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The expectations gap is:

  1. What financial information management provides and what users want.
  2. What the public thinks accountants do and what accountants think they can do.
  3. What the governmental agencies want form standard-setting and what the standard-setters provide.
  4. What the users of financial statements want from the government and what is provided.

Short Answer

Expert verified

Option (a) will be the correct answer.

Step by step solution

01

Meaning of Financial Statement

Thefinancial statementsshould provide an accurateand fair view oftheentity's state of affairs. This helps protect the interest of the various internal and externalstakeholders associated with the entity.

02

The explanation for the correct option

The expectations gap is the difference between the financial information provided by the management and the information expected by various users, such as investors, banks, etc., to be contained in the entity's financial statements.

03

The explanation for the incorrect options

  • Option (b) is an incorrect answer. What the public thinks accountants do and accountants think they can do is not an expectation gap. It is the difference between the personal opinion of the accountants and the public.
  • Option (c) is an incorrect answer. What the governmental agencies want from standard-setting and the standard-setters provide is not an expectation gap. It is the difference between the expectation from standard setters by the government and the results from the standard-setting activity.
  • Option (d) is an incorrect answer. What the users of financial statements want from the government and what is provided is not an expectation gap. But a difference between the expectations and results from the government policy.

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Most popular questions from this chapter

CA1-7 WRITING (Need for GAAP) Some argue that having various organizations establish accounting principles is wasteful and inefficient. Rather than mandating accounting rules, each company could voluntarily disclose the type of information it considered important. In addition, if an investor wants additional information, the investor could contact the company and pay to receive the additional information desired.InstructionsComment on the appropriateness of this viewpoint.

Question: What was the Committee on Accounting Procedure, and what were its accomplishments and failings?

The objective of financial reporting places most emphasis on:

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Differentiate broadly between financial accounting and managerial accounting.

(FASB Role in Rule-making) A press release announcing the appointment of the trustees of the new Financial Accounting Foundation stated that the Financial Accounting Standards Board (to be appointed by the trustees)โ€โ€ฆwill become the established authority for setting accounting principles under which corporations report to the shareholders and othersโ€ (AICPA news release July 20,1972).

Instructions

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