Question

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

Option (a) will be the correct answer.

Step-by-step solution

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.

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.

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.