Which accounting system uses GAAP and is required for publicly owned companies?

The correct choice is financial accounting, which is the accounting system that adheres to Generally Accepted Accounting Principles (GAAP) and is mandated for publicly traded companies. Financial accounting focuses on providing a clear and structured representation of the financial performance and position of an organization through standardized financial statements, such as the balance sheet, income statement, and cash flow statement.

Publicly owned companies are required to follow GAAP to ensure transparency, consistency, and comparability in their financial reporting. This regulation provides stakeholders, including investors, creditors, and regulators, with reliable financial information that is necessary for making informed decisions.

In contrast, managerial accounting does not have to comply with GAAP as it is primarily used internally for decision-making by management. Government accounting focuses on the financial transactions and reporting standards unique to government entities, often using different frameworks. Statutory accounting is specific to insurance companies and is less concerned with GAAP, instead focusing on regulatory requirements particular to that industry.