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The FASB conceptual framework is influenced by several underlying assumptions, although these assumptions are not addressed explicitly in the framework. These five basic assumptions are economic entity, going concern, arm’s-length transactions, stable monetary unit, and accounting period. Which ONE of these assumptions is associated with the distorting effect on reported accounting numbers of business conducted between related parties?

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Answer:

The assumption associated with the distorting effect on reported accounting numbers of business conducted between related parties is the "arm's-length transactions" assumption. This assumption assumes that transactions between related parties should be conducted as if they were between unrelated parties to ensure fair and unbiased reporting of accounting numbers.

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