a practice that has become generally accepted due to its widespread and consistent usage over time. While this is not a formal source of GAAP, the practice can evolve into an accepted standard. This idea plays into the concept of “customary practices,” which are often accepted when they are used for a prolonged period. - B. The Financial Accounting Standards Board (FASB):
The FASB is one of the primary sources of GAAP. It is responsible for creating and issuing accounting standards that public companies in the U.S. must follow. Its standards are recognized as the authoritative source of GAAP. - C. The American Institute of Certified Public Accountants (AICPA):
The AICPA is another recognized source of GAAP. It has historically been involved in the development of accounting standards, though its role has diminished with the rise of the FASB. The AICPA continues to play a role in providing guidance and setting professional standards for accountants. - D. Statements of the Committee of Sponsoring Organizations (COSO):
COSO is not a source of GAAP itself. Rather, COSO is an organization known for its work on internal control frameworks, including the development of the Internal Control – Integrated Framework and risk management standards. While COSO’s frameworks are important for organizational governance and internal controls, they are not a source of GAAP.
In summary, COSO’s work is vital for corporate governance and risk management but is not directly related to GAAP, which is why D is the correct answer.
I will generate an image summarizing these sources of GAAP for better visualization.
Here is the diagram summarizing the sources of GAAP. It helps visualize the distinctions between the Financial Accounting Standards Board (FASB), AICPA, customary practices, and the role of COSO in internal controls. Let me know if you need further clarification!