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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

IFRS is comprised of:

(a) International Financial Reporting Standards and FASB Financial Reporting Standards.

(b) International Financial Reporting Standards, International Accounting Standards, and International Accounting Interpretations.

(c) International Accounting Standards and International Accounting Interpretations.

(d) FASB Financial Reporting Standards and International Accounting Standards.

(Objective of Financial Reporting) Karen Sepan, a recent graduate of the local state university, is presently employed by a large manufacturing company. She has been asked by Jose Martinez, controller, to prepare the companyโ€™s response to a current Preliminary Views published by the Financial Accounting Standards Board (FASB). Sepan knows that the FASB has a conceptual framework, and she believes that these concept statements could be used to support the companyโ€™s response to the Preliminary Views. She has prepared a rough draft of the response citing the objective of financial reporting.Instructions

  1. Identify the objective of financial reporting.
  2. Describe the level of sophistication expected of the users of financial information by the objective of financial reporting.

The chair of the FASB at one time noted that โ€œthe flow of standards can only be slowed if (1) producers focus less on quarterly earnings per share and tax benefits and more on quality products,and

(2) accountants and lawyers rely less on rules and law and more on professional judgement and conduct.โ€ Explain his comment.

(FASB and Standard-Setting) Presented below are four statements which you are to identify as true or false. If false, explain why the statement is false.

  1. GAAP is the term used to indicate the whole body of FASB authoritative literature.
  2. Any company claiming compliance with GAAP must comply with most standards and interpretations but does not have to follow the disclosure requirements.
  3. The primary governmental body that has influence over the FASB is the SEC.
  4. The FASB has a government mandate and therefore does not have to follow due process in issuing a standard.

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

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