Deck 1: The Financial Reporting Environment

Question 1

What is meant by general-purpose financial statements?

Answer 1

Published financial statements are called general-purpose financial statements because they provide information to a wide spectrum of user groups:investors,creditors,financial analysts,customers,employees,competitors,suppliers,unions,and government agencies.Although considered general purpose,most financial information is provided to satisfy users with limited ability or authority to obtain additional information,which includes investors and creditors.

Question 2

How does accounting help in the capital allocation process?

Answer 2

Financial accounting provides information that enables users to evaluate economic entities and make efficient resource allocation decisions based on the risks and returns of a particular investment.This process directs capital flows to their most productive uses.The notion of "efficient and effective" allocation of capital helps drive capitalist economies and societies to greater standards of living.To provide unreliable and irrelevant information leads to poor capital allocation which adversely affects the securities market.An inefficient and wasteful allocation would reward poorly run entities until they ultimately flounder or go bust.

Question 3

The Security Exchange Commission (SEC)regulates financial reporting for publicly traded companies.

Answer 3

True

Question 4

Which need is the primary influence on the demand for financial information?

A)the need for managers to make decisions that improve organizational effectiveness and efficiency
B)the need for society to maintain an equilibrium of good and services
C)the need for user groups to make decisions regarding resource allocation
D)the need for regulators to control improper business behavior

Question 5

What is the term that describes the process of identifying,measuring,and communicating financial information about an economic entity to various user groups?

A)financial reporting
B)accounting standard setting
C)financial statement
D)financial accounting

Question 6

In what ways does accounting information proactively interact with its environment?

Question 7

Which party involved in the financial reporting process provides assurance that financial statements prepared by management fairly present the financial position and performance of the company?

A)standard setters
B)regulators
C)accounting preparers
D)auditors

Question 8

Which organization is responsible for setting auditing standards and oversees the audits of public companies in the United States?

A)Financial Accounting Standards Board
B)Public Company Accounting Oversight Board
C)American Institute of Certified Public Accountants
D)Securities Exchange Commission

Question 9

Financial accounting standards influence the behavior of managers and other internal users.

Question 10

Which organization prepares and grades the Uniform CPA Examination?

A)Financial Accounting Standards Board
B)Public Company Accounting Oversight Board
C)American Institute of Certified Public Accountants
D)International Accounting Standards Board

Question 11

The FASB gives the SEC authority to regulate accounting for publicly traded companies.

Question 12

Managers of economic entities are best considered to be users of financial information.

Question 13

The Public Company Accounting Oversight Board (PCAOB)sets financial accounting standards and oversees the audits of public companies in the United States.

Question 14

Which user group is the group of individuals who are owners of a corporation?

A)employees
B)equity investors
C)creditors
D)suppliers and customers

Question 15

The demand for financial information is based on market factors.

Question 16

Which of the following is not one of the four basic financial statements?

A)balance sheet
B)general-purpose financial statement
C)cash flows statement
D)statement of comprehensive income

Question 17

Which of the following user groups consists of individuals that provide guidance to others in making investment and credit decisions?

A)financial analysts
B)equity investors
C)creditors
D)suppliers

Question 18

Which organization is responsible for promulgating U.S.GAAP?

A)Financial Accounting Standards Board
B)Public Company Accounting Oversight Board
C)International Accounting Standards Board
D)Securities Exchange Commission

Question 19

Managers of economic entities are best considered to be preparers of financial information.

Question 20

The financial reporting process generates three basic financial statements.

Question 21

The FASB promulgates accounting standards in the U.S.and the IFRS issues international accounting standards.

Question 22

Official U.S.GAAP consist of the bulletins,opinions,and statements issued by the CAP,the APB,and the FASB.

Question 23

The FASB and the IFRS work together to converge U.S.and international standards to eliminate differences.

Question 24

List four reasons why it is important for an accountant in the United States to learn international accounting standards?

Question 25

The FASB standard-setting process requires a post-implementation review of each new standard.

Question 26

U.S.Congress has given the Securities Exchange Commission the power to promulgate accounting standards.

Question 27

The FASB Accounting Standards Codification is the one and only single source of GAAP in the United States.

Question 28

Currently,what is the single source of generally accepted accounting principles in the United States?

A)Financial Accounting Statements
B)APB Opinions
C)Accounting Standards Codification
D)Accounting Research Bulletins

Question 29

IFRS refers to generally accepted accounting standards that apply globally.

Question 30

In recent years,the FASB standards that have been set indicate they believe the income statement is deemed to dominate the balance sheet.

Question 31

Both financial and governmental accounting standards are under the auspices of the Financial Accounting Foundation.

Question 32

The Private Company Council has authority to make the final decision about changing U.S.GAAP for private companies.

Question 33

Accounting standard setting began in the United States with the 1934 Securities Exchange Act.

Question 34

All of the following organizations have set financial accounting standards for U.S.companies except ________.

A)Public Company Accounting Oversight Board (PCAOB)
B)Accounting Principles Board (APB)
C)Committee on Accounting Procedures (CAP)
D)Financial Accounting Standards Board (FASB)

Question 35

Standard setters develop accounting standards based on natural economic laws.

Question 36

Accountants in the United States do not need to learn international accounting standards.

Question 37

FASB is financed primarily by government-provided fund from fees assessed against companies that issue equity securities.

Question 38

Which of the following statements correctly identifies accounting standard setters?

A)The AICPA promulgates accounting standards in the U.S.and the IFRS issues international accounting standards.
B)The AICPA promulgates accounting standards in the U.S.and the IASB issues international accounting standards.
C)The FASB promulgates accounting standards in the U.S.and the IFRS issues international accounting standards.
D)The FASB promulgates accounting standards in the U.S.and the IASB issues international accounting standards.

Question 39

Which of the following statements is FALSE?

A)The SEC permits the use of IFRS-based financial statements by international companies with shares trading on U.S.stock exchanges.
B)Non-U.S.companies operate in the United States but prepare their financial statements using IFRS.
C)The SEC is currently deliberating if IFRS will be required to be used by U.S.companies.
D)The accounting profession has determined that a working knowledge of IFRS is not important for accountants working in the United States.

Question 40

The SEC permits the use of IFRS-based financial statements by international companies with shares trading on U.S.stock exchanges.

Question 41

Which of the following is a characteristic of rules-based standards?

A)involve few,if any,exceptions
B)result in inconsistencies between standards
C)contain no bright-line tests
D)provide insufficient guidance

Question 42

Principles-based standards involve few,if any,exceptions.

Question 43

During the standard-setting process,an ________ is issued by the FASB to solicit input from financial statement preparers,auditors,and other users of financial statements.

A)exposure draft
B)accounting standards update
C)accounting research bulletin
D)accounting comment letter

Question 44

Fair value measurements are a long-standing tradition in U.S.GAAP.

Question 45

Principles-based standards are more consistent with the asset/liability approach and rules-based standards are more consistent with the income statement approach.

Question 46

Rules-based standards require a significant amount of professional judgment.

Question 47

Rules-based standards result in inconsistencies between standards.

Question 48

Objectives-based standards are deemed to be more optimally appropriate than rules-based standards and principles-based standards.

Question 49

Which type of standard relies on theories and concepts that are linked to a well-developed theoretical framework?

A)objectives-based standard
B)principles-based standard
C)theories-based standard
D)rules-based standard

Question 50

Which organization is responsible for the oversight,financing,and administration of all accounting standard setting organizations in the United States?

A)American Institute of Certified Public Accountants (AICPA)
B)Financial Accounting Foundation (FAF)
C)Securities Exchange Commission (SEC)
D)Financial Accounting Standards Advisory Council (FASAC)

Question 51

Principles-based standards are deemed to be more optimally appropriate than rules-based standards and objectives-based standards.

Question 52

Principles-based standards typically provide sufficient guidance to implement a standard.

Question 53

Fair value of an asset is the amount at which the asset could be bought in a current transaction between willing parties.

Question 54

Rules-based standards rely on theories and concepts that are linked to a well-developed theoretical framework.

Question 55

Which of the following is not a current trend in accounting-standards setting?

A)increase in political involvement
B)move toward principles-based system
C)focus on asset/liability approach
D)emphasis on measuring fair value

Question 56

Which of the following organizations is responsible for setting accounting standards for state and local governments?

A)Government Issues Task Force (GITF)
B)Government Accounting Standards Board (GASB)
C)Securities Exchange Commission (SEC)
D)Government Accounting Standards Advisory Council (GASAC)

Question 57

U.S.GAAP contains more rules-based standards than IFRS.

Question 58

List the seven steps of the FASB standard-setting process.

Question 59

Which of the following statements about the global standard-setting structure is false?

A)The IFRS Interpretations Committee is similar to the EITF in the U.S.
B)The Monitoring Board was formed to public accountability of the IFRS Foundation.
C)The IASB oversees the IFRS Advisory Council which advises the Monitoring Board.
D)The IFRS Foundation oversees the IASB and finances IASB operations.

Question 60

Which of the following is a characteristic of objectives-based standards?

A)do not rely on professional judgment
B)increase bright-line tests
C)somewhere between principles-based and rules-based
D)no exceptions

Question 61

Contrast the differences between rules-based standards and principles-based standards.

Question 62

Which financial statement is implicitly considered dominant as standard setting have shifted toward the asset/liability approach?

A)statement of financial position
B)statement of cash flows
C)statement of shareholders' equity
D)statement of comprehensive income

Question 63

________ is the amount at which a liability could be incurred or settled in a current transaction between willing parties.

A)Income value
B)Settlement value
C)Current value
D)Fair value