Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which governing aspect influences GAAP?

1. Company law

2. Consumer preferences

3. Industry competitiveness

4. Technological advancements

The correct answer is: Company law

Generally Accepted Accounting Principles (GAAP) are influenced primarily by company law. This legal framework establishes the foundational rules and guidelines that companies must adhere to when preparing their financial statements. Each jurisdiction has its own set of laws that govern corporate behavior, including how financial reporting should be conducted. These laws ensure that companies maintain transparency and consistency in their accounting practices, which helps protect stakeholders such as investors, creditors, and regulators. The alignment of GAAP with company law also promotes comparability in financial reporting, allowing stakeholders to make informed decisions based on the financial statements of different entities. While consumer preferences, industry competitiveness, and technological advancements may play a role in the evolution of accounting practices or in shaping specific disclosures, they do not constitute the foundational legal requirements that govern financial reporting as established by company law. Thus, company law stands as the primary governing aspect that influences GAAP.