CFE – Financial Transactions and Fraud Schemes — Question 79

Which of the following is TRUE regarding financial reporting practices and accounting frameworks, such as U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS)?

Answer options

• A. Publicly traded companies must adhere to the specific financial reporting practices in their jurisdiction.
• B. U.S. GAAP is a principle-based accounting framework, whereas IFRS is a rules-based accounting framework.
• C. All organizations must use U.S. GAAP if they conduct business with entities in the United States.
• D. Management determines which accounting framework an organization will adhere to for financial reporting.

Correct answer: D

Explanation

The correct answer is D because management has the authority to choose the accounting framework that best suits the organization’s needs. Option A is incorrect as it doesn't cover all companies and their specific requirements may vary. Option B misrepresents the nature of both frameworks; U.S. GAAP is considered rules-based, and IFRS is more principle-based. Option C is inaccurate because not all organizations are mandated to use U.S. GAAP unless they are publicly traded in the U.S.