Deck 1: Environment and Theoretical Structure of Financial Accounting

Question 1

The FASB is currently the public-sector organization responsible for setting accounting standards in the United States.

Answer 1

False

Question 2

Under federal securities laws,the SEC has the authority to set accounting standards in the United States.

Answer 2

True

Question 3

Equity is a residual amount representing the owner's interest in the assets of the business.

Answer 3

True

Question 4

The FASB's conceptual framework lists relevance and timeliness as the two fundamental qualitative characteristics of decision useful information.

Question 5

The monetary unit assumption requires that items in financial statements be measured in a particular monetary unit.

Question 6

The FASB's due process invites various interested parties to indicate their opinions about whether financial accounting standards should be changed.

Question 7

A rules-based approach to standard-setting stresses professional judgment as opposed to following a list of rules.

Question 8

The purpose of the conceptual framework is to provide a structure and framework for a consistent set of GAAP.

Question 9

Auditors play an important role in the resource allocation process by adding credibility to financial statements.

Question 10

The Public Reform and Investor Protection Act of 2002 (Sarbanes-Oxley)changed the entity responsible for setting auditing standards in the United States.

Question 11

Revenues are inflows or other enhancements of assets or settlements of liabilities from activities that constitute the entity's ongoing operations.

Question 12

Gains or losses result,respectively,from the disposition of business assets for greater than,or less than,their book values.

Question 13

Comprehensive income is another term for net income.

Question 14

Materiality can be affected by the dollar amount of an item,the nature of the item,or both.

Question 15

Accounting for stock-based compensation is an area in which the FASB has received little political interference.

Question 16

The primary function of financial accounting is to provide relevant financial information to parties external to business enterprises.

Question 17

Accrual accounting attempts to measure revenues and expenses that occurred during accounting periods so they equal net operating cash flow.

Question 18

In the United States the conceptual framework indicates GAAP when a more specific accounting standard does not apply.

Question 19

According to the FASB's Statements of Financial Accounting Concepts,conservatism is a desired qualitative characteristic of accounting information.

Question 20

The primary responsibility for properly applying GAAP when communicating with investors and creditors through financial statements lies with a firm's auditors.

Question 21

Which of the following is not true about net operating cash flow?

A)It is the difference between cash receipts and cash disbursements from providing goods and services.
B)It is a measure used in accrual accounting and is recognized as the best predictor of future operating cash flows.
C)Over short periods,it may not be indicative of long-run cash-generating ability.
D)It is easy to understand and all information required to measure it is factual.

Question 22

Which of the following does not apply to secondary markets?

A)Transactions are important to the efficient allocation of resources in our economy.
B)New resources are provided when shares of stock are sold by the corporation to the initial owners.
C)Transactions help to establish market prices for additional shares that may be issued in the future.
D)Many investors might be unwilling to provide resources to corporations if there is no available mechanism for the future sale of their stocks and bonds to others.

Question 23

The funding of the standard-setting bodies that promulgate IFRS is as independent as that underlying U.S.GAAP.

Question 24

Which of the following groups is not among financial intermediaries?

A)Mutual fund managers.
B)Financial analysts.
C)CPAs.
D)Credit rating organizations.

Question 25

Corporations issue their shares to the investing public in the:

Question 26

The asset/liability approach emphasizes matching to determine what assets and liabilities should be reflected on the balance sheet.

Question 27

GAAP is an abbreviation for:

A)Generally authorized accounting procedures.
B)Generally applied accounting procedures.
C)Generally accepted auditing practices.
D)Generally accepted accounting principles.

Question 28

The FASB's framework for measuring fair value doesn't change the situations in which fair value is used under current GAAP.

Question 29

The periodicity assumption requires that present value calculations take into account the number of compounding periods in each year.

Question 30

External decision makers would not look primarily to financial accounting information to assist them in making decisions on:

A)Granting credit.
B)Capital budgeting.
C)Selecting stocks.
D)Mergers and acquisitions.

Question 31

Which of the following was the first private-sector entity that set accounting standards in the United States?

A)Accounting Principles Board.
B)Committee on Accounting Procedure.
C)Financial Accounting Standards Board.
D)AICPA.

Question 32

The primary focus for financial accounting information is to provide information useful for:

Question 33

Determining fair value by calculating the present value of future cash flows is a level 1 type of input.

Question 34

Which of the following groups is not among the external users for whom financial statements are prepared?

A)Customers.
B)Suppliers.
C)Employees.
D)Customers,suppliers,and employees are all external users of financial statements.

Question 35

In a recent annual report,Apple Computer reported the following in one of its disclosure notes: "Warranty Expense: The Company provides currently for the estimated cost for product warranties at the time the related revenue is recognized." This note exemplifies Apple's use of:

A)Conservatism.
B)The matching principle.
C)Realization principle.
D)Economic entity.

Question 36

The FASB issues accounting standards in the form of:

A)Accounting Research Bulletins.
B)Accounting Standards Updates.
C)Financial Accounting Standards.
D)Financial Technical Bulletins.

Question 37

The revenue/expense approach emphasizes determining the appropriate amounts of revenue and expense in each reporting period.

Question 38

In IFRS,the conceptual framework indicates appropriate accounting when a more specific accounting standard does not apply.

Question 39

Porite Company recognizes revenue in the period in which it records an asset for the related account receivable,rather than in the period in which the account receivable is collected in cash.Porite's practice is an example of:

A)Cash basis accounting.
B)Accrual accounting.
C)The matching principle.
D)Economic entity.

Question 40

Which of the following is not a potential benefit of accrual accounting,compared to cash-basis accounting?

A)Timeliness.
B)Better reflecting economic activity.
C)Periodicity.
D)Better matching of revenues and expenses.

Question 41

The FASB's standard-setting process includes,in the correct order:

A)Exposure draft,research,discussion paper,Accounting Standards Update.
B)Research,exposure draft,discussion paper,Accounting Standards Update.
C)Research,discussion paper,exposure draft,Accounting Standards Update.
D)Discussion paper,research,exposure draft,Accounting Standards Update.

Question 42

CPAs are licensed by:

A)The AICPA.
B)The SEC.
C)The federal government.
D)State governments.

Question 43

The most political issue in the FASB's most recent deliberations and amendments to GAAP on business combinations was:

A)The negative effects on subsequent earnings of amortizing goodwill if firms were required to use the purchase method of accounting for the combination.
B)The negative effects on subsequent earnings of amortizing goodwill if firms were required to use the pooling method of accounting for the combination.
C)The unrealistic balance sheet assets that would be created if firms were required to use the purchase method of accounting for the combination.
D)The unrealistic balance sheet assets that would be created if firms were required to use the pooling method of accounting for the combination.

Question 44

Independent auditors express an opinion on the:

A)Fairness of financial statements.
B)Accuracy of financial statements.
C)Soundness of a company's future.
D)Quality of a company's management.

Question 45

The primary historical reason for the FASB reversing its positions when political pressures occur is:

A)The cost of gathering data was prohibitive.
B)The difficulties in measurement were too great.
C)They have no authority in such situations.
D)The SEC did not support the FASB position.

Question 46

When a registrant company submits its annual filing to the SEC,it uses:

A)Form 10-A.
B)Form 10-K.
C)Form 10-Q.
D)Form S-1.

Question 47

In the Norwalk Agreement,the FASB and IASB pledged to:

A)Combine their organizations to form the BUSYB.
B)Make progress on specific MOU projects.
C)Achieve convergence by the year 2015.
D)Remove existing differences between their standards.

Question 48

The most recent example of the political process at work in standard-setting is the heated debate that occurred on the issue of:

A)Pension plan accounting.
B)Accounting for postretirement benefits other than pensions.
C)Accounting for business combinations.
D)Accounting for stock-based compensation.

Question 49

One of the elements that many believe distinguishes a profession from other occupations is the acceptance of responsibility by its members for the interests of those it serves,which is often articulated in:

A)Its conceptual framework.
B)Its code of ethics.
C)Federal laws.
D)State laws.

Question 50

The International Accounting Standards Board:

A)Was the predecessor to the IASC.
B)Can overrule the FASB when their policies disagree.
C)Promotes the use of high-quality,understandable global accounting standards.
D)Has its headquarters in Geneva.

Question 51

Accounting standard-setting has been characterized as:

A)A political process.
B)Using the scientific method.
C)Pure deductive reasoning.
D)Pure inductive reasoning.

Question 52

The most likely important flaw leading to the demise of the APB was the perceived lack of:

A)Confidence.
B)Competence.
C)Independence.
D)Importance.

Question 53

SFAC 8 of the conceptual framework focuses on:

A)Objective and qualitative characteristics.
B)Presentation and disclosure.
C)Recognition and measurement.
D)Elements of financial statements.

Question 54

Which of the following is not a provision of the Public Company Accounting Reform and Investor Protection Act of 2002?

A)Corporate executive accountability.
B)Auditor rotation.
C)Retention of work papers.
D)All of the above are provisions of the Act.

Question 55

The possibility that the capital markets' focus on periodic profits may tempt a company's management to bend or even break accounting rules to inflate reported net income is an example of:

A)An ethical dilemma.
B)An accounting theory issue.
C)A technical accounting issue.
D)An auditor's responsibility to inform the SEC.

Question 56

Which of the following is not a concern expressed by the SEC regarding IFRS adoption by the U.S.?

A)Need for the U.S.to have strong influence on the standard-setting process and ensure that standards meet U.S.needs.
B)The language barriers associated with cooperation among many countries in developing IFRS.
C)The high costs to companies of converting to IFRS.
D)The fact that many laws,regulations and private contracts reference U.S.GAAP.

Question 57

Pronouncements issued by the Committee on Accounting Procedures:

A)Dealt with specific accounting and reporting problems.
B)Were based on exposure drafts and public comment letters.
C)Originated from congressional studies and SEC directives.
D)Were the outcome of research studies and a theoretical framework.

Question 58

Which of the following is not a provision of the Public Company Accounting Reform and Investor Protection Act of 2002 (Sarbanes-Oxley)? The Act:

A)Changed the entity responsible for setting auditing standards.
B)Increased corporate executive responsibility for financial statements.
C)Limited nonaudit services that can be performed by auditors for audit clients.
D)Changed the entity responsible for setting accounting standards.

Question 59

Which of the following has the statutory authority to set accounting standards in the United States?

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

Question 60

The primary professional organization for those accountants working in industry is the:

A)AAA.
B)AICPA.
C)IIA.
D)IMA.

Question 61

According to the conceptual framework,verifiability implies:

A)Legal evidence.
B)Logic.
C)Consensus.
D)Legal verdict.

Question 62

The enhancing qualitative characteristic of understandability means that information should be understood by:

A)Those who are experts in the interpretation of financial information.
B)Those who have a reasonable understanding of business and economic activities.
C)Financial analysts.
D)CPAs.

Question 63

Gains are:

A)Inflows from selling a product or service to a customer.
B)Increases in equity resulting from transfers of assets to the company from owners.
C)Increases in equity from peripheral transactions of an entity.
D)None of the above is correct.

Question 64

The primary objective of financial accounting information is to provide useful information to:

A)Management.
B)Capital providers.
C)Regulators.
D)Academicians.

Question 65

Fundamental qualitative characteristics of accounting information are:

A)Relevance and comparability.
B)Comparability and consistency.
C)Faithful representation and relevance.
D)Neutrality and consistency.

Question 66

The conceptual framework's qualitative characteristic of relevance includes:

A)Predictive value.
B)Verifiability.
C)Completeness.
D)Neutrality.

Question 67

When there is agreement between a measure or description and the phenomenon it purports to represent,information possesses which characteristic?

A)Verifiability.
B)Predictive value.
C)Faithful representation.
D)Timeliness.

Question 68

Enhancing qualitative characteristics of accounting information include each of the following except:

A)Timeliness.
B)Materiality.
C)Comparability.
D)Verifiability.

Question 69

A firm's comprehensive income always:

A)Is the same as its net income.
B)Is greater than its net income.
C)Is less than its net income.
D)Could be greater than or less than net income.

Question 70

The main issue in the debate over accounting for employee stock options was:

A)Which employees should receive options.
B)The amount of compensation expense that a company should recognize.
C)How many options should be granted to key executives.
D)The tax consequences of employee stock options.

Question 71

The conceptual framework's qualitative characteristic of faithful representation includes:

A)Predictive value.
B)Neutrality.
C)Confirmatory value.
D)Timeliness.

Question 72

A constraint on qualitative characteristics of accounting information is:

A)Timeliness.
B)Going concern.
C)Neutrality.
D)Cost-effectiveness.

Question 73

Net income equals:

A)Assets minus liabilities.
B)Revenues minus cost of goods sold.
C)Revenues minus expenses.
D)Cash receipts minus cash payments.

Question 74

Elements of financial statements do not include:

A)Monetary unit.
B)Investments by owners.
C)Comprehensive income.
D)Losses.

Question 75

Surefeet Corporation changed its inventory valuation method.Which characteristic is jeopardized by this change?

A)Comparability.
B)Representational faithfulness.
C)Consistency.
D)Feedback value.

Question 76

The FASB's conceptual framework's qualitative characteristics of accounting information include:

A)Full disclosure.
B)Relevance.
C)Going concern.
D)Historical cost.

Question 77

Enhancing qualitative characteristics of accounting information include:

A)Relevance and comparability.
B)Comparability and timeliness.
C)Understandability and relevance.
D)Neutrality and consistency.

Question 78

The FASB's conceptual framework's qualitative characteristics of accounting information include:

A)Historical cost.
B)Realization.
C)Faithful representation.
D)Full disclosure.

Question 79

SFAC No.5 focuses on:

A)Objectives of financial reporting.
B)Qualitative characteristics of accounting information.
C)Recognition and measurement concepts in accounting.
D)Elements of financial statements.

Question 80

Of the following,the most important objective for financial reporting is to provide information useful for:

A)Making decisions.
B)Determining taxable income.
C)Providing accountability.
D)Increasing future profits.