Question 1

In which of the following ways did the charge to the Financial Accounting Standards Board (FASB) differ from that given to the Accounting Principles Board (APB)?

Accepted Answer

The charge given to the FASB was to establish standards of financial accounting and reporting in the most efficient and complete manner possible, whereas the charge given to the APB was to develop and improve accounting principles, not necessarily in the most efficient or complete manner. The other choices are incorrect because the FASB did not have a two-pronged approach, stipulate principles of accounting as an underlying framework, or create advisory rather than mandatory standards.

Question 2

What was the purpose of APB Statement 4, Basic Concepts and Accounting Principles Underlying Financial Statements of Business Enterprises?

Accepted Answer

APB Statement 4 aimed to provide a foundation for evaluating existing accounting practices, assist in solving accounting problems, guide the future development of financial accounting, and enhance understanding of the purposes of financial accounting. Therefore, all of the above options are correct.

Question 3

The International Accounting Standards Board's role in establishing standards has decreased significantly since 2002.

Accepted Answer

The International Accounting Standards Board's role in establishing standards has actually increased since 2002, with the introduction of the IFRS framework and the adoption of IFRS by many countries around the world.

Question 4

The importance of the auditing function relative to the management consulting function is declining in major auditing firms.

Accepted Answer

This statement is true. In recent years, major auditing firms have been expanding their management consulting services, resulting in a reduced focus on auditing. This has led to concerns over potential conflicts of interest and a lack of independence in the auditing process.

Question 5

Which of the following was an accomplishment of the American Association of Public Accountants?

Accepted Answer

The American Association of Public Accountants achieved all three of these accomplishments: the passage of the law to create the CPA designation, the founding of The Journal of Accountancy, and the development of a list of terms and definitions.

Question 6

The Committee on Accounting Procedures (CAP) was immediately succeeded by:

Accepted Answer

The Accounting Principles Board (APB) succeeded the Committee on Accounting Procedures (CAP) in 1959. The APB was responsible for developing accounting principles and issued opinions on specific accounting issues. However, it was later disbanded in 1973 and replaced by the Financial Accounting Standards Board (FASB). Therefore, choices A, C, and D are incorrect.

Question 7

Which of the following is not true regarding Accounting Series Release No. 4?

Accepted Answer

Accounting Series Release No. 4 did not establish an authoritative body for the development of accounting standards. Instead, it indicated that the accounting profession itself should take the responsibility for developing and implementing suitable accounting standards.

Question 8

A problem with the increased importance of the management consulting function in auditing firms is the possible erosion of the integrity of the auditing function.

Accepted Answer

The increased focus on management consulting may lead auditing firms to prioritize client interests over audit quality, thus potentially compromising the integrity of the auditing function. This conflict of interest has been a controversy in the industry for many years.

Question 9

Which of the following was a controversial issue faced by the Accounting Principles Board (APB)?

Accepted Answer

All of the options were controversial issues faced by the Accounting Principles Board (APB). The investment tax credit was controversial because of the different ways it could be accounted for, and companies wanted guidance on the appropriate method. Income tax allocation was controversial because there were differing opinions on how to allocate income taxes among different segments of a company. Business combinations and goodwill were controversial because there were disagreements on how to value and account for them on a company's financial statements.

Question 10

The Litigation Reform Act of 1995 requires that an audit include procedures designed to guarantee that illegal acts that would materially affect financial statements will be detected.

Accepted Answer

The Litigation Reform Act of 1995 does not specifically require audits to include procedures designed to guarantee the detection of illegal acts that would materially affect financial statements. Instead, the act primarily addresses securities litigation reforms. Audit requirements are more directly governed by auditing standards and regulations, such as those from the Public Company Accounting Oversight Board (PCAOB) and the American Institute of Certified Public Accountants (AICPA), which do require auditors to consider the risk of material misstatement in financial statements due to fraud or error, including certain illegal acts.

Question 11

The AICPA has developed an electronic filing of financial data called EDGAR.

Accepted Answer

The AICPA did not develop EDGAR. It was developed by the Securities and Exchange Commission (SEC) and is used for companies to electronically file financial and other information required by the SEC.

Question 12

Criticism of the standard-setting process under the APB included:

Accepted Answer

Both options A and B are valid criticisms of the APB's standard-setting process. Limited exposure for tentative opinions prevented sufficient feedback and the process was subject to external pressures.

Question 13

Which of the following is true regarding the Committee on Accounting Procedures (CAP)?

Accepted Answer

The Committee on Accounting Procedures (CAP) was established by the American Institute of Certified Public Accountants (AICPA) in 1939 and adopted a policy of attacking specific problems and recommending preferred methods of accounting when possible. While the CAP helped to standardize accounting practices, it did not develop a comprehensive statement of accounting principles, nor did it eliminate the use of alternative accounting practices by establishing an underlying accounting theory.

Question 14

Which state passed the law that first created the designation "Certified Public Accountant"?

Accepted Answer

New York passed the law in 1896 that first created the designation of "Certified Public Accountant."

Question 15

Which of the following are true regarding the Financial Accounting Standards Board (FASB)?

Accepted Answer

The Financial Accounting Standards Board (FASB) requires that there must be no conflict between its members' private interests and the public interest, ensuring the integrity and objectivity of its standards. The other statements are incorrect: the FASB has seven members, not ten, and members are not required to be Certified Public Accountants, though they often have extensive backgrounds in accounting or related fields.

Question 16

Which of the following factors led to significant changes in accounting practices?

Accepted Answer

The Great Depression of 1929 led to significant economic turmoil and exposed weaknesses in accounting practices, leading to the need for reforms. The election of Franklin D. Roosevelt in 1932 and the enactment of the New Deal legislation brought about significant changes in regulation and oversight of financial practices, including accounting. Therefore, all of the above factors led to significant changes in accounting practices.

Question 17

Which of the following characteristics does not apply to accounting practices and procedures in the U.S. prior to 1930?

Accepted Answer

Accounting practices and procedures in the U.S. prior to 1930 were not applied uniformly among companies. Each company had its own individual accounting methods and there were no standardized rules or regulations.

Question 18

An annual report to stockholders prepared using FASB accounting standards generally has more disclosure of nonfinancial statement information than does the typical annual report filed with the SEC.

Accepted Answer

The typical annual report filed with the SEC, specifically Form 10-K, requires comprehensive disclosures including both financial statement information prepared according to FASB standards and extensive nonfinancial statement information, often more than what is included in the annual report to stockholders.

Question 19

FASB lost a significant amount of independence from the SEC due to Sarbanes-Oxley's passage.

Accepted Answer

Sarbanes-Oxley Act of 2002 created the Public Company Accounting Oversight Board (PCAOB), which oversees the auditing profession and has the power to set auditing standards. This reduced FASB's independence from the SEC because auditors now have to follow PCAOB's standards instead of FASB's.

Question 20

In 1918, the American Institute of Accountants (AIA) worked with which of the following organizations to publish minimum standards for conducting a balance sheet audit?

Accepted Answer

In 1917, the Federal Trade Commission (FTC) requested the American Institute of Accountants (AIA) to develop a set of auditing standards. This collaboration led to the publication of the first minimum standards for conducting a balance sheet audit in 1918, marking a significant step in the development of auditing standards in the United States.

Quiz 3: Development of Institutional Structure of Financial Accounting

In which of the following ways did the charge to the Financial Accounting Standards Board (FASB) differ from that given to the Accounting Principles Board (APB) ?