Question 1

The problem of information asymmetry can be reduced by
A)aggressive accounting.
B)accounting standards.
C)adverse selection.
D)only focusing on positive events.

Accepted Answer

Accounting standards can help reduce information asymmetry by providing a common set of rules and expectations for how financial information should be reported. This can increase transparency and make it easier for investors to compare and evaluate different companies. Aggressive accounting or focusing only on positive events may actually exacerbate information asymmetry, while adverse selection refers to the problem of asymmetric information in the market for insurance or other products.

Question 2

Financial accounting can be broadly defined as the area of accounting that prepares financial statements to be used
A)by parties internal to the business enterprise only.
B)by investors only.
C)by parties both internal and external to the business enterprise.
D)primarily by external users and Canada Revenue Agency.

Accepted Answer

Financial accounting prepares financial statements for both internal and external users of the business enterprise, including shareholders, creditors, banks, and regulatory agencies like the Canada Revenue Agency.

Question 3

Which of the following is correct?
A)Reported accounting numbers do not affect the transfer of resources.
B)Credit rating agencies use accounting information to assess their assets.
C)Efficient capital markets promote productivity and encourage innovation.
D)Efficient capital markets promote productivity but do not encourage innovation.

Accepted Answer

Efficient capital markets promote productivity by ensuring that resources are allocated to their most productive use, which in turn encourages innovation as firms are able to access the necessary capital to fund new projects and ideas.

Question 4

The "efficient markets hypothesis" proposes that
A)market prices reflect information known only to internal stakeholders.
B)market prices reflect all information about a company.
C)market prices reflect information known only to external stakeholders.
D)information asymmetry is required.

Accepted Answer

The efficient markets hypothesis proposes that market prices reflect all information about a company. This includes information known to both internal and external stakeholders of the company. The theory suggests that in an efficient market, prices will adjust quickly as new information becomes available, making it difficult to consistently outperform the market through analysis or insider knowledge. Information asymmetry, where one party has more or better information than the other, is not required for the efficient markets hypothesis to hold.

Question 5

The essential characteristic(s)of accounting is (are)
A)communication of financial information to interested internal parties only.
B)communication of economic information to external parties.
C)identification and measurement of financial information only.
D)identification, measurement, and communication of financial information.

Accepted Answer

Accounting involves the identification and measurement of financial information, as well as its communication to internal and external parties. Therefore, option D is the correct choice.

Question 6

Management accounting can be broadly defined as the area of accounting that communicates financial information
A)to investors only.
B)to parties internal to the business enterprise only.
C)to parties both internal and external to the business enterprise.
D)primarily to external users and Canada Revenue Agency.

Accepted Answer

Management accounting is focused on providing financial information to parties internal to the business enterprise, such as managers, to aid in decision-making and business operations.

Question 7

Where information asymmetry exists, the capital market may attract the wrong kind of company.This is known as
A)moral hazard.
B)conservative accounting.
C)adverse selection.
D)an inefficient marketplace.

Accepted Answer

Adverse selection refers to the situation where one party (in this case, investors) has less information than the other party (companies) in a transaction. In such cases, the market may attract low-quality companies that have more information about their financial position than the investors, leading to a mismatch in terms of the quality of firms and the capital they raise. This can be detrimental to the efficiency of the capital market.

Question 8

The preparation by some companies of biased information is sometimes referred to as
A)conservative financial reporting.
B)full disclosure of all material facts.
C)aggressive financial reporting.
D)stewardship.

Accepted Answer

The preparation of biased information by some companies is referred to as aggressive financial reporting, where the company may manipulate financial data to make the company appear more profitable or successful than it actually is. Conservative financial reporting focuses on providing a realistic and cautious view of the company's financial position, while full disclosure of all material facts involves providing complete and accurate information to stakeholders. Stewardship refers to the responsibility of company management to protect and manage the assets entrusted to them by shareholders.

Question 9

Stakeholders who help in the efficient allocation of resources include
A)investors and creditors.
B)financial analysts and regulators.
C)creditors and auditors.
The Canadian Financial Reporting Environment 1 - 7
D)management and auditors.

Accepted Answer

The answer of Stakeholders who help in the efficient allocation...

Question 10

In Canada, the body that has the responsibility of overseeing the Accounting Standards Board (AcSB)is the
A)Accounting Standards Oversight Council (AcSOC).
B)International Accounting Standards Board (IASB).
C)Canadian Institute of Chartered Accountants (CICA).
D)Financial Accounting Standards Board (FASB).

Accepted Answer

The Accounting Standards Oversight Council (AcSOC) is the body that oversees the Accounting Standards Board (AcSB) in Canada. The AcSOC is an independent organization that is responsible for ensuring that the AcSB’s accounting standards meet the needs of users of financial information and are in the public interest. The other options listed (IASB, CICA, FASB) do not have direct responsibility for overseeing the AcSB in Canada.

Question 11

In the United States, the body that has the final authority over accounting standards is the
A)Financial Accounting Standards Board (FASB).
B)International Accounting Standards Board (IASB).
C)Securities Exchange Commission (SEC).
D)Accounting Standards Oversight Council (AcSOC).

Accepted Answer

The SEC has the final authority over accounting standards in the United States. The FASB and AcSOC are organizations that work with the SEC to develop and maintain accounting standards, but do not have final authority. The IASB sets accounting standards for countries outside of the United States.

Question 12

The widely publicized subprime lending crisis was NOT caused by
A)capital market participants who acted in their own self-interest.
B)a lack of transparency.
C)the practice of securitizing assets.
D)a lack of investor understanding of the investment's true risk.

Accepted Answer

The subprime lending crisis was indeed caused by capital market participants acting in their own self-interest, a lack of transparency, and a lack of investor understanding of the investment's true risk. However, the practice of securitizing assets, while it played a role in spreading the risk and contributing to the crisis, is not inherently a cause of the crisis. It's a financial practice that can be used responsibly or irresponsibly, depending on the underlying assets and the transparency and understanding of the risks involved.

Question 13

As of 2011, the responsibilities of the Accounting Standards Board (AcSB)in Canada relate to setting standards for
A)publicly accountable entities only.
B)both publicly accountable entities and private enterprises.
C)private enterprises, not-for-profit entities and pension plans.
D)not-for-profit entities and pension plans only.

Accepted Answer

The answer of As of 2011, the responsibilities of the...

Question 14

The auditor's primary responsibility is to
A)review financial statements and discuss them with management.
B)prepare financial statements.
C)report to Canada Revenue Agency.
D)report to standard setters.

Accepted Answer

The primary responsibility of an auditor is to review the financial statements and discuss them with the management to ensure their accuracy and compliance with relevant accounting standards and regulations. The auditor's report is based on the results of their audit and provides assurance to users of the financial statements on their reliability. The other options listed (preparing financial statements, reporting to Canada Revenue Agency, and reporting to standard setters) are not the primary responsibilities of an auditor, although they may be involved in related activities as part of their role.

Question 15

Objectives of financial reporting do NOT include
A)providing information that is useful to users in making resource allocation decisions.
B)providing information about the liquidation value of an enterprise.
C)providing information about an entity's economic resources, obligations, and equity/net
Assets.
D)providing information about changes in an entity's economic resources, obligations, and
Equity/net assets.

Accepted Answer

Financial reporting does not aim to provide information about the liquidation value of an enterprise. Its primary objectives are to provide useful information for decision-making, and insights into an entity's resources, obligations, and changes in financial position.

Question 16

In Canada, the body which is NOT instrumental in the development of financial reporting standards is the
A)Accounting Standards Board (AcSB).
B)Financial Accounting Standards Board (FASB).
C)International Accounting Standards Board (IASB).
D)American Institute of Certified Public Accountants.

Accepted Answer

The American Institute of Certified Public Accountants is not an organization in Canada and therefore does not play a role in the development of financial reporting standards in Canada. The Accounting Standards Board (AcSB) is the primary body responsible for developing accounting standards in Canada, while the International Accounting Standards Board (IASB) is responsible for developing international accounting standards. The Financial Accounting Standards Board (FASB) is an organization in the United States and does not play a direct role in developing financial reporting standards in Canada, although their standards may be adopted in Canada in certain circumstances.

Question 17

Financial accounting is concerned with the process that culminates in
A)the preparation of financial reports.
B)specialized reports for inventory management and control.
C)specialized reports for income tax calculation and recognition.
D)reports on changes in stock prices and future estimates of market position.

Accepted Answer

Financial accounting is primarily concerned with the preparation of financial reports, which includes the presentation of financial information in the form of financial statements such as balance sheet, income statement, and cash flow statement. Specialized reports for inventory management, income tax calculation, and stock prices are typically the concerns of managerial accounting or other specialized fields.

Question 18

Audited financial statements are prepared by
A)auditors.
B)financial analysts.
C)Canada Revenue Agency.
D)management.

Accepted Answer

Audited financial statements are prepared by the management of a company. Auditors then examine these statements to ensure their accuracy and compliance with relevant accounting standards.

Question 19

Which of the following does NOT describe a cause of management bias?
A)the need to comply with contracts, such as debt covenants
B)the desire to meet financial analysts' expectations
C)the tendency to downplay negative events
D)the desire for all stakeholders to have access to all information

Accepted Answer

The desire for all stakeholders to have access to all information is not a cause of management bias. It is actually the opposite, as giving all stakeholders access to all information can help prevent bias and promote transparency. The other options, A, B, and C, can all contribute to management bias by incentivizing managers to present a particular view or downplay negative information.

Question 20

Whether a business is successful and thrives is determined by
A)free enterprise or competition.
B)competition and markets only.
C)markets and competition only.
D)markets, competition and free enterprise.

Accepted Answer

All three factors - markets, competition, and free enterprise - are important in determining whether a business will be successful and thrive. Markets provide the demand and potential customer base for a business, while competition drives innovation and ensures that businesses are constantly improving their products and services. Free enterprise allows businesses to operate with limited government intervention, which can encourage entrepreneurship and growth. Without any one of these factors, businesses may struggle to succeed in the marketplace.

Quiz 1: Intermediate Accounting Volume 1

The problem of information asymmetry can be reduced by

Financial accounting can be broadly defined as the area of accounting that prepares financial statements to be used

Which of the following is correct?

The "efficient markets hypothesis" proposes that

The essential characteristic(s) of accounting is (are)

Management accounting can be broadly defined as the area of accounting that communicates financial information

Where information asymmetry exists, the capital market may attract the wrong kind of company.This is known as

The preparation by some companies of biased information is sometimes referred to as

Stakeholders who help in the efficient allocation of resources include

In Canada, the body that has the responsibility of overseeing the Accounting Standards Board (AcSB) is the

In the United States, the body that has the final authority over accounting standards is the

The widely publicized subprime lending crisis was NOT caused by

As of 2011, the responsibilities of the Accounting Standards Board (AcSB) in Canada relate to setting standards for

The auditor's primary responsibility is to

Objectives of financial reporting do NOT include

In Canada, the body which is NOT instrumental in the development of financial reporting standards is the

Financial accounting is concerned with the process that culminates in

Audited financial statements are prepared by

Which of the following does NOT describe a cause of management bias?

Whether a business is successful and thrives is determined by