I have been asked "Determining whether amounts are in conformity with GAAP addresses the proper measurements of assets, liabilities, revenues, and expenses which includes all of the following except:
a. the reasonableness of management's accounting principles.
b. proper application of valuation principles such as cost, net reliable value, market value, and present value.
c. consistency in the application of accounting principles.
d. the reasonableness of management's accounting policies.
e. proper application of the matching principles.
My text does not explain this, but I am guessing that the answer is b. Am I right? If not can you help me figure this out please?
To determine the correct answer, we need to understand what Generally Accepted Accounting Principles (GAAP) are and what they entail.
GAAP is a set of rules, principles, and procedures that govern the preparation and reporting of financial statements. The objective of GAAP is to provide users of financial information with accurate, reliable, and relevant financial statements.
In this context, determining whether amounts are in conformity with GAAP means ensuring that the financial statements comply with the accounting principles and standards set forth by the relevant regulatory bodies.
Let's analyze each option:
a. The reasonableness of management's accounting principles: This statement is related to GAAP because it considers whether the accounting principles chosen by management are appropriate and reasonable.
b. Proper application of valuation principles such as cost, net reliable value, market value, and present value: This option is actually in line with GAAP because it addresses the proper measurement of assets, which is one of the key aspects of GAAP.
c. Consistency in the application of accounting principles: This is a crucial element of GAAP because it ensures that the same accounting principles are applied consistently from one period to another.
d. The reasonableness of management's accounting policies: Similar to option (a), this statement is related to GAAP because it refers to the reasonableness of management's choices regarding accounting policies.
e. Proper application of the matching principles: This option also aligns with GAAP because matching principles refer to the appropriate recognition of expenses and revenues in the same accounting period.
Now, let's evaluate your answer. You suggested that the answer is option (b) - the proper application of valuation principles. However, upon analysis, we can see that option (b) is actually part of GAAP and thus should be included in the conformity assessment.
Therefore, the correct answer is option (a) - the reasonableness of management's accounting principles - as it is the only option that is not directly related to the determination of whether amounts are in conformity with GAAP.
So, in this case, your initial guess was incorrect.