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

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Definitions:

Foreign Corporation

A corporation that is incorporated under the laws of a different country from the one in which it primarily operates.

Inventory

Items owned by a company consisting of raw materials, work-in-process, and finished goods that are considered to be part of the business's assets that are ready or will be ready for sale.

Intra-entity Transfers

Transactions involving assets, services, or funds between divisions or departments within the same entity.

Voting Stock

Shares that grant the shareholder the right to vote on corporate matters, such as the election of the board of directors.