The correct answer is C. Both 1 and 2 are true.
Statement 1 is true because financial statements are prepared on the basis of accounting principles. These principles are set by the Financial Accounting Standards Board (FASB) and are designed to provide a consistent and reliable framework for reporting financial information.
Statement 2 is also true because any changes in accounting principles or method will affect the utility of the financial statements. This is because changes in accounting principles can make it difficult to compare financial statements from different periods. Additionally, changes in accounting methods can make it difficult to compare financial statements from the same period.
Therefore, both statements are true.