Which entities are required to use GAAP?

Which entities are required to use GAAP?

• A. Only public companies
• B. Public companies and non-profit organizations
• C. Public companies, non-profit organizations, and government entities
• D. Government entities only

Answer: (C)

The correct answer encompasses public companies, non-profit organizations, and government entities because each of these categories is required to follow Generally Accepted Accounting Principles (GAAP) for financial reporting. Public companies must adhere to GAAP as mandated by the Securities and Exchange Commission (SEC). This requirement ensures consistency and transparency in financial statements, which is vital for investors and stakeholders making decisions based on that information. Non-profit organizations also follow GAAP because they must accurately report their financial activities to maintain transparency and accountability. Their funding often comes from donations and grants, which necessitates clear and standardized financial reporting practices to assure contributors that funds are used appropriately. Government entities are also required to comply with GAAP, specifically the Governmental Accounting Standards Board (GASB) standards, which provide guidelines tailored to the public sector. This ensures that taxpayers and oversight bodies can trust government financial reports, allowing for proper allocation of public resources and maintaining public accountability. Each of these entities utilizes GAAP to promote transparency, comparability, and reliability in their financial reporting, thereby fulfilling their various responsibilities to stakeholders.

The correct answer encompasses public companies, non-profit organizations, and government entities because each of these categories is required to follow Generally Accepted Accounting Principles (GAAP) for financial reporting.

Public companies must adhere to GAAP as mandated by the Securities and Exchange Commission (SEC). This requirement ensures consistency and transparency in financial statements, which is vital for investors and stakeholders making decisions based on that information.

Non-profit organizations also follow GAAP because they must accurately report their financial activities to maintain transparency and accountability. Their funding often comes from donations and grants, which necessitates clear and standardized financial reporting practices to assure contributors that funds are used appropriately.

Government entities are also required to comply with GAAP, specifically the Governmental Accounting Standards Board (GASB) standards, which provide guidelines tailored to the public sector. This ensures that taxpayers and oversight bodies can trust government financial reports, allowing for proper allocation of public resources and maintaining public accountability.

Each of these entities utilizes GAAP to promote transparency, comparability, and reliability in their financial reporting, thereby fulfilling their various responsibilities to stakeholders.