Sherry Tsang has just started up a small corporation that produces clothing. She has applied for and received a government grant. The grant will automatically be renewed as long as the business shows a profit at year end. Because she is trying to control costs, Sherry will prepare the financial statements. The bank has lent Sherry money and is also waiting for the year-end statements. It will decide whether to renew the loan or not.

1. Discuss the ethical issues of Sherry preparing her own financial statements.

2. Which GAAP should she follow? Explain.