Which organization is a private, nonprofit entity that develops standards for GAAP?

• A. SEC
• B. AICPA
• C. FASB
• D. PCAOB

Answer: (C)

The main idea is recognizing who actually develops the GAAP standards in the United States. That role is filled by a private, nonprofit organization called the Financial Accounting Standards Board. FASB operates independently under the oversight of the Financial Accounting Foundation and is responsible for creating and updating GAAP through a formal due-process process, including public comment periods and formal issuances called Accounting Standards Updates. The SEC relies on FASB for GAAP but does not set the standards itself.

The other entities have different functions. The SEC is a federal government agency that oversees securities markets and enforces laws, but it does not determine GAAP. The AICPA is a professional association of CPAs and historically contributed to standard-setting, but GAAP currently comes from FASB. The PCAOB focuses on auditing standards for public companies, not GAAP for financial reporting.