An entity prepares its financial statements on its income tax basis. The accompanying notes include a summary of significant accounting policies that discusses the basis of presentation and describes how that basis differs from GAAP. The dollar amount of the effects of the difference between the income tax basis and GAAP: A) Is required to be included only in the notes to the financial statements.
B) Is required to be included only in the auditor’s report.
C) Is required to be included both in the notes to the financial statements and the auditor’s report.
D) Need not be quantified and included in either the notes to the financial statements or the auditor’s report.

D) Need not be quantified and included in either the notes to the financial statements or the auditor’s report.

Explanation:

Accounting principle can be defined as a general guideline to be followed by accountants or financial institutions when they record and report their financial transactions. A change in an accounting principle involves a change in an accounting method used.

GAAP is an acronym for Generally Accepted Accounting Principles, it comprises of the accounting standard, procedures and principles used by public institutions in the United States of America. The U.S GAAP is issued by the Financial Accounting Standards Board (FASB) and adopted by the U.S. Securities and Exchange Commission (SEC). Therefore, when accountants prepare and compile financial statements for public firms, it must be in line with United States of America, Generally Accepted Accounting Principles (GAAP)

In this scenario, an entity prepares its financial statements on its income tax basis. The accompanying notes include a summary of significant accounting policies that discusses the basis of presentation and describes how that basis differs from GAAP. The dollar amount of the effects of the difference between the income tax basis and GAAP need not be quantified and included in either the notes to the financial statements or the auditor’s report.

answer; the correct answer to the above statement is (true);