GAAP is governed by ________________________________.

• A. The American Institute of CPAs
• B. The Financial Accounting Standards Board (FASB)
• C. The Securities and Exchange Commission (SEC)
• D. The International Accounting Standards Board (IASB)

Answer: (B)

Generally Accepted Accounting Principles (GAAP) are governed by the Financial Accounting Standards Board (FASB). The FASB plays a crucial role in establishing and maintaining the standards of financial accounting and reporting that ensure transparency, consistency, and comparability of financial statements across different entities in the United States.

The organization's responsibilities include setting the standards that are recognized by the accounting profession in the U.S., and its guidance provides a framework that accounting professionals follow when preparing financial reports. This ensures that financial statements reflect a true and fair view of a company’s financial position and performance, which is vital for stakeholders, including investors, creditors, and regulators.

While other organizations, such as the Securities and Exchange Commission (SEC), oversee certain aspects of financial reporting, they do not create the GAAP standards themselves. Similarly, the American Institute of CPAs (AICPA) is influential in the accounting profession but does not specifically govern GAAP. The International Accounting Standards Board (IASB) is responsible for setting International Financial Reporting Standards (IFRS), which are distinct from GAAP used in the U.S. Therefore, FASB is the correct governing body for GAAP.