Ch 1 Smartbook

List the private accounting standard setting bodies in chronological order beginning with the oldest organization.

1. Committee on Accounting Procedure 2. Accounting Principles Board 3. Financial Accounting Standards Board

On January 1, an investor purchases shares of stock in a company for $10,000 cash. At the end of the year, the investor receives $400 in dividends and sells their ownership for $10,600. What is the return on investment?

10%

On January 1, Jennifer purchases common stock of Gamma Corporation for $100,000. During the year, Gamma Corporation stock pays a dividend of $3,000. At the end of the year, Jennifer sells the Gamma stock for $104,000. What is the return on investment of the Gamma stock?

7%

Which of the following instances indicate net operating cash flow may not be a good predictor of long-run cash-generating ability?

A company pays cash to purchase a 2 year insurance policy A customer pays for services provided in a prior period

Which organization is currently the national professional organization for certified professional public accountants?

AICPA

The acronym for the Accounting Standards Codification is

ASC

A(n) _____ opinion signals that a company's financial statements do not contain material departures from US GAAP.

Auditor

The first private accounting standard setting body in the United States was the

Committee on Accounting Procedure

Differences in implementation and enforcement of IFRS across countries can impact the ____ of financial statements.

Comparability

Differences in implementation and enforcement of IFRS across countries can impact the ______ of financial statements.

Comparability

Which of the following would be a likely advantage of a single set of accounting standards?

Easier access to capital

What are the requirements of all states to become a licensed certified public accountant?

Education Testing Experience

Which of the following would be a likely advantage of a single set of accounting standards?

Enhanced financial statement comparability

The ___ was established to set U.S. accounting standards and is the current standard setting body

FASB

The ____ was established to set U.S. accounting standards and is the current standard setting body.

FASB

The acronym for the private sector organization that sets accounting standards in the United States is the

FASB

The citation used to reference generally accepted accounting principles is

FASB ASC

True or false: Over short periods of time, net operating cash flow is a good indicator of a company's long-run cash-generating ability.

False

True or false: The term financial reporting is used to refer to the process of providing financial information to internal users.

False

Which accounting standard setting body replaced the Accounting Principles Board in 1973?

Financial Accounting Standards Board

The process of providing information to external users is referred to as

Financial accounting

Which of the following types of companies may currently utilize IFRS for financial reporting in the U.S.?

Foreign companies that issue stock in the U.S.

Generally accepted accounting principles are abbreviated as

GAAP

The acronym GASB refers to the

Governmental Accounting Standards Board

The organization that is responsible for the accounting standard setting process for states and cities in the United States is the

Governmental Accounting Standards Board

Emerging Issues Task Force

Group dealing with emerging issues - U.S. GAAP

Which of the following are common arguments against the creation of a single set of global accounting standards?

Implementation and enforcement of IFRS varies among nations Maintaining competition between accounting standard-setting bodies improves quality Accounting under IFRS will appear more uniform than it actually is

The IASB is dedicated to developing a set of high-quality, understandable, and enforceable _____ accounting standards.

Internacional

The organization that develops global accounting standards is the

International Accounting Standards Board

The International Accounting Standards Committee issued International Accounting Standards (IAS), whereas the International Accounting Standards Board currently issues

International Financial Reporting Standards

Jody's expenses exceed revenues for the period. Jody has a net ____ for the period.

Loss

Which approach to standard setting emphasizes the use of professional judgment when choosing how to account for a transaction?

Objectives-oriented

Accrual income attempts to measure the resource inflows and outflows generated by the company's ______ during the reporting period.

Operations

Where does political pressure come from in International standard setting?

Politicians from countries utilizing IFRS The European Union (EU)

The involvement of accounting professionals and management in accounting scandals resulted in Congress passing the Sarbanes-Oxley Act. What is the purpose of the Sarbanes-Oxley Act?

Provide penalties for violators. Addresses conflicts of interests. Require accountability of corporate executives. Regulate auditors.

What is the primary function of financial accounting?

Provide useful information to users external to the business.

International Organization of Securities Commissions

Regulatory oversight - IFRS

In which of the following areas did the FASB and IASB already develop converged accounting standards?

Share-based compensation Non-monetary exchanges Earnings-per-share

IASB

Standard-setting board - IFRS

Why is accounting standard setting a political process?

Standards can have significant effects on companies, investors, and creditors. Changes in standards can result in a substantial redistribution of wealth within our economy.

Which of the following are steps the FASB takes before issuing an Accounting Standards Update?

The Board holds a public meeting Receives requests from stakeholders

The FASB's standard setting process begins when the board adds a project to its technical agenda. Identify the final step in this process.

The Board issues an Accounting Standards Update.

Which of the following represent(s) an important objective of the IASB?

To develop high quality global standards

True or false: Both profit-oriented companies and not-for-profit companies are providers of financial information.

True

True or false: Financial accounting is primarily concerned with providing financial information to external users.

True

True or false: In 2007, the SEC eliminated the requirement of foreign companies issuing stock in the United States to include a reconciliation of IFRS to U.S. GAAP in their financial statements.

True

True or false: In the United States, sole proprietorships and partnerships outnumber corporations.

True

True or false: Political pressure has deterred the FASB from issuing particular standard changes.

True

True or false: Resource inflows and outflows may not correspond to cash inflows and outflows.

True

True or false: The uncertainty of the return on an investment is also referred to as risk.

True

True or false: The FASB considers written comments from interested parties before issuing an Accounting Standards Update.

True The FASB has an extensive due process including open hearings, deliberations, and written comments.

The financial reporting model used by the majority of profit oriented companies is ____ accounting.

accrual

What financial reporting model is used by most profit-oriented businesses and not-for-profit entities?

accrual accounting

Which accounting model best meets the primary goal of users of financial reporting?

accrual basis

External users of a company's financial information include

banks. credit-rating agencies. labor unions.

The first body to set accounting standards in the U.S. was the

cap

The accrual accounting model measures the entity's accomplishments and resource sacrifices during the period regardless of when ____ is received or paid.

cash

______ basis accounting measures the difference between cash receipts and payments during a reporting period.

cash

What accounting model produces a measure called net operating cash flow?

cash basis

What classification would the following auditor opinion receive?: "In our opinion, the consolidated financial statements listed in the accompanying index present fairly . . . in conformity with U.S. GAAP."

clean opinion

The FASB Accounting Standards _____ organizes all relevant accounting pronouncements in a searchable, online database

codification

Which of the following provides an underlying structure for the development of accounting standards?

conceptual framework

The 1933 and 1934 Acts were designed to restore investor ______ in the stock market.

confidence

The Sarbanes-Oxley Act increases accountability of who?

corporate executives

Who has the responsibility for preparing financial statements in accordance with generally accepted accounting principles?

corporate management

We can think of the capital markets as a composite of all

creditors investors

The FASB and IASB will continue to work together to converge where possible, but ______ between IFRS and U.S. GAAP will likely remain.

differences

The primary role of financial accounting is to provide useful financial information to users who are Blank______ to the business enterprise.

external

In addition to issuing accounting standards, the FASB has formulated a conceptual ____ to provide an underlying theoretical and conceptual structure for accounting standards.

framework

The majority of productive resources are privately owned in a ______ enterprise economy.

free

In the United States, we have an economy where the majority of productive resources are privately owned rather than government owned. This is an example of what?

free enterprise

The accrual accounting model is best able to achieve the goal of predicting ___ cash flows.

future

The IASB's main objective is to develop a single set of standards that have what characteristics?

high-quality enforceable understandable

Which of the following are providers of financial information?

households schools companies

The Emerging Issues Task Force (EITF) was formed to

identify potential problem areas and provide a timely response to issues.

______ and ______ are willing to provide capital to a corporation only if they expect to receive more cash in return at some time in the future.

investors and creditors

Who has the responsibility to appropriately apply GAAP when preparing financial statements?

management

1934 Securities and Exchange Act

mandates reporting requirements for companies whose stock is publicly traded

Which of the following fields are considered a profession that has its own code of professional ethics?

medicine accounting law

An investment that has higher risk also has

more uncertainty of returns

The Emerging Issues Task Force (EITF) was formed to resolve ______ financial accounting issues within the framework of existing GAAP.

narrowly defined

Auditors examine financial statements to express a professional, independent ____ on the financial statements

opinion

The primary forms of business organization in the United States are the sole proprietorship, the _______ and the corporation.

partnership

A corporation's shareholders will receive cash from their investment in which of the following ways?

periodic dividends

The most recent issue in implementing the fair value accounting standard is

pressure to reduce the extent to which fair value changes are reported in net income.

Proponents of objectives-based standards assert that

professional judgment minimizes sidestepping of rules

The objectives of financial accounting include

provide information to investors and creditors. provide information used to evaluate future cash flows.

What are the most important factors for an investor to consider when choosing an investment?

rate of return risk

The capital markets foster an efficient allocation of

resources

The accrual accounting model's measure of resources provided by business operations is called

revenues

The uncertainty regarding an investment is also referred to as

risk

The ______ has the authority to set accounting standards for companies, but has delegated the task to the private sector.

sec

The legal authority to set accounting and reporting standards for companies whose securities are publicly traded lies with the

sec

1933 Securities Act

sets forth accounting and disclosure requirements for initial offerings of securities (stocks and bonds)

Which are the financial statements most frequently provided to external users?

statement of cash flows statement of shareholders' equity income statement balance sheet

Which of the following is a financial statement provided to investors?

statement of shareholders' equity

Which of the following are external users of financial information?

suppliers investors government agencies creditors

Financial accounting provides investors with information that should help them to evaluate the

timing of the firm's future cash flow. amounts of the firm's future cash flow. uncertainty of the firm's future cash flow.

The Accounting Standards Codification is organized into

topics and subtopics

Recent events suggest that full convergence ______ be achieved in the foreseeable future.

will not