Who is responsible for developing GAAP?

Who is responsible for developing GAAP?

• A. The SEC (Securities and Exchange Commission)
• B. FASB (Financial Accounting Standards Board) and AICPA (American Institute of Certified Public Accountants)
• C. The IRS (Internal Revenue Service)
• D. Universities and educational institutions

Answer: (B)

The development of Generally Accepted Accounting Principles (GAAP) is primarily the responsibility of the Financial Accounting Standards Board (FASB) and the American Institute of Certified Public Accountants (AICPA). The FASB is an independent, private-sector body that establishes financial accounting and reporting standards for public and private companies in the United States. Its role is critical as it ensures that financial information is reported in a consistent and transparent manner. The AICPA contributes to the development of GAAP by providing resources, guidance, and promoting adherence to accounting standards among its members. It also plays a role in shaping the professional practice of accounting and influencing the establishment of accounting standards. In contrast, while the SEC oversees the enforcement of securities laws and requires compliance with GAAP for publicly traded companies, it does not directly develop GAAP itself. The IRS primarily focuses on tax regulations and enforcement, and universities and educational institutions provide education on accounting but do not develop or set the standards that constitute GAAP. Thus, the collaborative effort of the FASB and the AICPA is what establishes the framework of GAAP used in financial reporting.

The development of Generally Accepted Accounting Principles (GAAP) is primarily the responsibility of the Financial Accounting Standards Board (FASB) and the American Institute of Certified Public Accountants (AICPA). The FASB is an independent, private-sector body that establishes financial accounting and reporting standards for public and private companies in the United States. Its role is critical as it ensures that financial information is reported in a consistent and transparent manner.

The AICPA contributes to the development of GAAP by providing resources, guidance, and promoting adherence to accounting standards among its members. It also plays a role in shaping the professional practice of accounting and influencing the establishment of accounting standards.

In contrast, while the SEC oversees the enforcement of securities laws and requires compliance with GAAP for publicly traded companies, it does not directly develop GAAP itself. The IRS primarily focuses on tax regulations and enforcement, and universities and educational institutions provide education on accounting but do not develop or set the standards that constitute GAAP. Thus, the collaborative effort of the FASB and the AICPA is what establishes the framework of GAAP used in financial reporting.