Exam 1: The Economic and Institutional Setting for Financial Reporting

A company manages a large portfolio of marketable securities and sells only stocks with substantial gains in poor income years or sells only stocks with substantial losses in good income years.This strategy is an indication of

The accounting standards codification was created by the IASB to harmonize U.S.and international GAAP.

Timeliness is a qualitative characteristic of accounting information that indicates that information should be provided to users

Financial statement information can help customers monitor a supplier's manufacturing processes and thus evaluate the quality of its products.

Fundamental investors buy undervalued stocks and avoid buying overvalued stocks.

A firm's financial statements contain trends that give users insight into the firm's

All economic events and activities that affect a company are reflected in a company's financial statements.

The market analysis known as fundamental analysis

In countries where capital is typically provided by a broad base of external investors,financial reporting practices tend to be different from those found in countries where capital is primarily provided by banks or the government.

Identify the correct order of the three steps constituting the FASB's "due process" procedure.

Professional analysts need information on a company's future earnings and cash flow to evaluate audit vulnerabilities,to assess debt repayment prospects and to

The ability to raise additional cash by selling assets,issuing stock,or borrowing more is financial flexibility.

Although the SEC has the legal authority to set accounting principles in the U.S.,it has looked to private-sector organizations (e.g.,the FASB)to establish and enforce these principles.

GAAP frequently requires financial statement users to accept a compromise that favors reliability over faithful representation.

Generally accepted accounting principles are set by the Securities and Exchange Commission.

The role of financial accounting information is to facilitate economic transactions and to foster efficient allocation of resources among businesses and individuals.

A major factor underlying the rise of IFRS is that companies needing to seek global sources of capital are at a disadvantage when they only produce financial statements based on the commercial and tax law approach.

IFRS often permits different accounting treatments for similar business transactions and events.

Because financial fraud is rare,investors and other users of financial statements can safely accept the numbers in financial statements at face value.

Employees demand financial statement information because the firm's performance is often linked to all of the following except