What does the Governmental Accounting Standards Board (GASB) define?

The correct answer indicates that the Governmental Accounting Standards Board (GASB) is responsible for establishing generally accepted accounting principles (GAAP) specifically for state and local governments. GASB was created to improve the financial reporting of state and local governmental entities by providing a set of standards that govern how these governments should record, report, and present their financial data.

These standards are essential because state and local governments face unique financial and operational challenges that are distinct from those of private-sector entities. By defining GAAP for these governmental bodies, GASB helps ensure transparency, accountability, and comparability in financial reporting, which is vital for stakeholders, including taxpayers, bondholders, and oversight bodies, to understand how public funds are managed.

The other choices refer to areas outside the scope of GASB's responsibilities, such as private sector accounting or auditing standards, which fall under different regulatory bodies or organizations.