In the context of the statement of cash flows, which group is primarily responsible for establishing the standards that govern how cash flow information is reported by companies?

• A. Internal Revenue Service (IRS)
• B. Financial Accounting Standards Board (FASB)
• C. Federal Reserve Board
• D. Securities and Exchange Commission (SEC)

Answer: (B)

Verified step by step guidance

1. Understand the context of the question: The statement of cash flows is a financial statement that provides information about a company's cash inflows and outflows during a specific period. It is governed by accounting standards to ensure consistency and comparability.
2. Identify the role of each entity mentioned in the options: The Internal Revenue Service (IRS) primarily deals with tax regulations, not accounting standards. The Federal Reserve Board focuses on monetary policy and banking regulations. The Securities and Exchange Commission (SEC) oversees securities markets and enforces financial reporting requirements but does not establish accounting standards.
3. Recognize the entity responsible for setting accounting standards: The Financial Accounting Standards Board (FASB) is the organization tasked with establishing and improving accounting standards in the United States, including those related to the statement of cash flows.
4. Relate the FASB's role to the statement of cash flows: The FASB issues guidelines and standards, such as those found in Generally Accepted Accounting Principles (GAAP), which dictate how companies should prepare and present their statement of cash flows.
5. Conclude that the correct answer is the Financial Accounting Standards Board (FASB), as it is the entity responsible for establishing the standards governing the reporting of cash flow information by companies.