Multiple Choice
Generally Accepted Accounting Principles (GAAP) are currently formulated by the:
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15. GAAP vs IFRS
GAAP vs. IFRS: Introduction
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Which process is used to determine if a company's financial statements are prepared in accordance with GAAP?
A
A stock split
B
A merger
C
An audit
D
A dividend declaration
Verified step by step guidance1
Understand the purpose of GAAP (Generally Accepted Accounting Principles), which are standards designed to ensure consistency, reliability, and comparability in financial reporting.
Recognize that an audit is a systematic examination of a company's financial statements, conducted by an independent auditor, to verify their accuracy and compliance with GAAP.
Learn that the audit process involves reviewing accounting records, internal controls, and supporting documentation to ensure the financial statements are free from material misstatements.
Differentiate an audit from other financial processes such as stock splits, mergers, or dividend declarations, which are corporate actions unrelated to verifying compliance with GAAP.
Conclude that the correct process to determine if a company's financial statements are prepared in accordance with GAAP is an audit, as it provides assurance to stakeholders about the reliability of the financial information.
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