Question 1

In the phrase "generally accepted accounting principles," the words generally accepted mean that the principles:
A)Have been adopted by Congress or approved by the voters in a general election.
B)Are acceptable to the Internal Revenue Service.
C)Are understood and observed by all the participants in the financial reporting process.
D)Have been approved by a majority of the members of the Financial Accounting Standards Board.

Accepted Answer

The phrase "generally accepted" implies that the principles are widely understood and observed by all the participants in the financial reporting process, including accountants, auditors, and investors. It does not mean that the principles have been approved by Congress or the IRS, or by a specific majority of the members of the Financial Accounting Standards Board.

Question 2

In the phrase "generally accepted accounting principles," the words accounting principles refers to:
A)The standards,assumptions,and concepts that serve as "ground rules" for financial reporting.
B)Ethical standards that prohibit fraudulent or misleading financial reporting.
C)The steps in the accounting cycle.
D)The accounting practices authorized by the Financial Accounting Standards Board (FASB).

Accepted Answer

The words "generally accepted accounting principles" refer to the standards, assumptions, and concepts that serve as the "ground rules" for financial reporting. These principles provide a framework for how financial statements should be prepared and presented, ensuring consistency and comparability between companies' financial reports.

Question 3

Which of the following is not an objective of generally accepted accounting principles?
A)To minimize the amount of income taxes owed.
B)To ensure that both preparers and users of financial statements understand the concepts and assumptions used in presenting information within these statements.
C)To enhance the relevance and verifiability of information contained in financial statements.
D)To increase the comparability of financial statements prepared by different companies.

Accepted Answer

Minimizing the amount of income taxes owed is not an objective of generally accepted accounting principles. The objective of accounting principles is to provide relevant, reliable, comparable, and understandable financial information to various users for decision-making purposes. While tax implications may factor into accounting decisions, minimizing taxes owed is not a primary objective.

Question 4

Which of the following is true?
A)The existence of generally accepted accounting principles (GAAP)virtually eliminates the need for professional judgment except in very unusual circumstances.
B)Federal securities laws regarding the issuance of misleading financial statements apply not only to the independent auditors,but to management of the company as well.
C)Attaining a passing score on the part of the Uniform CPA Examination that covers professional ethics is evidence of integrity and commitment to ethical conduct.
D)A professional accountant should resign his position rather than become involved in the distribution of financial statements indicating insolvency.

Accepted Answer

Federal securities laws, such as those enforced by the Securities and Exchange Commission (SEC) in the United States, hold both the independent auditors and the management of the company accountable for the issuance of misleading financial statements. This is to ensure the integrity and reliability of financial information provided to investors and the public.

Question 5

The Accounting Standards Codification was developed by:
A)The Financial Accounting Standards Board.
B)Certified public accountants.
C)The Securities and Exchange Commission.
D)The Internal Revenue Service.

Accepted Answer

The Accounting Standards Codification (ASC) was developed by the Financial Accounting Standards Board (FASB). The FASB is responsible for establishing and improving financial accounting and reporting standards for public and private companies and not-for-profit organizations.

Question 6

The accounting standards and concepts used in the preparation of financial statements are called:
A)Certified principles of accounting (CPA).
B)Generally accepted accounting principles (GAAP).
C)Federal accounting standards and bylaws (FASB).
D)Standards enforcing consistency (SEC).

Accepted Answer

Generally accepted accounting principles (GAAP) are the set of accounting standards and concepts used in the preparation of financial statements. CPA (Choice A) refers to a professional designation for accountants, FASB (Choice C) is a nonprofit organization that sets accounting standards in the US, and SEC (Choice D) is a government agency that regulates securities markets. However, GAAP is the universally recognized set of accounting principles used in financial reporting.

Question 7

The Financial Accounting Standards Board is:
A)Responsible for the review and audit of federal income tax returns.
B)Primarily concerned with the preparation of the annual federal budget.
C)A private group that conducts research and determines generally accepted accounting principles.
D)A government agency with legal authority to approve or disapprove the financial statements of corporations that sell their securities to the public.

Accepted Answer

The Financial Accounting Standards Board (FASB) is a private organization that sets accounting standards in the United States. It is not a government agency, and does not have legal authority to approve or disapprove financial statements. Its purpose is to conduct research and establish generally accepted accounting principles (GAAP) to be followed by businesses and organizations.

Question 8

Which of the following is not recognized as a source of generally accepted accounting principles?
A)Widespread and long-term use of a particular practice.
B)The Financial Accounting Standards Board (FASB).
C)TheSecurities and Exchange Commission (SEC).
D)Statements of the Committee of Sponsoring Organizations (COSO).

Accepted Answer

While the statements of the Committee of Sponsoring Organizations (COSO) are widely recognized and used in accounting practice, they are not considered to be a source of generally accepted accounting principles. The other choices, such as the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC), are recognized sources of GAAP.

Question 9

The primary function of external auditors is to:
A)Express an opinion on the fairness of the company's financial statements.
B)Determine the accuracy of the management reports.
C)Evaluate the efficiency of operations and the degree of compliance with management's policies in all departments within a large organization.
D)Determine that financial statements and all special reports to management are prepared in conformity with generally accepted accounting principles.

Accepted Answer

The primary function of external auditors is to express an opinion on the fairness of the company's financial statements. This opinion is based on their examination of the financial statements and their assessment of whether they are prepared in accordance with the applicable financial reporting framework. Auditors also perform other procedures to obtain reasonable assurance that the financial statements are free from material misstatement.

Question 10

The measures used by an organization to provide reasonable assurance that the organization produces reliable financial reports,complies with applicable laws and regulations,and conducts its operations in an efficient and effective manner are collectively referred to as:
A)Generally accepted accounting principles.
B)Financial accounting standards.
C)Securities and exchange regulations.
D)The internal control structure.

Accepted Answer

The measures used by an organization to provide reasonable assurance that the organization produces reliable financial reports, complies with applicable laws and regulations, and conducts its operations in an efficient and effective manner are collectively referred to as the internal control structure. This includes policies, procedures, and processes designed to achieve these objectives, such as segregation of duties, authorization and approval procedures, physical controls, systems and information technology controls, and personnel controls. The other options, such as generally accepted accounting principles and financial accounting standards, are sets of rules and standards that provide guidance on how financial reporting should be done. Securities and exchange regulations are laws that regulate the securities industry and protect investors. While these can be part of an organization's compliance requirements, they do not encompass the full range of measures included in the internal control structure.

Question 11

An accounting principle must receive substantial authoritative support to qualify as generally accepted.Among the organizations and agencies that have been influential in the development of generally accepted accounting principles,which of the following has provided the most influential leadership?
A)Internal Revenue Service.
B)Institute of Management Accountants.
C)Financial Accounting Standards Board.
D)New York Stock Exchange.

Accepted Answer

Among the options given, the Financial Accounting Standards Board (FASB) has provided the most influential leadership in the development of generally accepted accounting principles. As the primary organization responsible for setting accounting standards in the United States, the FASB works to develop and improve financial reporting standards. Its standards carry substantial authoritative support and are widely used in practice. While the other organizations listed also play important roles in the accounting profession, they do not have the same level of influence over the development of generally accepted accounting principles as the FASB.

Question 12

The work of accountants practicing in public accounting may best be described as:
A)Providing various types of accounting services to a wide variety of clients.
B)Preparing income tax returns for individuals and small businesses.
C)Developing and interpreting information tailored to the needs of business managers.
D)Helping governmental agencies carry out their various regulatory responsibilities.

Accepted Answer

Accountants practicing in public accounting typically provide a range of services to clients, including auditing, tax preparation, financial statement preparation, and consulting. They work with clients across various industries and sizes to help them manage their finances and meet regulatory requirements.

Question 13

The body created by the Sarbanes Oxley Act and charged with oversight of the accounting profession is the:
A)Public Company Accounting Oversight Board.
B)Auditing Standards Board.
C)International Accounting Standards Board.
D)Securities and Exchange Commission.

Accepted Answer

The Public Company Accounting Oversight Board, or PCAOB, was created by the Sarbanes-Oxley Act to oversee the accounting profession, specifically with regards to auditors of publicly traded companies. The Auditing Standards Board and International Accounting Standards Board are separate entities, and while the SEC has regulatory power over the accounting profession, it is not the body created by Sarbanes-Oxley.

Question 14

Which of the following has the least impact upon the integrity of financial statements issued by publicly owned corporations?
A)Federal securities laws.
B)Professional judgment of the accountants who prepare the financial statements.
C)Audits of the financial statements by the Internal Revenue Service.
D)Competence and integrity of the CPAs who perform audits.

Accepted Answer

Audits of financial statements by the Internal Revenue Service do not have an impact on the integrity of financial statements issued by publicly owned corporations. The IRS is responsible for auditing tax returns, but not financial statements. The other options listed (federal securities laws, professional judgment of accountants, and competence/integrity of CPAs) all play a significant role in maintaining the integrity of financial statements.

Question 15

The basic purpose of audited financial statements is to:
A)Provide the reporting company with assurance that all assets are protected from theft or embezzlement.
B)Prepare financial statements for companies that do not have their own accounting departments.
C)Provide users of the financial statements with assurance that the statements are verifiable and are presented in conformity with generally accepted accounting principles.
D)Provide both the reporting company and the users of the statements with a written guarantee that the statements are error-free.

Accepted Answer

The basic purpose of audited financial statements is to provide users of the financial statements with assurance that the statements are verifiable and are presented in conformity with generally accepted accounting principles. The auditors do not provide a guarantee that the statements are error-free, but rather give an opinion on whether the statements are presented fairly and in accordance with accounting principles. Option A is not the main purpose of audits, but may be a secondary benefit. Option B is not correct because companies with their own accounting departments still require audited financial statements for external reporting purposes.

Question 16

Generally accepted accounting principles are the "ground rules" used in the preparation of:
A)Income tax returns.
B)All accounting reports.
C)Reports to federal and state regulatory agencies.
D)Financial statements.

Accepted Answer

Generally accepted accounting principles, or GAAP, are the standard accounting rules and procedures that companies must follow when preparing financial statements. These principles ensure consistency, comparability, and transparency in financial reporting, which is essential for investors, creditors, and other stakeholders to make informed decisions. Therefore, GAAP is primarily used in the preparation of financial statements.

Question 17

Which organization best serves the professional needs of a CPA?
A)FASB.
B)AICPA.
C)SEC.
D)AAA.

Accepted Answer

AICPA (American Institute of Certified Public Accountants) is the leading organization serving the professional needs of CPAs by providing resources and support for professional development and networking opportunities. FASB (Financial Accounting Standards Board) is responsible for establishing accounting standards for public companies, while SEC (Securities and Exchange Commission) is a regulatory agency that oversees the financial reporting practices of public companies. AAA (American Accounting Association) is an academic organization that focuses on accounting research and education.

Question 18

The American Institute of Certified Public Accountants has a code of professional conduct that expresses the accounting profession's recognition of its responsibilities to all of the following except:
A)The public.
B)The client.
C)Colleagues.
D)The IRS.

Accepted Answer

The AICPA's code of professional conduct expresses the accounting profession's recognition of its responsibilities to the public, clients, and colleagues, but does not mention the IRS as a stakeholder.

Question 19

In 2012 the SEC issued an extensive report regarding the use of IFRS by U.S.public companies and listed which of the following as a major obstacle to adopting IASB standards?
A)IASB standards are generally viewed as low quality.
B)IASB is dependent on funding from the major accounting firms.
C)Cross-border financing is decreasing in popularity.
D)The IASB is not a governmental agency,and therefore it is not positioned to develop accounting standards.

Accepted Answer

The SEC report highlighted concerns about the IASB's funding and governance, including its reliance on contributions from major accounting firms, as a significant obstacle to adopting IFRS.

Question 20

The FASB takes on a responsibility to do the following,except:
A)Set the objectives of financial reporting.
B)Describe the elements of financial statements.
C)Judge disputes between management and the CPA.
D)Determine the criteria for deciding what information to include in financial statements.

Accepted Answer

The FASB's responsibility is to set accounting standards and guidelines for financial reporting, including setting objectives of financial reporting, describing the elements of financial statements, and determining the criteria for deciding what information to include in financial statements. However, the FASB does not have the authority to judge disputes between management and the CPA.

Quiz 1: Accounting: Information for Decision Making

In the phrase "generally accepted accounting principles," the words generally accepted mean that the principles:

In the phrase "generally accepted accounting principles," the words accounting principles refers to:

Which of the following is not an objective of generally accepted accounting principles?

Which of the following is true?

The Accounting Standards Codification was developed by:

The accounting standards and concepts used in the preparation of financial statements are called:

The Financial Accounting Standards Board is:

Which of the following is not recognized as a source of generally accepted accounting principles?

The primary function of external auditors is to:

The measures used by an organization to provide reasonable assurance that the organization produces reliable financial reports,complies with applicable laws and regulations,and conducts its operations in an efficient and effective manner are collectively referred to as:

An accounting principle must receive substantial authoritative support to qualify as generally accepted.Among the organizations and agencies that have been influential in the development of generally accepted accounting principles,which of the following has provided the most influential leadership?

The work of accountants practicing in public accounting may best be described as:

The body created by the Sarbanes Oxley Act and charged with oversight of the accounting profession is the:

Which of the following has the least impact upon the integrity of financial statements issued by publicly owned corporations?

The basic purpose of audited financial statements is to:

Generally accepted accounting principles are the "ground rules" used in the preparation of:

Which organization best serves the professional needs of a CPA?

The American Institute of Certified Public Accountants has a code of professional conduct that expresses the accounting profession's recognition of its responsibilities to all of the following except:

In 2012 the SEC issued an extensive report regarding the use of IFRS by U.S.public companies and listed which of the following as a major obstacle to adopting IASB standards?

The FASB takes on a responsibility to do the following,except: