Which of the following is a key principle of accounting under GAAP?

• A. Conservatism
• B. Maximization
• C. Speculation
• D. Integral valuation

Answer: (A)

Conservatism is a fundamental principle of accounting under GAAP that dictates that accountants should exercise caution in financial reporting. This means that when presented with uncertainty, accountants should choose the option that is least likely to overstate assets and income or understate liabilities and expenses. The objective is to provide a more realistic portrayal of a company's financial position and performance, which helps protect stakeholders from the potential implications of optimistic accounting practices. By adhering to the conservatism principle, companies aim to ensure that their financial statements are reliable and reflect a cautious approach to estimating income and valuing assets, ultimately serving the best interest of investors and creditors.

In contrast, the other options do not represent key principles under GAAP. Maximization tends to imply an aggressive strategy toward income and asset reporting, which is contrary to the cautious approach of conservatism. Speculation involves making predictions based on possible future events, which isn't a principle of conservative accounting. Integral valuation is not a recognized principle within GAAP and does not represent an accounting practice that aligns with the established framework used for preparing financial statements.