Question 1

Unlike U.S. GAAP, the Basis for Conclusions discussion is not included in the IFRS but is published separately.

Accepted Answer

A) True 
 B)False

Question 2

Which part of an asset is based on an estimate?

Accepted Answer

A)  cost of getting the asset ready for use 
B)  cost of the asset 
C)  pattern of use 
D)  Both A and B 
A)  cost of getting the asset ready for use 
B)  cost of the asset 
C)  pattern of use 
D)  Both A and B

Question 3

What prompted the development of the Accounting Standards Codification?

Accepted Answer

A)  The decision to merge with IFRS made it necessary to redesign the Codification. 
B)  The large volume of diverse and complex standards was difficult to use. 
C)  Businesses are more complex now and need better guidance. 
D)  Overuse of judgment led to financial frauds. 
A)  The decision to merge with IFRS made it necessary to redesign the Codification. 
B)  The large volume of diverse and complex standards was difficult to use. 
C)  Businesses are more complex now and need better guidance. 
D)  Overuse of judgment led to financial frauds.

Question 4

Failing to adequately weigh information which is inconsistent with an individual's initial beliefs is known as ________.

Accepted Answer

A)  the anchoring bias 
B)  the overconfidence bias 
C)  the groupthink bias 
D)  the confirmatory bias 
A)  the anchoring bias 
B)  the overconfidence bias 
C)  the groupthink bias 
D)  the confirmatory bias

Question 5

Bill Smith is on assignment for his first audit, when he runs into an accounting practice he's never dealt with before. Rather than asking a more experienced colleague for advice, Bill decides he knows enough to handle it. After all, he passed the CPA exam, didn't he? Bill is exhibiting ________.

Accepted Answer

A)  arrogance bias 
B)  overconfidence bias 
C)  anchoring bias 
D)  poor judgment 
A)  arrogance bias 
B)  overconfidence bias 
C)  anchoring bias 
D)  poor judgment

Question 6

Which of the following would not be considered a user of the Codification?

Accepted Answer

A)  SEC staff 
B)  accounting students 
C)  investors 
D)  All of the above would be considered users. 
A)  SEC staff 
B)  accounting students 
C)  investors 
D)  All of the above would be considered users.

Question 7

Briefly explain how IFRS disclosures about accounting-related issues differ from U.S. GAAP disclosures.

Accepted Answer

IFRS further requires that companies dis

Question 8

Earnings management occurs when managers manipulate financial information and misrepresent the firm's financial position.

Accepted Answer

A) True 
 B)False

Question 9

Terry Fowler is a firm believer in traditional accounting software. Bob Fossey just gave a presentation touting the benefits of cloud accounting software, but Terry wants nothing to do with it. He didn't really listen to the presentation. Terry is exhibiting ________.

Accepted Answer

A)  stubborn behavior 
B)  overconfidence bias 
C)  anchoring bias 
D)  confirmatory bias 
A)  stubborn behavior 
B)  overconfidence bias 
C)  anchoring bias 
D)  confirmatory bias

Question 10

Based on an analysis of annual reports from 175 companies, the asset or liability with the most companies using estimates is for ________.

Accepted Answer

A)  environmental liabilities 
B)  taxation 
C)  impairment of property, plant, and equipment 
D)  impairment of goodwill and other intangible assets 
A)  environmental liabilities 
B)  taxation 
C)  impairment of property, plant, and equipment 
D)  impairment of goodwill and other intangible assets

Question 11

This technique to mitigate cognitive biases allows you to be more objective in your decision-making process.

Accepted Answer

A)  Delay final judgement until you have gathered all the facts and information and have considered the alternatives. 
B)  Speak with as many people as possible to ensure your decision represents a well-rounded opinion. 
C)  Make decisions swiftly, based on gut instinct. 
D)  None of the above 
A)  Delay final judgement until you have gathered all the facts and information and have considered the alternatives. 
B)  Speak with as many people as possible to ensure your decision represents a well-rounded opinion. 
C)  Make decisions swiftly, based on gut instinct. 
D)  None of the above

Question 12

The ________ is used to rank the authoritative literature for its various accounting standards.

Accepted Answer

A)  IFRS hierarchy 
B)  GAAP hierarchy 
C)  Both A & B 
D)  Neither A nor B 
A)  IFRS hierarchy 
B)  GAAP hierarchy 
C)  Both A & B 
D)  Neither A nor B

Question 13

Which of the following situations might influence management to intentionally bias estimates for the financial statements and impede the use of good judgment?

Accepted Answer

A)  Earnings are on track to surpass analysts' forecasts. 
B)  Management's bonuses are tied to net income. 
C)  Employees work for commission. 
D)  All of the above 
A)  Earnings are on track to surpass analysts' forecasts. 
B)  Management's bonuses are tied to net income. 
C)  Employees work for commission. 
D)  All of the above

Question 14

The process by which an accountant reaches a decision in situations with multiple alternatives is referred to as ________.

Accepted Answer

A)  earnings management 
B)  GAAP 
C)  judgment 
D)  financial reporting 
A)  earnings management 
B)  GAAP 
C)  judgment 
D)  financial reporting

Question 15

List the techniques accountants can use to mitigate cognitive biases.

Accepted Answer

Techniques that can help accountants to

Question 16

Is it possible to know where management applied judgment in the financial statements?

Accepted Answer

A)  No, this information is only available to company accountants. 
B)  Yes, upon written request to the company. 
C)  No, although auditors are provided with a supplement explaining accounting policies. 
D)  Yes, the accounting policies footnote in the disclosures will provide some of this information. 
A)  No, this information is only available to company accountants. 
B)  Yes, upon written request to the company. 
C)  No, although auditors are provided with a supplement explaining accounting policies. 
D)  Yes, the accounting policies footnote in the disclosures will provide some of this information.

Question 17

Auditors should exercise ________ to minimize management bias.

Accepted Answer

A)  common sense 
B)  ratio analysis 
C)  professional skepticism 
D)  interrogation techniques 
A)  common sense 
B)  ratio analysis 
C)  professional skepticism 
D)  interrogation techniques

Question 18

With regard to U.S. GAAP, basis for Conclusions are considered to be authoritative.

Accepted Answer

A) True 
 B)False

Question 19

Joe Woods is a first-year accountant. When asked to provide data regarding where to purchase new computers for the office, without doing any research, he suggests buying the computers at a store where his friend works. His friend tells him the computers will do what the company needs. In addition, his friend will get a good commission if Joe diverts the purchase in his direction. What type of bias is represented in the above scenario?

Accepted Answer

A)  overconfidence bias 
B)  confirmatory bias 
C)  groupthink bias 
D)  availability bias 
A)  overconfidence bias 
B)  confirmatory bias 
C)  groupthink bias 
D)  availability bias

Question 20

Management is afforded a certain amount of latitude and must exercise judgment when selecting accounting methods. Discuss why this could be problematic for users of financial statements. Provide examples.

Accepted Answer

It can make comparisons between companie

Exam 3: Judgment and Applied Financial Accounting Research

Unlike U.S. GAAP, the Basis for Conclusions discussion is not included in the IFRS but is published separately.

Which part of an asset is based on an estimate?

What prompted the development of the Accounting Standards Codification?

Failing to adequately weigh information which is inconsistent with an individual's initial beliefs is known as ________.

Bill Smith is on assignment for his first audit, when he runs into an accounting practice he's never dealt with before. Rather than asking a more experienced colleague for advice, Bill decides he knows enough to handle it. After all, he passed the CPA exam, didn't he? Bill is exhibiting ________.

Which of the following would not be considered a user of the Codification?

Briefly explain how IFRS disclosures about accounting-related issues differ from U.S. GAAP disclosures.

Earnings management occurs when managers manipulate financial information and misrepresent the firm's financial position.

Terry Fowler is a firm believer in traditional accounting software. Bob Fossey just gave a presentation touting the benefits of cloud accounting software, but Terry wants nothing to do with it. He didn't really listen to the presentation. Terry is exhibiting ________.

Based on an analysis of annual reports from 175 companies, the asset or liability with the most companies using estimates is for ________.

This technique to mitigate cognitive biases allows you to be more objective in your decision-making process.

The ________ is used to rank the authoritative literature for its various accounting standards.

Which of the following situations might influence management to intentionally bias estimates for the financial statements and impede the use of good judgment?

The process by which an accountant reaches a decision in situations with multiple alternatives is referred to as ________.

List the techniques accountants can use to mitigate cognitive biases.

Is it possible to know where management applied judgment in the financial statements?

Auditors should exercise ________ to minimize management bias.

With regard to U.S. GAAP, basis for Conclusions are considered to be authoritative.

Management is afforded a certain amount of latitude and must exercise judgment when selecting accounting methods. Discuss why this could be problematic for users of financial statements. Provide examples.

The Financial Reporting Environment

Financial Reporting Theory

Review of the Accounting Cycle

Statements of Net Income and Comprehensive Net Income

Statements of Financial Position and Cash Flows and the Annual Report

Accounting and the Time Value of Money

Revenue Recognition

Extenssion: Ol Revenue Recognition Previous Standard

Short-Term Operating Assets: Cash and Receivables

Short-Term Operating Assets: Inventory

Long-Term Operating Assets: Acquisition, Cost Allocation

Long-Term Operating Assets: Departures From Historical Cost

Operating Liabilities and Contingencies

Financing Liabilities

Accounting for Stockholders Equity

Investing Assets

Accounting for Income Taxes

Accounting for Leases

Extension: Ol Accounting for Leases Current Standard

Accounting for Employee Compensation and Benefits

Earnings Per Share

Accounting Corrections and Error Analysis

The Statement of Cash Flows

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