Deck 9: Uniformity and Disclosure: Some Policy-Making Directions

Question 1

Since the 1970s, the SEC appears to have shifted its emphasis toward informative disclosure rather than protective disclosure.

Answer 1

True

Question 2

Events are economic occurrences that require accounting entries.

Answer 2

True

Question 3

The concept of uniformity appears to overlap with consistency.

Answer 3

False

Question 4

Rigid uniformity considers relevant circumstances.

Question 5

Flexibility is not often used in generally accepted accounting principles.

Question 6

Relevant circumstances are an important aspect of the uniformity issue.

Question 7

Because events that are internal to the firm are not considered "transactions," they do not require entries in the firm's accounts.

Question 8

Minimizing reported income would not be a motive guiding the selection of accounting methods.

Question 9

Improving comparability may lessen relevance or reliability.

Question 10

Lev advocated restricting disclosures to "good news" items only.

Question 11

Flexibility applies to situations in which there are relevant circumstances and more than one possible accounting method exists.

Question 12

Finite uniformity should always be used in accounting for complex events.

Question 13

Future contingencies that are allocations do not have real information content for financial statement users.

Question 14

An event, as defined in SFAC No. 6, is "a happening of consequence to an entity."

Question 15

Flexibility is an approach to the uniformity problem.

Question 16

Whenever possible, flexibility should be used in formulating accounting policy.

Question 17

Environmental conditions are elements beyond managerial control.

Question 18

In accounting, we presume that if rigid uniformity can be attained, it is superior to finite uniformity.

Question 19

Rigid uniformity has been formulated as an alternative to finite uniformity.

Question 20

Transactions are economic or financial events that are recorded in the firm's accounts.

Question 21

The term "present magnitudes" refers to:

A)conditions known at the time of an event.
B)conditions known only at a later date.
C)events that will significantly affect the financial statements.
D)none of the above.

Question 22

The requirement by SFAS No. 2 that research and development costs be immediately expensed is an example of:

A)elastic uniformity.
B)finite uniformity.
C)flexible uniformity.
D)rigid uniformity.

Question 23

Which of the following is not a true statement?

A)Comparability refers to accounting for similar transactions similarly and different circumstances differently.
B)Comparability refers to comparing alternatives in order to make a decision.
C)Comparability is an inherent quality of accounting numbers in the same sense that relevance and reliability are.
D)Uniformity influences comparability.

Question 24

An organized disclosure policy that includes "bad news" is beneficial to all parties because uncertainty about the firm is reduced.

Question 25

Prescribing one method for generally similar transactions even though relevant circumstances may be present is referred to as:

A)finite uniformity.
B)rigid uniformity.
C)inflexible uniformity.
D)measurable uniformity.

Question 26

Which of the following is not true of accounting allocations?

A)Examples include depreciation and cost of good sold.
B)They are arbitrary.
C)No method can be proved superior to another method.
D)They are not useful in providing financial information.

Question 27

Which of the following is a true statement?

A)Finite uniformity should be more representationally faithful than rigid uniformity.
B)Finite uniformity should be more verifiable than rigid uniformity.
C)Rigid uniformity is more relevant than finite uniformity.
D)Rigid uniformity can be obtained only at a greater cost that finite uniformity.

Question 28

Signalling theory appears to be inconsistent with the advocacy of greater disclosure.

Question 29

Under which of the following circumstances should rigid uniformity be used?

A)If the event is a not a simple event.
B)If the event is a complex event in which finite uniformity cannot be instituted in a cost-effective manner.
C)Both a and b.
D)None of the above; rigid uniformity should never by used.

Question 30

Which of the following is a true statement?

A)Transactions are events that may be either external or internal to an enterprise.
B)Events that are internal to the firm do not require entries in the firm's accounts.
C)Transactions are economic or financial events that may or may not be recorded in the firm's accounts.
D)"Simple events" do not have any significant economic variables that lead to essentially different recording.

Question 31

The treatment of loss contingencies required in SFAS No. 5 is an example of:

A)elastic uniformity.
B)conservatism.
C)flexible uniformity.
D)rigid uniformity.

Question 32

Circumstantial variables are environmental conditions that possess which of the following qualities?

A)Excessive measurement costs
B)A high degree of verifiability relative to other accounting methods
C)Both a and b
D)None of the above

Question 33

Flexibility applies to which of the following situations?

A)Situations in which there are relevant circumstances and more than one possible accounting method exists.
B)Situations in which there are relevant circumstances but only one possible accounting method exists.
C)Situations in which there are no observable relevant circumstances and more than one possible accounting method exists.
D)All of the above.

Question 34

The SEC requires disclose of both retrospective and prospective information in the Management's Discussion and Analysis section of the annual report.

Question 35

Accounting for inventory and cost of goods sold and for depreciation is an example of:

A)elastic uniformity.
B)finite uniformity.
C)flexibility.
D)rigid uniformity.

Question 36

Which of the following is not listed by Fields, Lys, and Vincent as a possible reason underlying management choice?

A)Minimizing agency cost
B)Comparability
C)Signaling
D)Influencing outside parties

Question 37

The determination of whether a lease is a capital or operating lease is an example of:

A)elastic uniformity.
B)finite uniformity.
C)flexible uniformity.
D)rigid uniformity.

Question 38

Which of the following terms represents the two general types of relevant circumstances?

A)Present circumstances and future contingencies
B)Present conditions and future contingencies
C)Present magnitudes and future conditions
D)Present magnitudes and future contingencies

Question 39

Where rigid uniformity is in effect, the underlying reasons may be attributable to all but which one of the following factors?

A)A desire for conservatism
B)An inability of the standard-setting organization to determine meaningful relevant circumstances
C)An attempt to increase representational faithfulness of the measurement
D)Recognition of the fact that an allocation is involved

Question 40

Management disclosures in the face of a major earnings surprise may take the form of conference calls with analyst or public announcements via news services.

Question 41

SFAC No. 5 defines disclosure as:

A)presentation of information in the financial statements.
B)presentation of information by means other than recognition in the financial statements.
C)recognition of information in the financial statements or footnotes.
D)presentation of information in any source available.

Question 42

How has the FASB (and the SEC) addressed the contention that small firms incur significantly higher costs than large ones in carrying out complex accounting standards or disclosure requirements?

Question 43

Which of the following describes information overload?

A)The inability of preparers to process and adequately report all the information that should be provided in financial reports.
B)The inability of auditors to process and adequately attest to all the information that should be provided in financial reports.
C)The inability of users to process and intelligently use all the information provided in financial reports.
D)The inability of preparers, auditors, and users to process and adequately utilize all the information provided in financial reports.

Question 44

Discuss the role of management in relevant circumstances.

Question 45

The 10-K report filed annually with the SEC is basically aimed toward which of the following groups?

A)Shareholders
B)Professional financial analysts
C)Management
D)All of the above

Question 46

Which of the following represents the principal theoretical issue underlying quarterly data?

A)Whether an interim period should be viewed as a separate period standing on its own.
B)Whether an interim period report should include balance sheet and cash flow statements.
C)Whether quarterly earnings should be disaggregated by segments in terms of revenues, profit or loss, and segment assets.
D)Whether interim reports should include income statement data and basic and fully diluted earnings per share numbers.

Question 47

The system of disclosure largely in effect today is called:

A)selective disclosure.
B)conventional disclosure.
C)differential disclosure.
D)standard disclosure.

Question 48

Under which of the following circumstances should finite uniformity be used?

A)If the event is a simple event.
B)If the event is a complex event in which relevant circumstances cannot be measured and implemented in a cost-effective manner.
C)If the event is a complex event in which relevant circumstances can be measured and implemented in a cost-effective manner.
D)Both a and b.

Question 49

Which of the following is a provision of SFAS No. 131?

A)Segment liabilities must be reported, but reported segment assets is optional.
B)Reconciliation of segment profit or loss to consolidated profit of loss must be done before income taxes.
C)A segment is constituted by having 20% or more of combined revenue of all operating segments.
D)Segment reporting is based on the way management organizes the segments for making operating decisions and assessing performance.

Question 50

Which of the following represents the approach to interim reporting favored by APB Opinion No. 28?

A)The integral view
B)Disjointed view
C)The discrete view
D)The linked view

Question 51

What is meant by differential disclosure? Identify the three differential disclosure proposals discussed in the text.

Question 52

What is meant by relevant circumstances? Describe the two types of relevant circumstances.

Question 53

Protective disclosure and informative disclosure are two types of disclosures as interpreted by the:

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

Question 54

Viewing each interim period as a separate period standing on its own is called:

A)the integral view.
B)the disjointed view.
C)the discrete view.
D)the linked view.

Question 55

What is Regulation FD, and how does it relate to the disclosure of information?

Question 56

Which of the following is a true statement?

A)Disclosure is concerned with information in the financial statements as well as information in the footnotes, management's discussion and analysis, financial and operating forecasts, and other supplementary communications.
B)Disclosure is concerned with information in the financial statements only.
C)Disclosure is concerned with information in the footnotes only.
D)Disclosure is concerned with information in the financial statements and all supplementary communications except financial and operating forecasts.

Question 57

From a theoretical standpoint, which of the following represents the approach to interim reporting with the most validity?

A)The integral view
B)The disjointed view
C)The discrete view
D)The linked view

Question 58

How does the concept of uniformity relate to comparability in the accounting literature?

Question 59

Distinguish between finite uniformity, rigid uniformity, and flexibility. Also, explain when each is appropriately used.