What must financial statements prepared by public companies do?

• A. Be audited only if the company chooses to
• B. Be prepared only for internal management use
• C. Comply with Generally Accepted Accounting Principles (GAAP)
• D. Exclude disclosures about significant accounting policies

Answer: (C)

Verified step by step guidance

1. Understand the purpose of financial statements: Financial statements are formal records of the financial activities and position of a business, person, or other entity. For public companies, these statements are intended to provide transparency to investors, regulators, and other stakeholders.
2. Recognize the regulatory requirements for public companies: Public companies are required to prepare financial statements in compliance with Generally Accepted Accounting Principles (GAAP) to ensure consistency, reliability, and comparability of financial information.
3. Identify the role of GAAP: GAAP provides a framework of accounting standards, principles, and procedures that companies must follow when preparing their financial statements. This ensures that the financial information is accurate and adheres to a standardized format.
4. Understand the importance of disclosures: Public companies must include disclosures about significant accounting policies and other relevant information in their financial statements. These disclosures provide additional context and transparency to help users understand the financial data.
5. Clarify the auditing requirement: Financial statements of public companies must be audited by independent external auditors to ensure compliance with GAAP and to provide assurance that the financial statements are free from material misstatements.