CFE – Financial Transactions and Fraud Schemes — Question 97

Which of the following statements is MOST ACCURATE 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. U.S. GAAP is a principle-based accounting framework, and IFRS is a rules-based accounting framework.
• B. Organizations that conduct business internationally must adopt IFRS as their accounting framework for financial reporting.
• C. The financial reporting practices that a publicly traded company must follow are determined by the company's jurisdiction.
• D. All publicly traded companies are required to adopt either U.S. GAAP or IFRS as their accounting framework.

Correct answer: C

Explanation

The correct answer is C because the jurisdiction of a company dictates the financial reporting practices it must adhere to, which can vary between regions. Option A is incorrect as U.S. GAAP is considered rules-based, and IFRS is principle-based. Option B is misleading since not all international businesses are required to adopt IFRS, as they may still be able to use GAAP depending on their jurisdiction. Option D is also incorrect as companies may have the flexibility to follow local standards instead of strictly U.S. GAAP or IFRS.