Financial Accounting and Reporting-CPA Practice Exam

Who has been responsible for determining GAAP since 1973?

1. Committee on Accounting Procedures

2. Accounting Principles Board

3. Financial Accounting Standards Board

4. Internal Revenue Service

The correct answer is: Financial Accounting Standards Board

Since 1973, the Financial Accounting Standards Board (FASB) has been the organization responsible for establishing and improving generally accepted accounting principles (GAAP) in the United States. FASB was created to replace the Accounting Principles Board and is recognized for its role in providing authoritative guidance on accounting standards. FASB’s responsibilities include creating and issuing standards and interpretations that govern financial reporting, ensuring that these standards meet the needs of financial statement users. Its work involves broad consultations with various stakeholders, including accounting professionals, business organizations, and government entities, to enhance the quality of financial reporting and ensure transparency and comparability among financial statements. The other entities listed have historical significance in the evolution of accounting standards. The Committee on Accounting Procedures and the Accounting Principles Board both served prior to FASB but were disbanded due to their limitations in addressing the growing complexity of accounting issues and the need for more rigorous standards-setting processes. The Internal Revenue Service (IRS) is focused on tax regulations rather than GAAP and does not play a role in the establishment of financial accounting standards. FASB’s ongoing efforts remain crucial for maintaining a framework that reflects the dynamics of business and economic transactions.