Deck 1: Financial Accounting and Accounting Standards

Question 1

The objective of financial reporting is to report the plans made by a company to improve the productivity of its employees.

Answer 1

False

Question 2

Investors are interested in financial reporting because it provides information that is useful for making decisions.

Answer 2

True

Question 3

U.S. companies that list overseas are required to use International Financial Reporting Standards, issued by the International Accounting Standards Board.

Answer 3

False

Question 4

Accounting standards are now less likely to require the recording or disclosure of fair value information.

Question 5

GAAP is a product of careful logic or empirical findings and is not influenced by political action.

Question 6

The AICPA created the Accounting Principles Board in 1959.

Question 7

The expectations gap is due to the difference between what the public thinks accountants should do and what accountants think they can do.

Question 8

The Public Company Accounting Oversight Board has oversight and enforcement authority and establishes auditing and independence standards and rules.

Question 9

The AICPA's Code of Professional Conduct requires that members prepare financial statements in accordance with generally accepted accounting principles.

Question 10

The passage of a new FASB Accounting Standards Update requires the support of five of the seven board members.

Question 11

An effective process of capital allocation promotes productivity and provides an efficient market for buying and selling securities and obtaining and granting credit.

Question 12

Statements of Financial Accounting Concepts set forth fundamental objectives and concepts that are used by the FASB in developing future standards of financial accounting and reporting.

Question 13

Users of financial accounting statements have both coinciding and conflicting needs for information of various types.

Question 14

Users of financial reports of a company use the information provided by these reports to make their capital allocation decisions.

Question 15

Financial reports in the early 21st century did not provide any information about a company's soft assets (intangibles).

Question 16

Financial accounting is the process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, evaluate, and control a company's operations.

Question 17

The Securities and Exchange Commission appointed the Committee on Accounting Procedure.

Question 18

Ethical issues in financial accounting are governed by the AICPA.

Question 19

The FASB's Codification creates a new set of GAAP.

Question 20

Financial statements are the principal means through which a company communicates its financial information to those outside it.

Question 21

Which perspective is adopted as a part of the objective of general-purpose financial reporting?

A) A decision-usefulness perspective.
B) A proprietary perspective.
C) An entity perspective.
D) A financial reporting perspective.

Question 22

Which of the following is not a major challenge facing the accounting profession?

A) Nonfinancial measurements.
B) Timeliness.
C) Accounting for hard assets.
D) Forward-looking information.

Question 23

Which of the following is related to an effective capital allocation?

A) Promoting productivity.
B) Encouraging innovation.
C) Providing an efficient market for buying and selling securities.
D) All of these answer choices are correct.

Question 24

Which of the following helps in determining whether a business thrives?

A) Markets.
B) Free enterprise.
C) Competition.
D) All of these answer choices are correct.

Question 25

27. The process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, evaluate, and control an organization's operations is called

A) financial accounting.
B) managerial accounting.
C) tax accounting.
D) auditing.

Question 26

Primary users for general-purpose financial statements include

A) creditors.
B) employees.
C) investors.
D) both creditors and investors.

Question 27

What is the objective of financial reporting?

A) Provide information that is useful to management in making decisions.
B) Provide information that clearly portrays nonfinancial transactions.
C) Provide information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors.
D) Provide information that excludes claims to the resources.

Question 28

Which of the following is a general limitation of "general purpose financial statements"?

A) General purpose financial statements may not be the most informative for a specific enterprise.
B) General purpose financial statements are not comparable.
C) General purpose financial statements do not fairly present a company's financial operations.
D) None of the answer choices are correct.

Question 29

Which of the following represents a form of communication through financial reporting but not through financial statements?

A) Balance sheet.
B) President's letter.
C) Income statement.
D) Notes to financial statements.

Question 30

Which of the following is a requirement for an accounting principle to be called "generally accepted"?

A) An authoritative accounting rule-making body has established it in an official pronouncement.
B) The principle has been accepted as appropriate because of its universal application.
C) An authoritative accounting rule-making body has established it and it has been accepted because of its universal application.
D) None of the answer choices are correct.

Question 31

Financial statements in the early 2000s provide information related to

A) nonfinancial measurements.
B) forward-looking data.
C) hard assets (inventory and plant assets).
D) None of these answer choices are correct.

Question 32

A common set of accounting standards and procedures are called

A) financial accounting standards.
B) generally accepted accounting principles.
C) objectives of financial reporting.
D) statements of financial accounting concepts.

Question 33

Accrual accounting is used because

A) cash flows are considered less important.
B) it provides a better indication of a company's ability to generate cash flows than the cash basis.
C) it recognizes revenues when cash is received and expenses when cash is paid.
D) None of the answer choices are correct.

Question 34

Which of the following is not a user of financial reports?

A) Creditors.
B) Government agencies.
C) Unions.
D) All of these are users.

Question 35

The information provided by financial reporting pertains to

A) individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers.
B) business industries, rather than to individual enterprises or an economy as a whole or to members of society as consumers.
C) individual business enterprises, industries, and an economy as a whole, rather than to members of society as consumers.
D) an economy as a whole and to members of society as consumers, rather than to individual enterprises or industries.

Question 36

General-purpose financial statements are the product of

A) financial accounting.
B) managerial accounting.
C) both financial and managerial accounting.
D) neither financial nor managerial accounting.

Question 37

Which of the following will be of interest to investors in decision-making?

A) Assessing the company's ability to generate net cash inflows.
B) Assessing management's ability to protect and enhance the capital providers' investments.
C) Both assessing the company's ability to generate net cash inflows and assessing management's ability to protect and enhance the capital provider's investments.
D) Assessing the company's ability to collect debts.

Question 38

All the following are differences between financial and managerial accounting in how accounting information is used except to

A) plan and control company's operations.
B) decide whether to invest in the company.
C) evaluate borrowing capacity to determine the extent of a loan to grant.
D) All the answer choices are correct.

Question 39

The financial statements most frequently provided include all of the following except the

A) balance sheet.
B) income statement.
C) statement of cash flows.
D) statement of retained earnings.

Question 40

How does accounting help the capital allocation process attract investment capital?

A) By providing timely, relevant information.
B) By encouraging innovation.
C) By promoting productivity.
D) By providing timely, relevant information and by encouraging innovation.

Question 41

Why did the AICPA create the Accounting Principles Board?

A) The SEC disbanded the previous standard setting organization.
B) The previous standard setting organization did not provide a structured set of accounting principles.
C) No such organization existed in the past.
D) None of the answer choices are correct.

Question 42

Which of the following organizations has been responsible for setting U.S. accounting standards?

A) The Accounting Principles Board.
B) The Committee on Accounting Procedure.
C) The Financial Accounting Standards Board.
D) All of the answer choices are correct.

Question 43

The Financial Accounting Standards Board employs a "due process" system which

A) is an efficient system for collecting dues from members.
B) enables interested parties to express their views on issues under consideration.
C) identifies the accounting issues that are the most important.
D) requires that all accountants must receive a copy of financial standards.

Question 44

Which of the following is not a publication of the FASB?

A) Statements of Financial Accounting Concepts
B) Accounting Research Bulletins
C) Interpretations
D) Technical Bulletins

Question 45

The passage of a new FASB Accounting Standards Update requires the support of

A) seven Board members.
B) three Board members.
C) four Board members.
D) five Board members.

Question 46

The Financial Accounting Standards Board (FASB) was proposed by the

A) American Institute of Certified Public Accountants.
B) Accounting Principles Board.
C) Study Group on the Objectives of Financial Statements.
D) Study Group on establishment of Accounting Principles (Wheat Committee).

Question 47

Why was it believed that accounting standards that were issued by the Financial Accounting Standards Board would carry more weight?

A) Smaller membership.
B) The FASB board members were well-paid.
C) The FASB board members were CPAs.
D) Due process.

Question 48

What is the relationship between the Securities and Exchange Commission and accounting standard setting in the United States?

A) The SEC requires all companies listed on an exchange to submit their financial statements to the SEC.
B) The SEC coordinates with the AICPA in establishing accounting standards.
C) The SEC has a mandate to establish accounting standards for enterprises under its jurisdiction.
D) The SEC reviews financial statements for compliance.

Question 49

Which organization is responsible for issuing Emerging Issues Task Force Statements?

A) The FASB
B) The CAP
C) The APB
D) The SEC

Question 50

What is the purpose of Emerging Issues Task Force?

A) Provide interpretation of existing standards.
B) Provide a consensus on how to account for new and unusual financial transactions.
C) Provide interpretive guidance.
D) Provide timely guidance on select issues.

Question 51

The body that has the power to prescribe the accounting practices and standards to be employed by companies that fall under its jurisdiction is the

A) FASB.
B) AICPA.
C) SEC.
D) APB.

Question 52

The major distinction between the Financial Accounting Standards Board (FASB) and its predecessor, the Accounting Principles Board (APB), is

A) the FASB issues exposure drafts of proposed standards.
B) all members of the FASB are fully remunerated, serve full time, and are independent of any companies or institutions.
C) all members of the FASB possess extensive experience in financial reporting.
D) a majority of the members of the FASB are CPAs drawn from public practice.

Question 53

The Financial Accounting Foundation

A) oversees the operations of the FASB.
B) oversees the operations of the AICPA.
C) provides information to interested parties on financial reporting issues.
D) works with the Financial Accounting Standards Advisory Council to provide informa-tion to interested parties on financial reporting issues.

Question 54

Which organization was responsible for issuing Accounting Research Bulletins?

A) The Accounting Principles Board.
B) The Committee on Accounting Procedure.
C) The SEC.
D) The FASB.

Question 55

Which of the following is true of the Financial Accounting Standards Board

A) It has issued a series of pronouncements entitled Auditing Standards Updates.
B) It was the forerunner of the current Accounting Principles Board.
C) It is the arm of the Securities and Exchange Commission responsible for setting financial accounting standards.
D) The members of the FASB are appointed by the Financial Accounting Foundation.

Question 56

Companies that are listed on a stock exchange are required to submit their financial statements to the

A) AICPA.
B) APB
C) FASB.
D) SEC.

Question 57

A characteristic of generally accepted accounting principles include:

A) a common set of standards and principles.
B) standards and principles are based a federal statutes.
C) acceptance requires an affirmative vote of Certified Public Accountants.
D) practices that become accepted for at least a year by all industry members.

Question 58

Characteristics of generally accepted accounting principles include all of the following except

A) authoritative accounting that the rule-making body has established as a principle of reporting.
B) standards are considered useful by the profession.
C) each principle is approved by the SEC.
D) practice has become universally accepted over time.

Question 59

What is due process in the context of standard setting at the FASB?

A) The FASB operates in full view of the public.
B) Public hearings are held on proposed accounting standards.
C) Interested parties can make their views known.
D) All of the answer choices are correct.

Question 60

The role of the Securities and Exchange Commission in the formulation of accounting principles can be best described as

A) consistently primary.
B) consistently secondary.
C) sometimes primary and sometimes secondary.
D) non-existent.

Question 61

The purpose of the International Accounting Standards Board is to

A) issue enforceable standards which regulate the financial accounting and reporting of multinational corporations.
B) develop a uniform currency in which the financial transactions of companies through-out the world would be measured.
C) promote uniform accounting standards among countries of the world.
D) arbitrate accounting disputes between auditors and international companies.

Question 62

Which of the following is a source of pressure that may influence the accounting standard setting process?

A) Congress.
B) Lobbyist.
C) CPA firms.
D) All of these answers are correct.

Question 63

The most significant current source of generally accepted accounting principles is the

A) AICPA.
B) SEC.
C) APB.
D) FASB.

Question 64

Which of the following organizations has not been instrumental in the development of financial accounting standards in the United States?

A) AICPA
B) FASB
C) IASB
D) SEC

Question 65

The American Institute of Certified Public Accountants (AICPA) continues to be involved in all of the following except

A) developing and enforcing professional ethics.
B) developing auditing standards for public companies.
C) providing professional education programs.
D) All of the answer choices are correct.

Question 66

The purpose of the Emerging Issues Task Force is to

A) develop a conceptual framework as a frame of reference for the solution of future .
B) lobby the FASB on issues that affect a particular industry.
C) do research on issues that relate to long-term accounting .
D) issue statements which reflect a consensus on how to account for new and unusual financial transactions that need to be resolved quickly.

Question 67

What is a possible danger if politics plays too big a role in accounting standard setting?

A) Accounting standards that are not truly generally accepted.
B) Individuals may influence the standards.
C) User groups become active.
D) The FASB delegates its authority to elected officials.

Question 68

Which of the following pronouncements were issued by the Accounting Principles Board?

A) Accounting Research Bulletins
B) APB Opinions
C) APB Statements of Position
D) Statements of Financial Accounting Concepts

Question 69

Members of the Financial Accounting Standards Board are

A) employed by the American Institute of Certified Public Accountants (AICPA).
B) part-time employees.
C) required to hold a CPA certificate.
D) independent of any other organization.

Question 70

Which of the following publications does not qualify as a statement of generally accepted accounting principles?

A) Statements of financial standards issued by the FASB
B) Accounting interpretations issued by the FASB
C) APB Opinions
D) Accounting research studies issued by the AICPA

Question 71

What is the purpose of a FASB Staff Position?

A) Provide interpretation of existing standards.
B) Provide a consensus on how to account for new and unusual financial transactions.
C) Provide interpretive guidance.
D) Provide timely guidance on select issues.

Question 72

Rule 203 of the Code of Professional Conduct addresses:

A) ethical requirements.
B) financial statements being based on generally accepted accounting principles.
C) advertising to obtain clients.
D) auditing financial statements.

Question 73

Which of the following organizations has not published accounting standards?

A) American Institute of Certified Public Accountants.
B) Securities and Exchange Commission.
C) Financial Accounting Standards Board.
D) All of these have published accounting standards.

Question 74

FASB Technical Bulletins

A) are similar to FASB Interpretations in that they establish enforceable standards under the AICPA's Code of Professional Ethics.
B) are issued monthly by the FASB to deal with current topics.
C) are not expected to have a significant impact on financial reporting in general and provide guidance when it does not conflict with any broad fundamental accounting principle.
D) were recently discontinued by the FASB because they dealt with specialized topics having little impact on financial reporting in general.

Question 75

Which of the following is true of generally accepted accounting principles?

A) GAAP includes detailed practices and procedures as well as broad guidelines of general application.
B) GAAP is influenced by pronouncements of the SEC and IRS.
C) GAAP changes over time as the nature of the business environment changes.
D) All of these answer choices are correct.

Question 76

Financial accounting standard-setting in the United States

A) can be described as a social process which reflects political actions of various interested user groups as well as a product of research and logic.
B) is based solely on research and empirical findings.
C) is a legalistic process based on rules promulgated by governmental agencies.
D) is democratic in the sense that a majority of accountants must agree with a standard before it becomes enforceable.

Question 77

The following are part of the "due process" system used by the FASB in the evolution of a typical FASB Accounting Standards Update:
1. Exposure Draft
2. FASB Accounting Standards Update"
3. Preliminary ViewsThe chronological order in which these items are released is as follows:"

A) 1, 2, 3.
B) 1, 3, 2.
C) 2, 3, 1.
D) 3, 1, 2.

Question 78

Which of the following is not considered a component of generally accepted accounting principles?

A) FASB Implementation Guides.
B) Widely recognized industry practices.
C) Articles published in CPA journals.
D) AICPA Accounting Interpretations.

Question 79

The purpose of Statements of Financial Accounting Concepts is to

A) establish GAAP.
B) modify or extend an existing FASB Accounting Standards Update.
C) form a conceptual framework for solving existing and emerging .
D) determine the need for FASB involvement in an emerging issue.

Question 80

Which of the following is not a part of generally accepted accounting principles?

A) The FASB Interpretations
B) The CAP Accounting Research Bulletins
C) The APB Opinions
D) All of these are part of generally accepted accounting principles.