GAAP Have Two Important Functions

question 42

Multiple Choice

GAAP have two important functions. First, they provide a set of standards that endeavor to measure with reasonable accuracy the assets held, liabilities owed, revenue earned, and expenses incurred by the company. For life insurance companies these measurement rules have been prescribed specifically for their specialized products. The second important function of GAAP is:

• A) To ensure the comparability of financial data from year to year within each company and with similar data prepared by other companies
• B) To ensure the comparability of financial data
• C) To ensure the comparability of financial data from month to month within each company and with similar data prepared by other companies
• D) To ensure the comparability of financial data from quarter to quarter within each company and with similar data prepared by other companies

---

Definitions:

Stated Rate

The interest rate stated on the face of a bond or other fixed-income security, which is used to calculate the interest payments to the bondholders.

Zero-Coupon Bonds

Bonds that do not pay periodic interest payments and are instead issued at a substantial discount from their face value.

Interest Expense

The cost incurred by an entity for borrowed funds, paid to the lender as a form of compensation for the use of the loan.

Debenture Bonds

Unsecured bonds that rely on the creditworthiness and reputation of the issuer for support, not on collateral.