American Institute of Certified Public Accountants (AICPA) Practice Exam

Members preparing financial statements must adhere to which principle?

1. Confidentiality

2. Honesty

3. Objectivity and independence

4. Professional competence

The correct answer is: Objectivity and independence

The principle that members preparing financial statements must adhere to is objectivity and independence. This principle ensures that financial statements are presented fairly and without bias. Objectivity refers to the need for information within financial statements to be free from personal bias, and it requires professionals to maintain an impartial attitude while dealing with financial data. Independence emphasizes that accountants and auditors should not have conflicts of interest that could affect their judgment or the integrity of the financial report. In practice, adhering to objectivity and independence helps ensure that stakeholders such as investors, creditors, and regulators can trust the financial statements. This builds credibility for the profession and supports the overall integrity of financial reporting. Other principles, while important, do not specifically apply to the preparation of financial statements in the same way. Confidentiality relates to protecting client information, honesty is a general quality expected of professionals but not a defined accounting principle, and professional competence is about maintaining the necessary skills and knowledge. However, these principles do not directly govern how financial statements should be prepared or how objectivity should be maintained in the reporting process.