Deck 1: The Canadian Financial Reporting Environment

Question 1

The preparation by some companies of biased information is sometimes referred to as

A)conservative financial reporting.
B)full disclosure of all material facts.
C)aggressive financial reporting.
D)stewardship.

Answer 1

C

Question 2

In Canada, the primary exchange mechanism(s)for allocating resources is (are)

A)debt & equity markets.
B)financial Institutions such as banks.
C)government authorities such as the Canada Revenue Agency (CRA).
D)both a & b

Answer 2

D

Question 3

Objectives of financial reporting do NOT include

A)providing information that is useful to users in making resource allocation decisions.
B)providing information about the liquidation value of an enterprise.
C)providing information about an entity's economic resources, obligations, and equity/net assets.
D)providing information about changes in an entity's economic resources, obligations, and equity/net assets.

Answer 3

B

Question 4

Which of the following is/are major factors in the rapidly changing financial reporting environment in Canada?

A)increased demand for accountants and the impact of technology
B)globalization and the unethical actions of accountants
C)the growing number of institutional investors who want more information regarding environmental and social issues
D)increased use of the Internet

Question 5

Audited financial statements are prepared by

A)auditors.
B)financial analysts.
C)Canada Revenue Agency.
D)management.

Question 6

The auditor's primary responsibility is to

A)review financial statements and discuss them with management.
B)prepare financial statements.
C)report to Canada Revenue Agency.
D)report to standard setters.

Question 7

Information provided by accounting is important because it enables investors and creditors to

A)compare income and assets of companies.
B)assess the relative risks and returns of investment opportunities.
C)channel their resources more effectively.
D)all of the above

Question 8

Where information asymmetry exists, the capital market may attract the wrong kind of company.This is known as

A)moral hazard.
B)conservative accounting.
C)adverse selection.
D)an inefficient marketplace.

Question 9

Management accounting can be broadly defined as the area of accounting that communicates financial information

A)to investors only.
B)to parties internal to the business enterprise only.
C)to parties both internal and external to the business enterprise.
D)primarily to external users and Canada Revenue Agency.

Question 10

Stakeholders who help in the efficient allocation of resources include

A)investors and creditors.
B)financial analysts and regulators.
C)creditors and auditors.
D)management and auditors.

Question 11

Financial accounting is concerned with the process that culminates in

A)the preparation of financial reports.
B)specialized reports for inventory management and control.
C)specialized reports for income tax calculation and recognition.
D)reports on changes in stock prices and future estimates of market position.

Question 12

The primary responsibility of security and exchange commissions with respect to financial statements is to

A)set generally accepted accounting principles (GAAP), which must be followed in their preparation.
B)review accounting choices made by companies in their financial statements to ensure decision-making logic is sound.
C)monitor financial statements to ensure full and plain disclosure of material information thus maintaining compliance with listing requirements.
D)monitor and analyze the information looking for signs of an improved or weakened financial condition.

Question 13

The essential characteristic(s)of accounting is (are)

A)communication of financial information to interested internal parties only.
B)communication of economic information to external parties.
C)identification and measurement of financial information only.
D)identification, measurement, and communication of financial information.

Question 14

As part of the objective of general-purpose financial reporting, which of the following perspectives are considered appropriate?

A)proprietary perspective
B)entity perspective
C)stakeholder perspective
D)None of the above perspectives are considered appropriate.

Question 15

Management's primary responsibility with respect to financial statements is to

A)prepare them, as they have the best insight and know what should be included.
B)audit them, as they are distant enough from daily operations.
C)rely on them to make decisions.
D)None of the above are true.

Question 16

Whether a business is successful and thrives is determined by

A)free enterprise or competition.
B)competition and markets only.
C)markets and competition only.
D)markets, competition and free enterprise.

Question 17

Financial accounting can be broadly defined as the area of accounting that prepares financial statements to be used

A)by parties internal to the business enterprise only.
B)by investors only.
C)by parties both internal and external to the business enterprise.
D)primarily by external users and Canada Revenue Agency.

Question 18

Which of the following is correct?

A)Reported accounting numbers do not affect the transfer of resources.
B)Credit rating agencies use accounting information to assess their assets.
C)Efficient capital markets promote productivity and encourage innovation.
D)Efficient capital markets promote productivity but do not encourage innovation.

Question 19

The widely publicized subprime lending crisis was NOT caused by

A)capital market participants who acted in their own self-interest.
B)a lack of transparency.
C)the practice of securitizing assets.
D)a lack of investor understanding of the investment's true risk.

Question 20

Which of the following is NOT true regarding accrual-basis accounting?

A)A company records events that change its financial statements in the periods in which the events occur.
B)Revenues and expenses are recognized in the periods in which the company receives or pays cash.
C)It has greater potential to depict meaningful trends in revenues and expenses.
D)Revenues and expenses can be more easily related to the economic environment of the period in which they occurred.

Question 21

Under ASPE, the other (as opposed to primary)sources of GAAP include

A)the CICA Handbook and appendices.
B)Accounting Guidelines, including appendices.
C)pronouncements by accounting standard-setting bodes in other jurisdictions.
D)All of these are primary sources of GAAP.

Question 22

In a rules-based approach (such as U.S.GAAP), compared to a principles-based approach (such as Canadian GAAP),

A)the body of knowledge is smaller.
B)the importance of communicating the best information to users is emphasized.
C)since it is more prescriptive, it may be easier to defend how to account for a particular item.
D)companies frequently do not interpret the rules literally.

Question 23

The problem of information asymmetry can be reduced by

A)aggressive accounting.
B)accounting standards.
C)adverse selection.
D)only focusing on positive events.

Question 24

Where people think that no one is watching, they will often shirk their responsibilities.This is known as

A)moral hazard.
B)conservative accounting.
C)adverse selection.
D)an inefficient marketplace.

Question 25

Under ASPE, the primary sources of GAAP include

A)accounting textbooks and journals.
B)International Financial Reporting Standards.
C)the CICA Handbook and appendices.
D)research studies.

Question 26

Conservative accounting refers to

A)a manager's tendency to shirk his stewardship responsibilities.
B)a manager's engagement in greater risk taking.
C)a decision to downplay the negative and focus on the positive.
D)a decision to downplay the positive and focus on the negative.

Question 27

Which of the following statements does NOT describe the activities and authority of the Ontario Securities Commission (OSC)?

A)The OSC reviews and monitors the financial statements of companies whose shares are listed on the Toronto Stock Exchange.
B)The OSC issues its own disclosure requirements for listed companies.
C)The OSC has the ability to fine or delist companies.
D)The OSC issues financial accounting standards for Canadian companies.

Question 28

In a principles-based standard-setting system (such as Canadian GAAP), compared to a rules-based approach (such as U.S.GAAP),

A)since it is more prescriptive, it may be easier to defend how to account for a particular item.
B)there is a rule for every situation.
C)accountants either apply specific standards based on the conceptual framework, or, professional judgement consistent with the framework.
D)it is expected that professional accountants might encounter situations where they are unable to apply the principles appropriately.

Question 29

As of 2011, the responsibilities of the Accounting Standards Board (AcSB)in Canada relate to setting standards for

A)publicly accountable entities only.
B)both publicly accountable entities and private enterprises.
C)private enterprises, not-for-profit entities and pension plans.
D)not-for-profit entities and pension plans only.

Question 30

In Canada, the body which is NOT instrumental in the development of financial reporting standards is the

A)Accounting Standards Board (AcSB).
B)Financial Accounting Standards Board (FASB).
C)International Accounting Standards Board (IASB).
D)American Institute of Certified Public Accountants.

Question 31

Which of the following does NOT describe a step in the IASB's standard setting process?

A)appointing trustees to the IFRS Foundation
B)development of an exposure draft
C)provision of strategic advice by the IFRS Advisory Council
D)public consultation

Question 32

The "efficient markets hypothesis" proposes that

A)market prices reflect information known only to internal stakeholders.
B)market prices reflect all information about a company.
C)market prices reflect information known only to external stakeholders.
D)information asymmetry is required.

Question 33

The adoption of International Financial Reporting Standards in Canada is an example of

A)the impact of technology on user's needs.
B)the impact of globalization on capital markets.
C)ethical behaviour.
D)the desire of most private companies to expand internationally.

Question 34

Which of the following does NOT support the use of Accounting Standards for Private Enterprises (ASPE)?

A)Private enterprises usually have less complex business models.
B)Private enterprises that are "going public."
C)Private enterprises usually have fewer users.
D)Private enterprises' financial statement users tend to have first-hand information.

Question 35

The exercise of professional judgement does NOT involve

A)the use of knowledge gained through education.
B)the application of knowledge gained through experience.
C)the use of ethical decision making.
D)aggressive accounting.

Question 36

Before 1900, which of the following accurately describes financial reports?

A)They emphasized the need for standardized and increased corporate disclosures.
B)They were for widespread use and distribution.
C)They emphasized solvency and liquidity.
D)None of the above accurately describe financial reports pre-1900.

Question 37

Which of the following does NOT describe a cause of management bias?

A)the need to comply with contracts, such as debt covenants
B)the desire to meet financial analysts' expectations
C)the tendency to downplay negative events
D)the desire for all stakeholders to have access to all information

Question 38

Which of the following sources of generally accepted accounting principles (GAAP)are NOT developed by the Canadian Accounting Standards Board (AcSB)?

A)Accounting Standards for Private Enterprises (ASPE)
B)International Financial Reporting Standards (IFRS)
C)GAAP for Pension Plans
D)GAAP for Not-for-Profit entities

Question 39

In Canada, the body that has the responsibility of overseeing the Accounting Standards Board (AcSB)is the

A)Accounting Standards Oversight Council (AcSOC).
B)International Accounting Standards Board (IASB).
C)Canadian Institute of Chartered Accountants (CICA).
D)Financial Accounting Standards Board (FASB).

Question 40

In the United States, the body that has the final authority over accounting standards is the

A)Financial Accounting Standards Board (FASB).
B)International Accounting Standards Board (IASB).
C)Securities Exchange Commission (SEC).
D)Accounting Standards Oversight Council (AcSOC).

Question 41

Which of the following is an argument in favour of a GAAP body of knowledge that is more prescriptive, or rules-based?

A)It always emphasizes communicating the best information for users.
B)The body of knowledge becomes significantly smaller and therefore easier to manage.
C)It may be easier to defend how to account for a particular item.
D)There is a tendency for companies to interpret guidelines loosely, and thus account for items inconsistently.

Question 42

One political factor influencing the standard setting process is how the standard-setting bodies are financed.Which of the following is NOT an IASB principle regarding the nature and amount of funding?

A)Closed-loop: Financial commitments for funding should be contingent upon particular outcomes.
B)Broad-based: It should not rely on one or a few sources.
C)Compelling: Constituents should not be allowed to benefit from the standards without contributing to the process of standard setting.
D)Country-specific: Funding should be shared by the major economies on a proportionate basis.

Question 43

The Sarbanes-Oxley Act (SOX)was NOT enacted to

A)help prevent fraud and poor financial reporting practices.
B)ensure the act was applied internationally.
C)enable the SEC to increase its policing efforts.
D)introduce new independence rules for auditors.

Question 44

Which of the following is likely to be an advantage of the advancement of technology on financial reporting?

A)Users of financial information will have access to more information.
B)The quality and reliability of the information may be compromised.
C)Equal and fair access may be at issue.
D)Internet reporting will increase costs.