Question 1

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

Accepted Answer

The Financial Accounting Foundation (FAF) is the parent organization of the Financial Accounting Standards Board (FASB), which is responsible for establishing and improving financial accounting and reporting standards for the public interest.

Question 2

Beginning in 1938 and extending to the present, which is the correct sequence of accounting rule-making bodies?

Accepted Answer

The correct sequence of accounting rule-making bodies is Committee on Accounting Procedure (CAP) from 1939 to 1959, Accounting Principles Board (APB) from 1959 to 1973, and Financial Accounting Standards Board (FASB) from 1973 to the present.

Question 3

Concerning FASB membership, which statement is not true?

Accepted Answer

Members of the Financial Accounting Standards Board (FASB) are not required to be members of the Financial Accounting Foundation (FAF). The FAF is responsible for selecting members of the FASB and providing it with financial support, but FASB members operate independently in their standard-setting activities.

Question 4

Which of the following statements about the FASB Accounting Standards Codification is true?

Accepted Answer

The FASB Accounting Standards Codification is indeed primarily available as an electronic database, and while there might be printed materials or resources derived from it, the official, authoritative source is the electronic version provided by the FASB.

Question 5

Which of the following statements regarding Standards contained in the FASB Accounting Standards Codification ASC) is true?

Accepted Answer

The FASB Accounting Standards Codification applies to financial reporting by U.S. companies that follow Generally Accepted Accounting Principles (GAAP).

Question 6

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

Accepted Answer

The Securities and Exchange Commission has the legal authority to prescribe accounting principles and reporting practices for all companies issuing publicly traded securities. This is because the SEC's primary role is to protect investors and ensure that companies provide accurate and timely information to the public. Therefore, the SEC focuses on companies that issue securities to the public markets, as these companies have the potential to impact a large number of investors.

Question 7

What is the relationship between the Securities and Exchange Commission and accounting standard setting in the United States?

Accepted Answer

The answer of What is the relationship between the Securities...

Question 8

Which of the following statements is true?

Accepted Answer

The Financial Accounting Standards Board (FASB) operates in an environment where accounting standards can have significant economic and political implications. As such, the development of these standards often involves negotiation and compromise among various stakeholders to address differing interests and perspectives. This process acknowledges the complex interplay between accounting practices and their broader impacts on the economy and society.

Question 9

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

Accepted Answer

The SEC (Securities and Exchange Commission) plays a significant role in the accounting and financial reporting landscape, not by directly establishing accounting principles, but by influencing the development and adoption of these principles through its informal review and approval of standards developed by private sector organizations, such as the Financial Accounting Standards Board (FASB). This process ensures that the standards are in line with the SEC's requirements for fair and transparent financial reporting before they are officially released and adopted by companies for their SEC filings.

Question 10

Information asymmetry may cause problems because management's behavior

Accepted Answer

Information asymmetry can lead to situations where management (agents) may act in ways that are not aligned with the best interests of the owners or shareholders, due to the managers having more information than the shareholders. This is a classic example of the principal-agent problem.

Question 11

Which of the following statements about the FASB Accounting Standards Codification is false?

Accepted Answer

The Codification does not have a hierarchical structure where higher levels are more authoritative; all content in the Codification is considered equally authoritative.

Question 12

Which organization has the most legal authority?

Accepted Answer

The Securities and Exchange Commission (SEC) has the most legal authority among the given organizations. It is the federal agency responsible for enforcing federal securities laws and regulating the securities industry, which includes the authority to establish accounting and auditing standards for publicly traded companies. The other organizations are involved in setting accounting and auditing standards but do not have as much legal authority as the SEC.

Question 13

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

Accepted Answer

The FASB Accounting Standards Codification is designed to organize and present authoritative accounting standards, not to codify non-authoritative sources like academic research.

Question 14

How many FASB members currently make up the Board?

Accepted Answer

The Financial Accounting Standards Board (FASB) is currently made up of 7 members.

Question 15

Which of the following organizations has legal authority to prescribe accounting principles and reporting practices for all corporations issuing publicly traded securities within the U.S. capital markets?

Accepted Answer

The Securities and Exchange Commission (SEC) has the legal authority to prescribe accounting principles and reporting practices for all corporations issuing publicly traded securities within the U.S. capital markets.

Question 16

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

Accepted Answer

Financial accounting focuses on providing information to external stakeholders such as investors, creditors, and regulators, while managerial accounting focuses on providing information for internal decision-making by managers. Therefore, while both types of accounting provide financial information, they have different objectives and provide information for different types of decisions.

Question 17

Which of the following is not a major standard-setting body responsible for the establishment of U.S. and International Financial Reporting Standards?

Accepted Answer

The PCAOB (Public Company Accounting Oversight Board) is primarily responsible for overseeing the audits of public companies to protect investors and the public interest by promoting informative, accurate, and independent audit reports. It does not set financial reporting standards. The SEC, FASB, and IASB are directly involved in the establishment and enforcement of financial reporting standards.

Question 18

Three major organizations in the private and public sector develop U.S. and International Financial Reporting Standards. They include all of the following except the

Accepted Answer

The EU (European Union) does not develop U.S. and International Financial Reporting Standards. The SEC, FASB, and IASB are directly involved in the development and oversight of financial reporting standards in the U.S. and internationally.

Question 19

Which of the following is not one of the stages used by the FASB process before issuing an Accounting Standards Update?

Accepted Answer

The Financial Accounting Standards Board (FASB) does not require approval from the Securities and Exchange Commission (SEC) before issuing an Accounting Standards Update. The SEC oversees and enforces securities laws but does not approve individual accounting standards issued by the FASB.

Question 20

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

Accepted Answer

Form S-2 is not a commonly required report for listed companies under the Securities Exchange Act of 1934. The Act primarily mandates periodic filings such as Form 10-Q, Form 10-K, and Form 8-K to ensure transparency and provide current information to the public and investors. Form S-2 is related to registration statements for securities offerings, not a periodic reporting requirement for listed companies.

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