Deck 1: The Demand for and Supply of Financial Accounting Information

Question 1

"Members should act in a way that will service the public interest, honor the public trust, and demonstrate commitment to professionalism." This is the Public Interest Principle of the AICPA's Code of Professional Conduct.

Answer 1

True

Question 2

FASB's Emerging Issues Task Force was established to identify issues in which it felt FASB needed to address.

Answer 2

True

Question 3

"In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities." This is the Integrity principle of the AICPA Code of Professional Conduct.

Answer 3

False

Question 4

The mission of the Securities and Exchange Commission is to protect investors, maintain orderly, and efficient markets, and assist in the formation of capital.

Question 5

Which of the following is an internal stakeholder of a company's financial information?

A) company treasurer
B) stockholder in the company
C) bank lending to the company
D) union

Question 6

A problem arising from equal information is called information asymmetry.

Question 7

When making decisions, equity investors are interested in assessing

A) the company's ability to generate cash flows.
B) management's ability to increase the capital providers' investments.
C) the company's ability to pay dividends.
D) All of these choices

Question 8

FASB came to being in 1973 after the AICPA phased out the Accounting Principles Board.

Question 9

What is Financial Reporting?

A) The process of communicating internal accounting information to existing and potential investors, creditors, lenders, and other external decision makers.
B) The process of communicating financial accounting information to existing and potential investors, creditors, lenders, and other external decision makers.
C) The process of preparing financial accounting information to existing and potential investors, managers, and employees.
D) The process of communicating the strategic plan to existing and potential investors, creditors, lenders, and other external decision makers.

Question 10

The SEC uses its authority to establish accounting standards, while also enforcing regulations on companies, exchanges, and investors.

Question 11

The need for relevant and reliable financial information stems from the needs of the internal and external stakeholder's.

Question 12

After formulating a strategic plan what three types of activities will a company engage in?

A) Planning, operating, and selling
B) Investing, operating, and selling
C) Financing, investing, and operating
D) Operating, planning, and financing

Question 13

The convergence project between the IASB and GAAP was initiated in 2002 when the two boards entered into the "Northward Agreement".

Question 14

Creditors' information needs revolve around all of the following decisions, except

A) extending credit
B) maintaining a credit relationship
C) not extending credit
D) investing in credit instruments

Question 15

Which of the following is not a decision that external stakeholder's of a company's financial information would make?

A) whether or not to extend credit to the company
B) whether or not to hold the company's stock
C) whether or not the company should add a new product line
D) whether or not to ask for an increase in employees' benefits during union contract negotiations

Question 16

The statement of shareholder's equity reports the effects of Accumulated Other Comprehensive income.

Question 17

The codification was established to assist in reducing the time necessary to research an accounting issue and improve the ability to utilize accounting information to conform to GAAP.

Question 18

The codification is set up as a system of levels starting with sections, topics, and subtopics.

Question 19

The balance sheet is a snapshot of a company's financial position at a particular date and time.

Question 20

A potential issue facing the convergence project is that many companies have entered into contracts based upon U.S. GAAP financial reporting, many of these contracts will have to be renegotiated using IFRS which potentially could cause some companies more harm than good.

Question 21

As a potential equity investor, what would you least be interested in a company prior to making and investment decision?

A) What differentiates them from their competition?
B) Whether they are generating a profit?
C) Whether they have positive cash flows?
D) What are the employee benefits and compensation packages?

Question 22

The FASB Emerging Issues Task Force issues which of the following?

A) Statements of Position to influence the development of principles
B) Consensus Positions on the implementation of standards
C) Financial Reporting Releases on guidelines for reporting issues
D) Technical Bulletins on accounting and reporting problems

Question 23

Which pronouncements are not issued by the FASB?

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

Question 24

Concerning FASB membership, which statement is not true?

A) Not all members are CPAs from public practice.
B) All members are full time and fully paid.
C) All members are also members of the Financial Accounting Foundation.
D) All members must sever organizational ties with their previous employer.

Question 25

Which organization has the most legal authority?

A) Financial Accounting Standards Board
B) Accounting Standards Executive Committee
C) Governmental Accounting Standards Board
D) Securities and Exchange Commission

Question 26

Which of the following pronouncements issued by the FASB provides the lowest level of authoritative support?

A) technical bulletins
B) interpretations
C) statements of financial accounting standards
D) staff positions

Question 27

Which of the following statements is true?

A) In order to remain impartial, the FASB discourages public input during development of standards.
B) FASB accounting standards are the result of clearly defined objectives, an integrated body of theory, and the known consequences of actions.
C) The FASB deliberates and issues accounting standards only after receiving a formal letter of request from the SEC.
D) Accounting standards, which reflect social decisions, are often the result of compromise.

Question 28

Which of the following is NOT a major standard-setting body responsible for the establishment of U.S. and international GAAP (Generally Accepted Accounting Principles)?

A) SEC (Securities Exchange Commission)
B) PCAOB (Public Company Accounting Oversight Board)
C) FASB (Financial Accounting Standards Board)
D) IASB (International Accounting Standards Board)

Question 29

Going from 1938 to the present, which is the correct sequence of accounting rule-making bodies?

A) APB-CAP-FASB
B) CAP-FASB-APB
C) CAP-APB-FASB
D) FASB-APB-CAP

Question 30

The primary reason that financial accounting and managerial accounting have somewhat different objectives is because they

A) need information in different formats
B) provide information for different decisions
C) need information in different geographic locations
D) need information at different times

Question 31

While formally the SEC is charged with the responsibility for establishing accounting principles to be followed in the preparation of SEC filings, the impact of the SEC generally has been

A) in its assistance to Congress with the development of tax law
B) in guiding the development of stock exchanges
C) ineffective in controlling foreign corporations and investors
D) its informal review and approval of standards developed in the private sector prior to their release

Question 32

The Financial Accounting Foundation (FAF) is the parent organization of the which?

A) AICPA (American Institute of Certified Public Accountants)
B) AAA (American Accounting Association)
C) SIFMA (Securities Industry and Financial Markets Association)
D) FASB (Financial Accounting Standards Board)

Question 33

The Securities and Exchange Commission has the legal authority to prescribe accounting principles and reporting practices for

A) all companies issuing publicly traded securities
B) all companies issuing any type of securities
C) all companies
D) all corporations

Question 34

Information asymmetry problems arise because management's behavior

A) may be to enhance the owners' financial interests at the expense of their self-interests
B) will always follow classic agency law
C) may not always be in the best interests of the owners (stockholders)
D) as agents will always be in the best interests of the owners (stockholders)

Question 35

Which of the following statements is true?

A) Accounting standard setting began in the United States when the AICPA formed the Committee on Accounting Procedure.
B) Accounting standard setting began in the United States when the SEC formed the Committee on Accounting Procedure.
C) Accounting standard setting began in the United States when the AICPA formed the Accounting Principles Board.
D) Accounting standard setting began in the United States when the FASB formed the Committee on Accounting Procedure.

Question 36

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 FASB in establishing accounting standards.
C) The SEC has a mandate to establish accounting standards for corporations within the U.S. capital markets.
D) The SEC reviews financial statements for compliance with U.S. GAAP or IFRS.

Question 37

The Securities Exchange Act of 1934 established extensive reporting requirements for listed companies. Which is not a commonly required report?

A) Form 10-Q. An extensive quarterly report, including financial statements.
B) Form S-2. A registration statement
C) Form 10-K. An extensive annual report, including financial statements
D) Form 8-K. A report used to describe significant events that may affect the company.

Question 38

Three major organizations in the private and public sector develop U.S. and international GAAP. They include all of the following except the

A) EU (European Union)
B) SEC (Securities and Exchange Commission)
C) FASB (Financial Accounting Standards Board)
D) IASB (International Accounting Standards Board)

Question 39

The organization that has legal authority to prescribe accounting principles and reporting practices for all corporations issuing publicly traded securities within the U.S. capital markets is?

A) Accounting Principles Board
B) Securities and Exchange Commission
C) Financial Accounting Standards Board
D) Committee on Accounting Procedure

Question 40

How many FASB members are there?

A) 5
B) 7
C) 21
D) 33

Question 41

What type of FASB Pronouncement were to provide more timely and consistent application guidance and made to narrow and limit revisions of standards?

A) Technical Bulletins
B) Statements of Financial Accounting Standards
C) Interpretations
D) None of these choices

Question 42

What is the responsibility of the International Accounting Standards Board?

A) IASB promotes uniform accounting standards among international countries.
B) IASB settles accounting disputes between auditors and international companies.
C) IASB issues standards which regulate the financial accounting and reporting of multinational corporations and then enforces through legal channels.
D) IASB is to develop a uniform currency in which the financial transactions would be measured.

Question 43

What type of FASB Pronouncement carried the highest authority within GAAP, establishing the methods and procedures required on specific accounting issues?

A) Staff Positions
B) Statements of Financial Accounting Standards
C) Statements of Financial Accounting Concepts
D) Technical Bulletins

Question 44

Certain U.S. accounting standards have been, and will be, amended to aid in the international convergence process. The process of changing these standards usually involves

A) a short deliberation followed by a vote of the U.S. Congress
B) acceptance of the change by the Internal Revenue Service
C) rejecting all existing standards and developing an entirely new concept
D) selecting the best standard between existing U.S. and international standards

Question 45

What type of FASB pronouncements refined GAAP by clarifying conflicting or unclear issues relating to previously issued standards?

A) Staff Positions
B) Technical Bulletins
C) Interpretations
D) Other Pronouncements

Question 46

Which of the following documents includes all of the accounting standards?

A) Regulation S-X
B) The FASB Conceptual Framework
C) Statements of Financial Accounting Standards
D) none of these

Question 47

Assume that authoritative support regarding GAAP for a particular transaction is needed. A correct hierarchy of authority to be followed (highest, second, third) would be

A) FASB Statements, AICPA Accounting Interpretations, FASB Technical Bulletins
B) FASB Technical Bulletins, AICPA Accounting Interpretations, FASB Statements
C) AICPA Accounting Interpretations, FASB Technical Bulletins, FASB Statements
D) FASB Statements, FASB Technical Bulletins, AICPA Accounting Interpretations

Question 48

For foreign companies that issue securities in the United States to raise capital, the SEC

A) requires these companies to file form 20-F which reconciles certain amounts reported in their financial statements with US GAAP.
B) accepts all financial statements that use IFRS.
C) accepts only financial statements that are fully stated under US GAAP.
D) accepts financial statements from foreign companies that use English-language IFRS without exception.

Question 49

Notes to financial statements provide

A) discussions that further explain items shown in the financial statements
B) comparative financial information with the previous year
C) management's discussions about plans for the future
D) the report of the independent auditors

Question 50

Which of the following is NOT a major standard-setting body responsible for the establishment of U.S. and international GAAP (Generally Accepted Accounting Principles)?

A) SEC (Securities Exchange Commission)
B) PCAOB (Public Company Accounting Oversight Board)
C) FASB (Financial Accounting Standards Board)
D) IASB (International Accounting Standards Board)

Question 51

The FASB Accounting Standards Codification is expected to provide all of the following benefits except

A) reduce the research time necessary to solve an accounting research issue
B) codify authoritative support such as results of academic research
C) provide real-time updates as new standards are issued
D) improve the usability of the authoritative accounting literature

Question 52

Conversion to IFRS reporting by all U.S. companies would be best accomplished with a transition plan for all of the following reasons except

A) it would have to be a multi-year process
B) it needs to be an orderly process with a minimum of cost and disruption to the participants
C) certain IFRS need further improvement through continued convergence efforts
D) careful planning would enable maximum manipulation of the IFRS for the financial benefit of the United States.

Question 53

The accounting equations is

A) Assets + Liabilities = Stockholder's Equity
B) Assets -Liabilities = Stockholder's Equity
C) Assets = Liabilities - Stockholder's Equity
D) Assets + Stockholders' Equity = Liabilities

Question 54

The agreement in 2002 by the FASB and IASB to develop high quality, compatible accounting standards that could be used by both domestic and cross-border financial reporting was called the

A) International Accounting Standards agreement
B) Financial Accounting Standards Board Global agreement
C) Norwalk agreement
D) United GAAP agreement

Question 55

Which statement measures and reports the financial results of a company's performance for a period of time?

A) income statement
B) balance sheet
C) statement of cash flows
D) statement of financial position

Question 56

The four major financial statements of a corporation consist of the

A) income statement, balance sheet, statement of cash flows, and statement of changes in stockholders' equity
B) balance sheet, statement of cash flows, statement of retained earnings, and income statement
C) income statement, statement of cash flows, statement of financial flexibility, and balance sheet
D) statement of cash flows, balance sheet, income statement, and statement of capital equity

Question 57

What financial statement is considered the cornerstone of financial reporting?

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

Question 58

U.S. companies that have subsidiaries in foreign countries can file their financial statements with the SEC by using?

A) IFRS
B) GAAP
C) either IFRS or GAAP
D) IFRS for their subsidiaries and GAAP for their holdings in the United States.

Question 59

The FASB Accounting Standards Codification includes six levels or components which of these is not a level?

A) Area
B) Topic
C) Sub-paragraphs
D) Paragraphs

Question 60

What is the name of the parent organization to the International Accounting Standards Board?

A) IASB (International Accounting Standards Board)
B) IFRS (International Financial Reporting Standards)
C) FASB (Financial Accounting Standards Board)
D) IFRIC (International Financial Reporting Standards Interpretations Committee)

Question 61

Which Principle of the AICPA Code of Professional Conduct is: As a member one should continually strive to improve competence, observe all ethical standards and provide services to the best of their ability?

A) The Public Interest
B) Responsibilities
C) Scope and Nature of Services
D) Due Care

Question 62

Auditors face ethical issues because

A) GAAP permits various standards to be used to produce profits
B) auditors may express an opinion that may cause difficulty to employees of a company
C) auditors may not discover insider trading
D) GAAP does not permit fraud

Question 63

The AICPA Code of Professional Conduct includes which of the following principles?

A) Professionalism
B) Conservatism
C) Objectivity
D) Quality

Question 64

What types of resources do companies compete for and why?

Question 65

Which of the following transactions would be reported in the cash flows from investing activities section in the statement of cash flows for the Harlem Company?

A) Harlem sold a piece of land for $600,000.
B) Harlem borrowed $3,000,000
C) Harlem issued common stock for $700,000 to investors.
D) Harlem paid a cash dividend to its stockholders.

Question 66

Which Principle of the AICPA Code of Professional Conduct is: A member should be free from conflicts of interest and be objective. A member should be free of bias and provide auditing and attestation services in an independent manner?

A) Objectivity and Independence
B) Integrity
C) Responsibilities
D) Due Care

Question 67

What is the mission of the Securities and Exchange Commission? How did the SEC come into being?

Question 68

The Management Discussion and Analysis section of the financial statements discusses what important topics?

A) Business risk factors associated with the company.
B) Management provides insight into key decisions implemented during that time period and future developments.
C) Management utilizes this area as a forum to discuss strategic motives.
D) All of these choices

Question 69

The FASB Codification consists of six components or levels, what are the components or levels?

Question 70

The stated principles of the AICPA Code of Professional Conduct do NOT include

A) Integrity
B) Honesty
C) Objectivity and Independence
D) Responsibilities

Question 71

Which Principle of the AICPA Code of Professional Conduct is: Members should perform all of their professional responsibilities with the highest sense of integrity possible. This ensures trust and public confidence in the profession?

A) Scope and Nature of Services
B) Due Care
C) Integrity
D) Objectivity and Independence

Question 72

The correct presentation of the income statement is?

A) Revenues - expenses + gains - losses = Net Income
B) Revenues-expenses = Net income - losses + gains
C) Revenues- losses - expenses + gains = Net Income
D) Revenues + gains - losses -expenses = Net Income

Question 73

Listed below are several types of pronouncements that the FASB issues. Following the list is a series of descriptive statements. Required:
Match each pronouncement with its descriptive statement by placing the appropriate letter in the space provided.

Question 74

Which of the following is not considered an ethical issue in accounting?

A) Biased financial statement presentation
B) Accelerated revenue recognition
C) Earnings manipulation
D) Industry practices

Question 75

Listed below are the ten steps the FASB goes through in issuing a new Statement.
a.Conchuct re search_______
b.Deliberate on findings____
c.Hold public hearings_______
d.Identify topic_______
e.Issue Dis cussion Memorandum_______
f.Issue Exposure Draft_______
g.Issue Statement_______
h.Modify Exposure Draft_______
i.Vote_______

Required:
Indicate the proper sequence of these steps.

Question 76

Unethical actions include which of the following?

A) polluting lakes and streams
B) overcharging on government contracts
C) securities fraud
D) All of these choices

Question 77

Contributions that are paid to owners would affect both the

A) balance sheet and statement of cash flows
B) balance sheet and income statement
C) income statement and statement of changes in equity
D) income statement and statement of cash flows

Question 78

What is the responsibility of FASB?

Question 79

The demand for accounting information arises from the informational needs of various stakeholders.
Required
List five internal stakeholders or external stakeholders.

Question 80

The correct order of presentation for the statement of cash flows is?

A) Operating, Investing, Financing
B) Financing, Operating, Investing
C) Investing, Financing, Operating
D) Operating, Financing, Investing