Deck 1: The Financial Reporting Environment

Question 1

The financial reporting process generates three basic financial statements.

Answer 1

False

Question 2

Which of the following is not one of the four basic financial statements?

A) balance sheet
B) general-purpose financial statement
C) cash flows statement
D) statement of comprehensive income

Answer 2

B

Question 3

Which of the following user groups consists of individuals who expect to receive a return on their investment?

A) employees
B) equity investors
C) creditors
D) suppliers and customers

Answer 3

B

Question 4

The Public Company Accounting Oversight Board (PCAOB) sets financial accounting standards and oversees the audits of public companies in the United States.

Question 5

Which organization prepares and grades the Uniform CPA Examination?

A) Financial Accounting Standards Board
B) Public Company Accounting Oversight Board
C) American Institute of Certified Public Accountants
D) International Accounting Standards Board

Question 6

Financial accounting standards influence the behavior of managers and other internal users.

Question 7

Which organization is responsible for setting auditing standards and overseeing the audits of public companies in the United States?

A) Financial Accounting Standards Board
B) Public Company Accounting Oversight Board
C) American Institute of Certified Public Accountants
D) Securities and Exchange Commission

Question 8

Managers of economic entities are best considered to be preparers of financial information.

Question 9

Which party involved in the financial reporting process provides assurance that the financial statements prepared by management fairly present the financial position and performance of the company?

A) standard setters
B) regulators
C) accounting preparers
D) external auditors

Question 10

Theories and procedures that evolve as a result of lobbying from various groups are examples of proactive factors within the legal, economic, political, and social environment.

Question 11

Financial information includes information that is not governed by rules set forth by the accounting standard-setting bodies.

Question 12

The FASB gives the SEC authority to regulate accounting for publicly traded companies.

Question 13

What is the term that describes the process of identifying, measuring, and communicating financial information about an economic entity to various user groups?

A) financial reporting
B) accounting standard setting
C) financial statement
D) financial accounting

Question 14

The demand for financial information is based on market factors.

Question 15

Which of the following user groups consists of individuals that provide guidance to others in making investment and credit decisions?

A) financial analysts
B) equity investors
C) creditors
D) suppliers

Question 16

The Securities and Exchange Commission (SEC) regulates financial reporting for publicly traded companies.

Question 17

Which organization is responsible for promulgating U.S. GAAP?

A) Financial Accounting Standards Board
B) Public Company Accounting Oversight Board
C) International Accounting Standards Board
D) Securities and Exchange Commission

Question 18

Which element of financial accounting involves identifying the individuals who demand financial information?

A) financial information
B) economic entity
C) user groups
D) legal, economic, political, and social environment

Question 19

Managers of economic entities are best considered to be users of financial information.

Question 20

Which of the following user groups consist of companies that analyze financial information to identify the reporting entity's objectives, assumptions, overall business strategy, and capabilities?

A) competitors
B) creditors and other debt investors
C) employees and labor unions
D) suppliers and customers

Question 21

Which regulatory body sets auditing standards and oversees the audits of public companies in the United States?

A) Public Company Accounting Oversight Board (PCAOB)
B) Financial Accounting Standards Board (FASB)
C) American Institute of Certified Public Accountants (AICPA)
D) Securities and Exchange Commission (SEC)

Question 22

Which of the following statements correctly identifies accounting standard setters?

A) The AICPA promulgates accounting standards in the U.S. and the IFRS issues international accounting standards.
B) The AICPA promulgates accounting standards in the U.S. and the IASB issues international accounting standards.
C) The FASB promulgates accounting standards in the U.S. and the IFRS issues international accounting standards.
D) The FASB promulgates accounting standards in the U.S. and the IASB issues international accounting standards.

Question 23

Standard setters develop accounting standards based on natural economic laws.

Question 24

How does accounting help in the capital allocation process?

Question 25

Which of the following types of information would be categorized as financial information?

A) Asset values governed by accounting standards
B) Footnote disclosures in annual reports
C) Auditor's report
D) All of the above

Question 26

The SEC permits the use of IFRS-based financial statements by international companies with shares trading on U.S. stock exchanges.

Question 27

Equity investors include all but which of the following?

A) Partners
B) Shareholders
C) Bondholders
D) Sole proprietor

Question 28

What is meant by general-purpose financial statements?

Question 29

When accountants work on the financial statements of U.S. companies with foreign subsidiaries prepared under IFRS in the home countries, the accountants do not convert the subsidiaries' financial statements to U.S. GAAP.

Question 30

Accounting standards setters do which of the following?

A) protect investors and creditors
B) develop concepts, rules, and guidelines for financial reporting
C) assure transparent and truthful reporting and guarantee the efficient functioning of the capital markets
D) prosecute violators of their rules and guidelines so as to maintain the public trust and to ensure the efficient functioning of capital markets

Question 31

The FASB promulgates accounting standards in the U.S. and the IFRS issues international accounting standards.

Question 32

List four reasons why it is important for an accountant in the United States to learn international accounting standards.

Question 33

In what ways does accounting information proactively interact with its environment?

Question 34

Accountants in the United States do not need to learn international accounting standards.

Question 35

Which of the following statements is false?

A) The SEC permits the use of IFRS-based financial statements by international companies with shares trading on U.S. stock exchanges.
B) Non-U.S. companies operate in the United States but prepare their financial statements using IFRS.
C) Accountants must convert to U.S. GAAP the IFRS financial statements of foreign subsidiaries that belong to U.S. companies.
D) The accounting profession has determined that a working knowledge of IFRS is not important for accountants working in the United States.

Question 36

IFRS refers to generally accepted accounting standards that apply globally.

Question 37

The American Institute of Certified Public Accountants tests IFRS on the uniform CPA exam.

Question 38

The FASB and the IFRS have been working together to converge U.S. and international standards to eliminate differences.

Question 39

Which of the following is not a reason why an accountant in the United States should learn international accounting standards?

A) The United States has plans to adopt IFRS in the near future.
B) The SEC permits the use of IFRS-based financial statements by international companies with shares trading on the U.S. stock exchanges.
C) An accountant may work for, or assist, a foreign company that operates in the U.S. and uses IFRS for financial reporting.
D) U.S. companies operate subsidiaries outside of the United States which report under IFRS in their home countries.

Question 40

What group or organization both protects investors and oversees the accounting standard-setting process in the United States?

A) Public accounting firms
B) American Institute of Public Accountants
C) United States Securities and Exchange Commission
D) Financial Accounting Standards Board

Question 41

The U.S. Congress has given the Securities and Exchange Commission the power to promulgate accounting standards for all publicly traded firms.

Question 42

Both financial and governmental accounting standards are under the auspices of the Financial Accounting Foundation.

Question 43

The FAF finances the FASB primarily by funds from the Public Company Accounting Oversight Board which assesses fees against companies that issue equity securities.

Question 44

In addition to the comments obtained from responses to the exposure drafts and public round tables, the U.S. standard setting process relies on the information gathered and opinions from all of the following except ________.

A) the Monitoring Board
B) users
C) managers
D) auditors

Question 45

Principles-based standards are deemed to be more optimal than rules-based standards and objectives-based standards.

Question 46

The Securities and Exchange Commission currently delegates its standard-setting power to the AICPA, a private sector organization.

Question 47

Which of the following is not true of FASB?

A) The FASB is a full-time board of seven members.
B) Board members must sever all relationships with outside entities.
C) Board members must be CPAs.
D) The FASB is not a subcommittee of the AICPA.

Question 48

In recent years, the FASB standards that have been set indicate that the income statement is more important than the balance sheet.

Question 49

The FASB is a subcommittee of the AICPA.

Question 50

Official U.S. GAAP consist of the bulletins, opinions, and statements issued by the CAP, the APB, and the FASB.

Question 51

Currently, what is the single source of generally accepted accounting principles in the United States?

A) Financial Accounting Statements
B) APB Opinions
C) Accounting Standards Codification
D) Accounting Research Bulletins

Question 52

Accounting standard setting began in the United States with the 1934 Securities Exchange Act.

Question 53

The FASB standard-setting process requires a post-implementation review of each new standard.

Question 54

Which of the following statements about the global standard-setting structure is false?

A) The IFRS Interpretations Committee is similar to the EITF in the U.S.
B) The Monitoring Board was formed to enhance public accountability of the IFRS Foundation.
C) The IASB oversees the IFRS Advisory Council which advises the Monitoring Board.
D) The IFRS Foundation oversees the IASB and finances IASB operations.

Question 55

The FASB Accounting Standards Codification is the single source of GAAP in the United States.

Question 56

The Private Company Council has authority to make the final decision about changing U.S. GAAP for private companies.

Question 57

List the seven steps of the FASB standard-setting process.

Question 58

During the standard-setting process, an ________ is issued by the FASB to solicit input from financial statement preparers, auditors, and other users of financial statements.

A) exposure draft
B) accounting standards update
C) accounting research bulletin
D) accounting comment letter

Question 59

Which organization is responsible for the oversight, financing, and administration of all accounting standard setting organizations in the United States?

A) American Institute of Certified Public Accountants (AICPA)
B) Financial Accounting Foundation (FAF)
C) Securities and Exchange Commission (SEC)
D) Financial Accounting Standards Advisory Council (FASAC)

Question 60

Which of the following organizations is responsible for setting accounting standards for state and local governments?

A) Government Issues Task Force (GITF)
B) Government Accounting Standards Board (GASB)
C) Securities and Exchange Commission (SEC)
D) Government Accounting Standards Advisory Council (GASAC)

Question 61

Principles-based standards involve few, if any, exceptions.

Question 62

Fair value measurements have a long-standing tradition in U.S. GAAP.

Question 63

Which type of standard relies on theories and concepts that are linked to a well-developed theoretical framework?

A) objectives-based standard
B) principles-based standard
C) theories-based standard
D) rules-based standard

Question 64

Fair value of an asset is the amount at which the asset could be bought in a current transaction between willing parties.

Question 65

Give two examples of assets that may be valued at fair value as opposed to historical cost.

Question 66

Which of the following is a characteristic of objectives-based standards?

A) do not rely on professional judgment
B) increase bright-line tests
C) somewhere between principles-based and rules-based
D) no exceptions

Question 67

Objectives-based standards are deemed to be more optimal than rules-based standards and principles-based standards.

Question 68

Principles-based standards typically provide sufficient guidance to implement a standard.

Question 69

Which of the following is a characteristic of rules-based standards?

A) involve few, if any, exceptions
B) result in inconsistencies between standards
C) contain no bright-line tests
D) provide insufficient guidance

Question 70

Rules-based standards rely on theories and concepts that are linked to a well-developed theoretical framework.

Question 71

Rules-based standards result in inconsistencies between standards.

Question 72

Rules-based standards require a significant amount of professional judgment.

Question 73

U.S. GAAP contains more rules-based standards than IFRS.

Question 74

Contrast the differences between rules-based standards and principles-based standards.

Question 75

Which of the following is a bright-line test?

A) An item is deemed material if it is large enough to influence the CEO's decision making.
B) An item is deemed material if it exceeds 10% of net income.
C) An item is deemed material if it is large in size.
D) An item is deemed material if it is large enough to influence an investor's decision making.

Question 76

Which financial statement is implicitly considered dominant as standard setting shifts toward the asset/liability approach?

A) statement of financial position
B) statement of cash flows
C) statement of shareholders' equity
D) statement of comprehensive income

Question 77

Principles-based standards are more consistent with the asset/liability approach and rules-based standards are more consistent with the income statement approach.

Question 78

Which of the following is not a current trend in accounting-standards setting?

A) increase in political involvement
B) move toward principles-based system
C) focus on asset/liability approach
D) emphasis on measuring fair value

Question 79

Which of the following defines fair value?

A) The amount at which an asset could be bought or sold in a current transaction between willing parties.
B) The market value of an asset determined by a transaction between related parties.
C) The amount at which an asset could be sold in a transaction occurring within the last year.
D) The amount at which an asset could be bought or sold in a current transaction between any two parties.

Question 80

________ is the amount at which a liability could be incurred or settled in a current transaction between willing parties.

A) Income value
B) Settlement value
C) Current value
D) Fair value