Exam 1: The Economic and Institutional Setting for Financial Reporting

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When a company restates its financial statements due to some accounting irregularity,shareholder lawsuits are often filed against the company and its management.

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ASC content is organized

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When a company's financial instruments are perceived to be of low quality,there is a cost to the company in the form of lower proceeds from issuing stock or higher interest rates when it borrows funds.

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If the financial reporting environment were unregulated,disclosure would occur voluntarily

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Suppliers monitor the financial statements of their customers to protect collection of their accounts receivable.

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Executive compensation contracts seldom contain annual bonus and longer term pay components tied to financial statement results,but instead usually rely on stock options as a means to reward managers in a manner that is less subject to manipulation by management.

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Investors who presume that they have no insights about company value beyond the current market price and use financial statement data to assess firm-specific variables believe in the

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The type of analysis that uses financial statements along with industry and macroeconomic data to forecast future stock movements is technical analysis.

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The convention in accounting that strives to ensure business risks and uncertainties are adequately reflected in the financial statements is conservatism.

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Analytical review procedures include all of the following except

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U.S.GAAP has been criticized as being too "rules-based" thus allowing managers to invent "loopholes" that conform to the letter of a standard but simultaneously violate its spirit.

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Accounting standard-setting in the U.S.is a technical process and thus little affected by political considerations.

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U.S.GAAP and IFRS are both grounded in the same economic performance philosophy.

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Timeliness is a qualitative characteristic of accounting information that indicates that information should be provided to users before statutory deadlines.

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An understanding of management's reporting incentives is sufficient to enable auditors to recognize vulnerable areas where financial reporting abuses are likely to occur.

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Relevant financial information

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Investors and analysts are sometimes urged to ignore traditional GAAP numbers and instead focus on nonstandard "pro forma" numbers because

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IFRS consists of a set of rigid standards that are now in use in over 100 countries worldwide.

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Suppliers assess the financial strength of their customers to determine whether they will be paid for goods shipped.

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If a company fails to disclose information about a lawsuit because it might be embarrassing to the company,it is violating

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