ACCT370 Chapter 1

Which of the following is true of disclosure benefits?

An economic benefit of proper disclosure is the ability to raise capital at a lower cost. Firms cannot obtain economic benefits of disclosure at zero cost. Competition creates incentives for companies to reveal good news about the firm.

Which of the following are true of financial information disclosure?

Companies frequently communicate more financial information than is required. The SEC and FASB regulate financial reporting in the United States.

Match the analyst with the analyst's use of financial information.

Equity Investors matches Choice Form an educated opinion about the value of a company and its common and preferred stock and then make decisions based on that opinion. Creditors matches Choice Make an assessment of a company's ability to meet its debt-related financial obligations. Financial Advisors matches Choice Provide information and advice to investors and creditors. Independent Auditors matches Choice Examine financial statements prepared by a company for accuracy.

Which of the following professionals use financial statements to project future cash flows?

Equity investors, creditors, and auditors.

Which of the following is not one of the four costs that can arise from informative financial disclosures?

SEC filing costs

Which of the following statements is true about the convergence of U.S. GAAP and IFRS?

The SEC is concerned that the transition cost to IFRS is not worth the benefit.

Which of the following are true of generally accepted accounting principles (GAAP)? (Check all that apply.)

The goal of GAAP is to ensure that a company's financial statements clearly represent its economic condition and performance. GAAP is a network of conventions, rules, and procedures that govern financial reporting. Generally accepted accounting principles continue to develop and evolve in response to changing business conditions.

Employees demand financial statement information for which of the following reasons? (Check all that apply.)

To assess the company's potential future solvency To know about union contracts To monitor the health of company-sponsored pension plans

Which of the following are functions of public and private sector regulatory agencies?

To establish financial reporting requirements. To enforce financial reporting requirements.

Which of the following is a reason managers demand financial statement data?

To execute contracts that are linked to financial statement variables.

Which of the following is a reason that lenders demand financial statement information?

To monitor adherence to covenants. To determine the security needed for a business loan.

Which of the following is a financial statement use of customers?

To monitor financial health and make purchasing decisions.

True or false: Suppliers demand financial statements to assess a customer's ability to pay for goods purchased.

True

True or false: The SEC can override FASB determinations and positions.

True

Financial statements and related disclosures provide information about

a company's economic activity.

Financial statements and related disclosures report

a company's economic wealth.

Compared to IFRS, U.S. GAAP

are more mature in their development.

Cross-country differences in financial reporting practices

arise from differences in how companies obtain financial capital. sometimes mirror societal differences.

Owners and managers have an economic incentive to supply the amount and type of financial disclosures that will enable them to raise capital

at the lowest cost.

The information asymmetry role of accounting is associated with

communicating private information to people outside the company.

The three components of faithful representation are

completeness, neutrality, and free from material error.

The commercial and tax law approach to financial reporting

creates inconsistent accounting across countries.

A manager could make a firm look less risky by

decreasing the amount of debt on its balance sheet.

A manager could increase his or her accounting income-based bonus by

delaying discretionary expenses.

Customers use financial statement information to

determine the seller's ability to provide replacement parts and technical support after the sale. monitor a supplier's financial health. decide whether to purchase a supplier's goods and services.

The contract efficiency role of accounting is associated with

determining the amount of bonuses to be paid to managers.

The term "professional analyst" refers to

equity investors, creditors, and auditors.

The Public Company Accounting Oversight Board (PCAOB)

establishes auditing standards for public companies

The ability to raise additional cash by selling assets, issuing stock, or borrowing more is known as

financial flexibility.

A country is most likely to have an economic performance perspective when

firm capital is provided primarily by individual investors.

Financial statement information is demanded by ______ for regulatory intervention.

government agencies

When preparing financial statements, company management

has discretion in how it applies accounting methods.

Fundamental analysis attempts to

identify mispriced stocks.

The economic performance approach to financial reporting

is designed to help investors and creditors.

A company may be reluctant to disclose information because

it could be used by competitors.

All of the following parties provide constraints that limit the range of financial reporting flexibility except

labor unions.

When preparing financial statements, company management

must follow accepted accounting standards.

The three components of relevance are

predictive value, confirmatory value, materiality

The FASB is expected to serve a diverse constituency including

preparers, auditors, users of financial statements, and the public interest.

Ideally, both U.S. GAAP and IFRS should

provide enough guidance for consistent application.

To fully understand the rules for a particular accounting issue, one needs to

read the Accounting Standards Codification and the related Accounting Standards Update.

The ASC structure includes all of the following categories except

subtitles.

To address the demand for information regarding how firms address climate change risk and how they contribute to the problem, many firms issue separate

sustainability reports.

Reservations regarding a requirement for U.S. companies to use IFRS include

the U.S. does not have enough influence over the IASB.

Currently, accounting authoritative literature is contained in

the accounting standards codification, which is arranged by topic.

Shareholders and investors use financial statement information: (Check all that apply.)

to assess risk, dividend yield, and other firm attributes. when evaluating the performance of the company's top executives. to help decide on a portfolio that meets their preferences.

Companies that began preparing grouped statements did so

to make them more investor-friendly.

Government and regulatory agencies demand financial statement information

to regulate businesses. to monitor compliance with securities laws. to resolve contractual disputes.

The broadest categorization of the ASC structure is

topics.

Which of the following are the primary characteristics needed to achieve GAAP's goal of ensuring that a company's financial statements clearly represent its economic condition and performance?

Faithful representation Relevance

True or false: The SEC, the FASB, and auditors completely eliminate the inherent flexibility in GAAP.

False

True or false: The United States requires annual uniform disclosures about climate change.

False

For what reason did many firms in countries that did not require it, feel compelled to provide financial statements prepared using U.S. GAAP or IFRS?

In order to be more understandable to foreign investors.

Which of the following regulatory bodies currently has the primary responsibility for determining international accounting standards?

International Accounting Standards Board (IASB)