Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

The term U.S. generally accepted accounting principles encompasses what?

1. A measure of conventions and rules governed by the AICPA.

2. The conventions and procedures necessary to define U.S. accepted accounting practice.

3. Broad guidelines of application, not detailed practices.

4. It indicates an audit conducted in accordance with GAAS.

The correct answer is: The conventions and procedures necessary to define U.S. accepted accounting practice.

The term U.S. generally accepted accounting principles (GAAP) refers to a comprehensive framework that establishes the conventions, rules, and procedures necessary to define accepted accounting practice within the United States. GAAP provides a standardized methodology that all entities, particularly publicly traded companies, must follow when preparing financial statements. This framework includes a vast array of accounting principles, standards, and practices that outline how various economic transactions should be recorded and recognized. By adhering to these principles, companies ensure that their financial reporting is consistent, transparent, and comparable across different organizations, which is crucial for investors, regulators, and other stakeholders. The other options provide narrower definitions or pertain to related concepts. The mention of the AICPA is limited to one body that develops and sets standards, without encompassing the entirety of GAAP. The description of broad guidelines does not capture the specificity and detailed standards included in GAAP. Lastly, referencing an audit conducted in accordance with GAAS relates specifically to auditing standards, not directly to the principles of accounting itself. Thus, the chosen option accurately describes the comprehensive nature of U.S. generally accepted accounting principles.