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Chapter 1: Question 3MCQ (page 21)

GAAP is comprised of:

  1. FASB standards, interpretations, and concepts statements.
  2. FASB financial standards.
  3. FASB standards, interpretations, EITF consensuses, and accounting rules issued by FASB predecessor organizations.
  4. any accounting guidance included in the FASB Codification.

Short Answer

Expert verified

The correct option is (d) any accounting guidance included in the FASB Codification.

Step by step solution

01

Meaning of GAAP

GAAP, also known as generally accepted accounting principles, is defined as a set issued by theFinancial Accounting Standards Board (FASB), which comprises principles, standards, and procedures.

Its objective is to provide accuracy, regularity, and uniformity of the communication of financial information.

02

Explanation for the correct option

The FASB Accounting Standards Codification is the only origin of authoritative generally accepted accounting principles (GAAP) identified by the FASB to be applied to nongovernmental organizations.

The accounting literature excluded in the codification is regarded as non-authoritative. Since GAAP is used by FASB in the form of its practice, hence, GAAP comprises any accounting guidance included in the FASB Codification.

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Most popular questions from this chapter

What is Rule 203 of the Code of Professional Conduct?

How are FASB preliminary views and FASB exposure drafts related to FASB 鈥渟tatements鈥�?

ETHICS (Rule-Making Issues) When the FASB issues new pronouncements, the implementation date is usually 12 months from date of issuance, with early implementation encouraged. Karen Weller, controller, discusses with her financial vice president the need for early implementation of a rule that would result in a fairer presentation of the company鈥檚 financial condition and earnings. When the financial vice president determines that early implementation of the rule will adversely affect the reported net income for the year, he discourages Weller from implementing the rule until it is required.

Instructions:Answer the following questions.(b) Is the financial vice president acting improperly or immorally?

(FASB Role in Rule-making) A press release announcing the appointment of the trustees of the new Financial Accounting Foundation stated that the Financial Accounting Standards Board (to be appointed by the trustees)鈥濃�ill become the established authority for setting accounting principles under which corporations report to the shareholders and others鈥� (AICPA news release July 20,1972).

Instructions

  1. Identify the sponsoring organization of the FASB and the process by which the FASB arrives at a decision and issues an accounting standard.
  2. Indicate the major types of pronouncements issued by the FASB and the purpose of each of these pronouncements.

One of the major groups that has been involved in the standard-setting process is the American Institute of Certified Public Accountants. Initially, it was the primary organization that established accounting principles in the United States. Subsequently, it relinquished its power to the FASB.

Instructions

  1. Identify the two committees of the AICPA that established accounting principles prior to the establishment of the FASB.
  2. Speculate as to why these two organizations failed. In your answer, identify steps the FASB has taken to avoid failure.
  3. What is the present role of the AICPA in the rule-making environment?
See all solutions

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