Deck 1: Financial Reporting

Question 1

In 1973,the following private-sector body was organized to set accounting standards in the United States:

A) the Financial Accounting Foundation.
B) the Securities and Exchange Commission.
C) the FASB
D) the Accounting Principles Board

Answer 1

C

Question 2

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

A) Board of directors
B) Stockholders in the company
C) Holders of the company's bonds
D) Creditors with long-term contracts with the company

Answer 2

A

Question 3

__________ accounting focuses on the development and communication of financial information for external users.

A) management.
B) forensic
C) audit
D) financial

Answer 3

D

Question 4

The members of the __________ are appointed by the Financial Accounting Foundation.

A) American Accounting Association.
B) Financial Accounting Standards Board
C) Securities and Exchange Commission.
D) American Institute of Certified Public Accountants.

Question 5

As independent (or external)auditors,CPAs are primarily responsible for

A) preparing financial statements in conformity with GAAP.
B) certifying the accuracy of financial statements.
C) expressing an opinion as to the fairness of financial statements.
D) filing financial statements with the SEC.

Question 6

Which of the following is a characteristic of the Financial Accounting Standards Board?

A) The FASB is composed of five members.
B) FASB members must come from CPA firms.
C) FASB members are part-time.
D) FASB members may retain their positions with previous employers.

Question 7

The following is NOT a major component of the financial statements:

A) auditor's opinion
B) annual report
C) explanatory notes
D) balance sheet

Question 8

Documents issued by the FASB include all of the following except

A) Statements of Financial Accounting Standards.
B) Interpretations of Statements of Financial Accounting Standards.
C) Statements of Financial Accounting Concepts.
D) Financial Reporting Releases.

Question 9

The responsibility to review the work of the accountants and issue opinions as to the fairness of the financial statements rests with

A) the external auditor.
B) the board of directors.
C) the internal auditors.
D) management.

Question 10

The area of accounting that emphasizes developing accounting information for use within a company is known as __________ accounting.

A) management
B) forensic
C) audit
D) financial

Question 11

The responsibility of the Emerging Issues Task Force (EITF)is to

A) issue statements which reflect a consensus of the EITF on how to account for new financial reporting issues where guidance is needed quickly.
B) do research on financial reporting issues that are being addressed by the AICPA.
C) respond to groups lobbying the FASB on issues that affect a particular industry.
D) develop concept statements the AICPA can use as a frame of reference to solve future s.

Question 12

Interested parties receive information about a company's past performance from:

A) CEO's
B) the SEC
C) financial reporting
D) financial news

Question 13

Operations of the FASB are overseen by the:

A) operations of the AICPA.
B) Financial Accounting Foundation
C) AAA.
D) financial reporting arm of the SEC.

Question 14

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

A) all members of the FASB serve full time,are paid a salary,and are independent of any public or private enterprises.
B) over 50 percent of the members of the FASB are required to be Certified Public Accountants.
C) the FASB issues exposure drafts of proposed standards.
D) all members of the FASB possess experience in both public and corporate accounting.

Question 15

The overall objective of financial reporting is to provide information

A) that is useful for decision making.
B) about an enterprise's assets,liabilities,and owners' equity.
C) about an enterprise's financial performance during a period.
D) that allows owners to assess management's performance.

Question 16

Which of the following is NOT normally an objective of financial reporting?

A) To provide information about an entity's assets and claims against those assets
B) To provide information that is useful in assessing an entity's sources and uses of cash
C) To provide information that is useful in lending and investing decisions
D) To provide information about an entity's liquidation value

Question 17

Primary responsibility for GAAP and public reporting currently rests with the

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

Question 18

The normal order followed by the FASB in publishing its standards is

A) statement,discussion memorandum,opinion.
B) discussion memorandum,interpretation,exposure draft,statement.
C) exposure draft,discussion memorandum,statement.
D) discussion memorandum,exposure draft,statement.

Question 19

The following are users of accounting information:

A) stakeholders
B) creditors
C) investors
D) all of the above

Question 20

Proper application of accounting principles is most dependent upon the

A) existence of specific guidelines.
B) oversight of regulatory bodies.
C) external audit function.
D) professional judgment of the accountant.

Question 21

The process of establishing financial accounting standards is

A) a democratic process in that a majority of practicing accountants must agree with a standard before it becomes implemented.
B) a legislative process based on rules promulgated by government agencies.
C) based solely on economic analysis of the effects each standard will have if it is implemented.
D) a social process which incorporates political actions of various interested user groups as well as professional research and logic.

Question 22

The SEC was given the power to establish accounting principles including setting requirements for details shown on financial statements by the:

A) FASB
B) AICPA
C) Congress
D) AAA

Question 23

The following private-sector organization was created by the Sarbanes-Oxley Act of 2002 to perform required audits on U.S.publicly traded companies:

A) AICPA
B) Public Company Accounting Oversight Board
C) Financial Executives Institute.
D) Financial Accounting Standards Board.

Question 24

The assumed continuation of a business entity in the absence of evidence to the contrary is an example of the accounting concept of

A) accrual.
B) consistency.
C) comparability.
D) going concern.

Question 25

A conceptual framework of accounting should

A) lead to uniformity of financial statements among companies within the same industry.
B) eliminate alternative accounting principles and methods.
C) guide the AICPA in developing generally accepted auditing standards.
D) define the basic objectives,terms,and concepts of accounting.

Question 26

The primary current source of generally accepted accounting principles for nongovernmental operations is the

A) American Institute of Certified Public Accountants.
B) Securities and Exchange Commission.
C) Financial Accounting Standards Board.
D) Governmental Accounting Standards Board.

Question 27

The International Accounting Standards Board was formed to

A) enforce FASB standards in foreign countries.
B) develop worldwide accepted accounting standards.
C) establish accounting standards for U.S.multinational companies.
D) develop accounting standards for countries that do not have their own standard-setting bodies.

Question 28

The primary purpose of the Securities and Exchange Commission is to

A) regulate the issuance and trading of securities.
B) issue accounting and auditing regulations for publicly held companies.
C) prevent the trading of speculative securities.
D) enforce generally accepted accounting principles.

Question 29

Which of the following items is not a modifying convention?

A) Matching
B) Materiality
C) Industry practices
D) Conservatism

Question 30

Accounting standards help accountants meet the information demands of interested parties by providing:

A) legislation introduction pertaining to financial reporting
B) limits and guidance for financial reporting
C) improved operating plans to the Board
D) reports to the Media

Question 31

Generally accepted accounting principles

A) are accounting adaptations based on the laws of economic science.
B) derive their credibility and authority from legal rulings and court precedents.
C) derive their credibility and authority from the federal government through the financial reporting section of the SEC.
D) derive their credibility and authority from general recognition and acceptance by the accounting profession.

Question 32

The __________ of a firm is primarily responsible for the preparation of financial statements in accordance with GAAP.

A) the internal auditors.
B) management.
C) the external auditors.
D) the board of directors.

Question 33

Accountants prepare financial statements at arbitrary points in time during a company's lifetime in accordance with the accounting concept of

A) matching.
B) comparability.
C) accounting periods.
D) materiality.

Question 34

The Governmental Accounting Standards Board

A) was incorporated into the Financial Accounting Standards Board when the FASB was created.
B) addresses financial reporting issues of U.S.government treaties and treasury rulings.
C) addresses the financial reporting issues related to state and local governments.
D) addresses the governmental reporting activities of the SEC.

Question 35

How many board members serve on the FASB?

A) 5
B) 7
C) 14
D) 20

Question 36

The primary current source of generally accepted accounting principles for governmental operations is the

A) Financial Accounting Standards Board.
B) Securities and Exchange Commission.
C) Governmental Accounting Standards Board.
D) Government Accounting Office.

Question 37

The staff interpretations statements issued by the SEC are called:

A) Staff Accounting Research Bulletins.
B) Statements on Accounting Principles.
C) Financial Accounting Standards.
D) Staff Accounting Bulletins

Question 38

Form 10-K is submitted to the

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

Question 39

When the FASB deliberates about an accounting standard,firms whose financial statements would be affected by that standard

A) are legally barred from lobbying the FASB.
B) are not allowed to lobby the FASB if the standard would have a negative impact on their financial statements.
C) are not allowed to lobby the FASB if the standard would have a positive impact on their financial statements.
D) are free to lobby for or against the standard.

Question 40

Once the FASB has established an accounting standard,the

A) standard is continually reviewed to see if modification is necessary.
B) standard is not reviewed unless the SEC makes a complaint.
C) task of reviewing the standard to see if modification is necessary is given to the AICPA.
D) principle of consistency requires that no revisions ever be made to the standard.

Question 41

Which of the following is NOT a purpose of the conceptual framework of accounting?

A) To provide definitions of key terms and fundamental concepts
B) To provide specific guidelines for resolving situations not covered by existing accounting standards
C) To assist accountants and others in selecting among alternative accounting and reporting methods
D) To assist the FASB in the standard-setting process

Question 42

Which of the following elements of financial statements is not a component of comprehensive income?

A) Revenues
B) Expenses
C) Losses
D) Distributions to owners

Question 43

The following is a qualitative characteristic of accounting information:

A) timeliness
B) feedback value
C) neutrality
D) decision usefulness.

Question 44

Accounting for inventories by applying the lower-of-cost-or-market is an example of the application of

A) conservatism.
B) comparability.
C) consistency.
D) materiality.

Question 45

Historical cost has been the valuation basis most commonly used in accounting because of its

A) timelessness.
B) conservatism.
C) reliability.
D) accuracy.

Question 46

When financial reports from two different companies have been prepared and presented in a similar manner,the information exhibits the characteristic of

A) relevance.
B) reliability.
C) comparability.
D) consistency.

Question 47

Financial information exhibits the characteristic of consistency when

A) accounting procedures are adopted which smooth net income and make results consistent between years.
B) extraordinary gains and losses are shown separately on the income statement.
C) accounting entities give similar events the same accounting treatment each period.
D) expenditures are reported as expenses and netted against revenue in the period in which they are paid.

Question 48

An item would be considered material and therefore would be disclosed in the financial statements if the

A) expected benefits of disclosure exceed the additional costs.
B) impact on earnings is greater than 3 percent.
C) FASB definition of materiality is met.
D) omission of misstatement of the amount would make a difference to the users.

Question 49

The secondary qualitative characteristics of accounting information are

A) relevance and reliability.
B) comparability and consistency.
C) understandability and decision usefulness.
D) materiality and conservatism.

Question 50

When a large number of individuals,using the same measurement method,demonstrate that a high degree of consensus can be secured among independent measurers,then the result exhibits the characteristic of

A) verifiability.
B) neutrality.
C) relevance.
D) reliability.

Question 51

Conservatism is best described as selecting an accounting alternative that

A) understates assets and/or net income.
B) has the least favorable impact on owners' equity.
C) overstates,as opposed to understates,liabilities.
D) is least likely to mislead users of financial information.

Question 52

Which of the following measurement attributes is not currently used in practice?

A) Present value
B) Net realizable value
C) Current replacement cost
D) Inflation-adjusted cost

Question 53

Important constraints underlying the qualitative characteristics of accounting information are

A) historical cost and going concern.
B) materiality,conservatism,and cost-effectiveness.
C) consistency,comparability,and conservatism.
D) verifiability,neutrality,and representational faithfulness.

Question 54

The financial statements that are prepared for the business are separate and distinct from the owners according to the

A) going-concern assumption.
B) matching principle.
C) economic entity assumption.
D) full disclosure principle.

Question 55

What accounting concept justifies the use of accruals and deferrals?

A) Going-concern assumption
B) Corporate form of organization
C) Consistency characteristic
D) Arm's-length transactions

Question 56

Recording the purchase price of a paper shredder (with an estimated useful life of 10 years)as an expense of the current period is justified by the

A) going-concern assumption.
B) materiality constraint.
C) matching principle.
D) comparability principle.

Question 57

According to the FASB's conceptual framework,the process of reporting an item in the financial statements of an entity is

A) realization.
B) recognition.
C) matching.
D) allocation.

Question 58

Which of the following statements concerning the objectives of financial reporting is correct?

A) The objectives are intended to be specific in nature.
B) The objectives are directed primarily toward the needs of internal users of accounting information.
C) The objectives were the end result of the FASB's conceptual framework project.
D) The objectives encompass not only financial statement disclosures,but other information as well.

Question 59

The following is NOT one of the fundamental criteria for recognition?

A) Timeliness
B) Measurability
C) Relevance
D) Reliability

Question 60

Which of the following is NOT an implication of the going-concern assumption?

A) The historical cost principle is credible.
B) Depreciation and amortization policies are justifiable and appropriate.
C) The current/noncurrent classification of assets and liabilities is justifiable and significant.
D) Amortizing research and development costs over multiple periods is justifiable and appropriate.

Question 61

In an effort to improve the conceptual framework,the FASB,in conjunction with the IASB has been moving towards more __________ standards.

A) rules approach
B) principles approach
C) broad approach
D) international approach

Question 62

Financial statements issued for the use of parties external to the enterprise are the primary responsibility of the

A) management of the enterprise.
B) stockholders of the enterprise.
C) independent auditors of the enterprise.
D) creditors of the enterprise.

Question 63

The accrual basis of accounting is based primarily on

A) conservatism and revenue realization.
B) conservatism and matching.
C) consistency and matching.
D) revenue realization and matching.

Question 64

Which of the following is not included in the highest authoritative level of GAAP?

A) FASB Statements
B) AICPA Statements of Position
C) FASB Staff Positions
D) Accounting Principles Board (APB)Opinions

Question 65

Internal users are provided information by the following branch of accounting:

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

Question 66

The United States Securities and Exchange Commission

A) has recognized IASB standards as an acceptable alternative to U.S.GAAP.
B) requires foreign companies listing their shares on U.S.stock exchanges to restate their financial statements to U.S.GAAP.
C) has barred foreign companies from listing their shares on U.S.stock exchanges.
D) has no jurisdiction in the United States over foreign companies listing their shares on U.S.stock exchanges.

Question 67

Large business enterprises employ financial accountants who are primarily concerned with__________ financial reporting.

A) corporate tax
B) management
C) external
D) international

Question 68

For which of the following reporting issues has the FASB adopted substantially the same approach as the IASB?

A) Segment reporting
B) Earnings per share
C) Statement of cash flows
D) Pension plans

Question 69

The branch of accounting that is concerned with providing information to present and potential creditors of an enterprise is

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

Question 70

Which of the following qualitative characteristics of financial information requires that information NOT be biased in favor of one group of users to the detriment of others?

A) Relevance
B) Reliability
C) Verifiability
D) Neutrality

Question 71

The harmonization of world accounting standards is viewed by many accountants,analysts,standard setters,and others as being among the most important issues facing business throughout the world.Advocates of harmonization seek to establish a common set of international accounting and reporting standards.Such a task has proven formidable,however.
Identify factors that would hinder the process of harmonization of accounting standards.

Question 72

Under Statement of Financial Accounting Concepts No.2,representational faithfulness is an ingredient of Relevance Reliability

A) Yes Yes
B) Yes No
C) No No
D) No Yes

Question 73

Financial disclosure statements are strictest in

A) the United Kingdom.
B) Germany.
C) the United States.
D) France.

Question 74

The journal Accounting Horizons is published by which of the following organizations?

A) American Institute of Certified Public Accountants (AICPA)
B) American Accounting Association (AAA)
C) Securities and Exchange Commission (SEC)
D) Financial Accounting Standards Board (FASB)

Question 75

According to the FASB's conceptual framework,which of the following relates to both relevance and reliability? Consistency Verifiability

A) Yes Yes
B) Yes No
C) No Yes
D) No No

Question 76

Which of the following is true?

A) Form 10-K is required under the FASB Conceptual Framework.
B) Form 10-Q is a quarterly report of significant events required by the SEC.
C) Form 8-K is a quarterly report of significant events required by the SEC.
D) Form 8-K is the annual report submitted by small businesses to the SEC.

Question 77

The primary measurement basis currently used to value assets in external financial statements of an enterprise is the

A) current market price if the assets currently held by an enterprise were sold on the open market.
B) current market price if the assets held by an enterprise were purchased on the open market.
C) present value of the cash flows the assets are expected to generate over their remaining useful lives.
D) market price of the assets held by an enterprise at the date the assets were acquired (although some assets may be valued at their current selling price or net realizable value).

Question 78

Which of the following is true about international accounting standards?

A) Significant differences exist between U.S.GAAP and GAAP of other countries.
B) Few differences exist between U.S.GAAP and GAAP of other countries.
C) The IASB is the standards-setting body of France.
D) It is unlikely that the differences between U.S.GAAP and GAAP of other countries will diminish over time.

Question 79

Enron's with related-party transactions breached the assumption of:

A) going concerns
B) arm's-length transactions
C) freedom of enterprise
D) market stability