Case 1-4 Generally Accepted Accounting Principles
At the completion of the Darby Department Store audit, the president asks about
the meaning of the phrase “in conformity with generally accepted accounting
principles,” which appears in your audit report on the management’s financial
statements. He observes that the meaning of the phrase must include more than
what he thinks of as “principles.”
a. Explain the meaning of the term accounting principles as used in the audit
report. (Do not in this part discuss the significance of “generally accepted.”)
b. The president wants to know how you determine whether or not an
accounting principle is generally accepted. Discuss the sources of evidence for
determining whether an accounting principle has substantial authoritative
c. The president believes that diversity in accounting practice will always exist
among independent entities despite continual improvements in comparability.
Discuss the arguments that support his belief.