Deck 3: Judgment and Applied Financial Accounting Research

Question 1

An example of a judgment in accounting for product warranties is ________.

A)the items sold that are subject to warranty coverage
B)whether a product warranty should be for one year or two years
C)the cost of a specific replacement part
D)the amount of warranty expense to be accrued as a percent of sales

Answer 1

D

Question 2

IFRS requires that companies disclose information about assumptions and estimates made at the end of the reporting period.

Answer 2

True

Question 3

Which of the following is most likely based on an assumption?

A)how to record petty cash transactions
B)decision for which method of depreciation to use
C)the balance in the cash account
D)the value of the Accounts Payable account

Answer 3

B

Question 4

Your classmate,Marla Smith,tells you that she likes accounting because it provides a clear cut set of methods and rules to follow.As a result it should be an easy job to get the hang of.Explain to her why accountants frequently need to use their judgment.Give specific examples.

Question 5

Which account balance is least likely to be based on an estimate?

A)Accounts Receivable
B)Property,Plant,and Equipment
C)Accounts Payable
D)Contingent Liabilities

Question 6

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.

Question 7

The footnote outlining the portfolio of accounting choices is one of the first footnotes in the financial statements.

Question 8

When accountants use judgment to interpret standards it often detracts from the usefulness of the financial statements.

Question 9

Accountants must often use judgment when deciding when to recognize revenue.

Question 10

IFRS and U.S.GAAP have the same disclosure requirements regarding the estimates made at the end of the accounting period.

Question 11

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

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

Question 12

Accountants use judgment when ________.

A)researching and interpreting standards
B)recognizing and contemplating standards
C)estimating and recording economic events
D)all of the above

Question 13

In practice,accountants frequently use ________ to prepare and audit financial statements.

A)clear-cut methods
B)judgment
C)strict rules
D)imagination

Question 14

Which of the following is most likely based on an assumption?

A)accounting for an investment
B)accounting for sales tax
C)accounting for land
D)both A & C

Question 15

Accounting judgment occurs when managers manipulate financial information and misrepresent the firm's financial position.

Question 16

________ occurs when managers manipulate financial information and misrepresent the firm's financial position and performance.

A)Earnings management
B)GAAP
C)Judgment
D)Decision-making

Question 17

Very few amounts reported on the financial statements are based upon assumptions.

Question 18

An example of a judgment in accounting for Accounts Receivable is ________.

A)the percentage of credit sales that may be uncollectible
B)the amount a customer paid during the previous month
C)the decision whether to extend credit to a new customer
D)the percentage that may be deducted to calculate a sales discount

Question 19

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

Question 20

Financial statement users rely on accounting policies footnote information to compare a company to other firms in the same industry.

Question 21

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

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

Question 22

The accounting policies footnote is ________.

A)optional
B)required by U.S.GAAP
C)required by auditors
D)an internal management document

Question 23

Financial statement users can look to the ________ to determine whether a company uses income-increasing or income-reducing accounting policies.

A)revenue policies footnote
B)contingencies footnote
C)accounting policies footnote
D)intangibles explanation footnote

Question 24

Depreciation Expense is based on estimates of ________.

A)the value of the asset
B)the use and purpose of the asset
C)the life and pattern of the asset's use
D)the warranty that comes with the asset

Question 25

The ________ is generally one of the first notes to the financial statements.

A)accounting policies footnote
B)contingencies footnote
C)employee benefits footnote
D)intangibles explanation footnote

Question 26

In addition to disclosing judgments involving estimates and assumptions,________ requires that companies disclose judgments made when determining appropriate accounting treatments.

A)U)S.GAAP
B)IFRS
C)both A & B
D)neither A nor B

Question 27

Cognitive biases can impede an accountants' use of good judgment.

Question 28

Financial statement users rely on ________ footnote information when comparing ________.

A)accounting policies,net income from prior years
B)contingencies,receivables balances
C)accounting policies,two or more firms in the same industry
D)employee policies,firms in different industries
E)both A & C

Question 29

Explain how an accountant would use assumptions and estimates when accounting for property,plant,and equipment.

Question 30

The accounting policies footnote would be a good place to look if you want to know ________.

A)the inventory costing method used by a company
B)the depreciation method used by a company
C)the lives a company uses to depreciate plant assets
D)both A & B
E)all of the above

Question 31

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

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 32

Auditors should exercise ________ to minimize management bias.

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

Question 33

An attitude that includes a questioning mind and a critical assessment of audit evidence is known as ________.

A)anchoring bias
B)groupthink
C)unprofessional behavior
D)professional skepticism

Question 34

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

Question 35

Documenting the rationale for decisions made can help mitigate cognitive biases.

Question 36

List five issues that are typically addressed in a company's accounting policy footnote.

Question 37

The confirmatory bias is the tendency to use the data that is most readily available or most easily recalled to make a decision.

Question 38

Cognitive bias is an attitude that includes a questioning mind and critical assessment of evidence.

Question 39

The tendency to agree to an answer or choice based on an attempt to avoid conflict represents the overconfidence bias.

Question 40

After deciding to record a business event,accountants use assumptions and estimates for what purpose?

Question 41

Joe Woods is a first year accountant.Why might he fail to exercise good judgment?

A)He feels pressure to impress the boss.
B)Decisions related to complex transactions can seem overwhelming to a new accountant.
C)He doesn't really like his job.
D)All of the above.

Question 42

Failure to consider all reasonable alternatives when reaching a group consensus,in an attempt to avoid conflict is an example of ________.

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

Question 43

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 ________.

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

Question 44

Failing to consider all relevant data,and just using the information most readily available or easily recalled is known as ________.

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

Question 45

Weighting one piece of information more heavily than others is an example of ________.

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

Question 46

Complete the following table.Give a definition and example of each of the cognitive biases listed (be original).

Question 47

Being more confident than your abilities or experience level warrant is an example of ________.

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

Question 48

List the techniques accountants can use to mitigate cognitive biases.

Question 49

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

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

Question 50

TNT,Inc.had a board meeting to discuss future investment opportunities.Joe was a loud proponent of investing in Proton Corporation,so much so that nobody else got a word in edgewise.Many board members didn't really think investing in Proton was a good idea,but agreed to invest in Proton in order to keep Joe happy,and get the meeting over with.The board is exhibiting ________.

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

Question 51

Riley Watson,lead salesperson for Bowman Industries,begins customer negotiations by proposing an unusually high price.Riley is hoping her customer will exhibit which cognitive bias in the negotiations?

A)arrogance bias
B)overconfidence bias
C)anchoring bias
D)confirmatory bias

Question 52

Complete the following table.Identify the bias indicated in the definition.

Question 53

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 ________.

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

Question 54

The Codification subtopics are generally distinguished by accounting area or scope.

Question 55

The Basis for Conclusions found in accounting pronouncements are found in the Codification for U.S.GAAP.

Question 56

Caesar Company needs to purchase a new delivery truck.Rather than taking the time to research which truck would best fit the company's needs,the manager calls his friend to ask which truck he would recommend.The manager is exhibiting ________.

A)bad judgment
B)overconfidence bias
C)availability bias
D)anchoring bias

Question 57

________ are systematic deviations from rationality which can impact judgment on a daily basis.

A)Cognitive biases
B)Relational biases
C)Emotional biases
D)Subjective biases

Question 58

Complete the following table.Identify which cognitive bias is represented in each example.

Question 59

To mitigate cognitive biases,accountants must be as ________ as possible.

A)intelligent
B)clever
C)objective
D)subjective

Question 60

Complete the following table.Identify which cognitive bias is represented in each example.

Question 61

In ASC 450-20-35-2,450 represents the ________.

A)chapter
B)topic
C)section
D)paragraph

Question 62

In the Accounting Standards Codification,the sub-topic numbers under each topic are uniform throughout the Codification.

Question 63

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

Question 64

Why would an accountant engage in financial accounting research?

A)When they need to determine the appropriate reporting treatment for a transaction.
B)When a given transaction requires judgment.
C)Both A & B
D)Neither A nor B

Question 65

In ASC 450-20-35-2,2 represents the ________.

A)topic
B)paragraph
C)section
D)subsection

Question 66

U.S.GAAP includes all of the following except ________.

A)Statements of Financial Accounting Standards
B)Accounting Research Bulletins
C)Accounting Principles Board Opinions
D)All of the above are authoritative literature on U.S.GAAP

Question 67

When the FASB issues a new pronouncement,it is referred to as an ________.

A)Accounting Standards Update
B)Accounting Codification Update
C)Accounting Topic Update
D)Accounting Reporting Update

Question 68

What prompted the development of the Accounting Standards Codification?

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 69

The Codification is divided into ________.

A)chapters,topics,sections,and paragraphs
B)topics,subtopics,sections,and paragraphs
C)chapters,sections,subsections,and paragraphs
D)topics,sections,subsections,and paragraphs

Question 70

In ASC 450-20-35-2,35 represents the ________.

A)chapter
B)topic
C)subtopic
D)section

Question 71

Numerical references to the Accounting Standards Codification are structured as Topic-Subtopic-Section-Paragraph.

Question 72

The highest level of authoritative guidance for U.S.GAAP is the Accounting Standards Codification.

Question 73

In the Accounting Standards Codification,the section numbers under each subtopic are uniform throughout the Codification.

Question 74

The ________ are uniform throughout the Codification.

A)topics
B)subtopics
C)sections
D)subsections

Question 75

Ron Fowler,CPA isn't quite sure how to handle a deferred cost transaction.In which topic grouping should he begin his research?

A)2XX
B)3XX
C)4XX
D)5XX

Question 76

In ASC 450-20-35-2,20 represents the ________.

A)topic
B)section
C)subtopic
D)subsection

Question 77

________ is the systematic investigation into an issue.

A)Interpretation
B)Judgment
C)Research
D)Analysis

Question 78

Regina Woods,CPA is unsure about the presentation of one of the financial statements.In which topic grouping should she begin her research?

A)1XX
B)2XX
C)3XX
D)4XX

Question 79

Larry Smith,CPA does not know how to account for a deferred revenue transaction.In which topic grouping should he begin his research?

A)2XX
B)3XX
C)4XX
D)5XX

Question 80

Numerical references to the Accounting Standards Codification are structured as Section-Paragraph-Topic-Subtopic.