Generally-Accepted Accounting Principles
president asks about the meaning of the phrase “in conformity with
generally accepted accounting principles,” which appears in your audit
report on the management’s financial statements. He observes that the meaning
of the phrase must include more than what he thinks as “principles.”
a. Explain the meaning of the term accounting principles as
used in the audit report. (Do not discuss the significance of “generally
accepted”)
b. The president wants to know how you determine whether or
not an accounting principle is generally accepted. Discuss the sources of
evidence for determining whether an accounting principle has substantial
authority or support.
c. The president believes that diversity in accounting
practice will always exist among independent entities despite continual
improvements to comparability. Discuss the arguments that support his belief.
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