ACCT 400C SmartBook CH1

The four basic accounting assumptions (Select all that apply.)

identify the entity being reported on assume the entity will continue to exist identify the frequency of reporting identify the denomination in which reporting occurs

What information regarding an entity's future cash flows are investors and lenders interested in? (Select all that apply.)

uncertainty amount timing

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

unqualified, clean, or unmodified

The Sarbanes-Oxley Act requires that lead audit partners are required to rotate every ______ years.

5

The Sarbanes-Oxley Act requires auditors to retain work papers for ______ years.

7

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

Accrual basis

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

Cash basis

Under the Sarbanes-Oxley Act, who is responsible for the selection of a corporation's auditor?

The audit committee of the Board of Directors.

According to SFAC 5, the four criteria that must be met for an item to be recognized in the basic financial statements are

The item meets the definition of an element. the item has relevant attributes that are measurable. the information about the item is reliable. the information about the item is relevant to decision making.

What is the purpose of the audit report?

To add credibility to the financial statements.

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

True

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

True

True or false: The conceptual framework does not prescribe GAAP.

True - Reason: The conceptual framework provides an underlying foundation for accounting standards.

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."

a clean opinion

The financial reporting model used by the majority of profit oriented companies is__________accounting. (Enter only one word.)

accrual

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

accrual accounting

To enhance timeliness, the SEC requires its registrants to submit financial information how frequently? (Select all that apply)

annually quarterly

A probable future economic benefit obtained or controlled by a particular entity as a result of past transactions or events is a(n)

asset.

External users of a company's financial information include (Select all that apply.)

banks. labor unions. credit-rating agencies.

The accrual accounting model measures the entity's accomplishments and resource sacrifices during the period regardless of when___________is received or paid. (Enter one word per blank)

cash

_______________basis accounting measures the difference between cash receipts and payments during a reporting period. (Enter only one word.)

cash

Expense recognition is implemented by which of the following ways? (Select all that apply.)

cause-and-effect relationship. systematic and rational allocation. associating expenses and revenues in a specific period of time. in the period incurred

The "Accounting Constitution", a coherent system of interrelated objectives and fundamentals that lead to consistent standards and that prescribe the nature, function, and limits of financial accounting and reporting is referred to as the_____________framework

conceptual

Before they can be recognized, favorable items tend to require more verification than unfavorable items. Accountants refer to this as

conservatism

The Sarbanes-Oxley Act increases accountability of who?

corporate executives

Who must personally certify the financial statements and company disclosures or risk financial penalties and criminal prosecution for fraudulent misstatements?

corporate executives

What are the three primary forms of business organizations?

corporation sole proprietorship partnership

The primary focus of the qualitative characteristics of accounting information is:

decision usefulness

Before issuing an Accounting Standards Update, the FASB undertakes a series of information-gathering steps including

deliberations written comments open hearings

Under the accrual accounting model, the measure of resources sacrificed is called

expense.

Labor unions and creditors are examples of____________users of financial information. (Enter only one word.)

external

Labor unions and creditors are examples of_______________users of financial information. (Enter only one word.)

external or outside

____________accounting is chiefly concerned with providing information to external users.

financial

The accrual accounting model is best able to achieve the goal of predicting______________cash flows.

future

The abbreviation GAAP stands for

generally accepted accounting principles

The assumption that a business entity will continue to operate indefinitely in the future refers to what assumption?

going concern

Which of the following are external users of financial information?

government agencies suppliers investors creditors

The going concern assumption is critical to the measurement of assets because if a business were going to cease operations, its assets would be measured at their

liquidation values.

The application of conservatism leads to: (Select all that apply.)

losses being recognized quicker than gains assets tending to be biased downwards

Another term for equity is

net assets.

Auditors examine financial statements to express a professional, independent________on the financial statements. (Enter one word per blank)

opinion

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

partnership

Allowing the life of a company to be divided into artificial time periods in order to provide timely information is referred to as the___________assumption

periodicity

Which of the following are among the basic assumptions underlying U.S. GAAP? (Select all that apply.)

periodicity going concern monetary unit economic entity

Predictive value and confirmatory value are components of which primary qualitative characteristic? Materiality too

relevance

The two fundamental characteristics of financial information are

relevance and faithful representation.

The revenue/expense approach focuses on the income statement because it relies on which accounting principles? (Select all that apply.)

revenue recognition matching

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

revenues or revenue

______________refers to information being available to users early enough to allow them to use it in the decision process. (Enter only one word per blank)

timeliness

The SEC requires companies to file quarterly reports to provide information to investors. This is an example of the concept of

timeliness.

Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events are referred to as

Assets

What basis of accounting measures the difference between cash receipts and cash payments from transactions related to providing goods and services to customers during a reporting period?

Cash basis

What requirements for corporate accountability are included in the Sarbanes-Oxley Act?

Corporate executives must personally certify the financial statements. Corporate executives may be criminally liable for fraudulent financial statements.

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

Corporate management

Which of the following forms of business provide shares of stock as an ownership interest?

Corporation

True or false: Cash basis accounting is the required accounting method for most profit-oriented companies.

False - Reason: Accrual basis accounting is the required accounting method for most profit-oriented and not-for-profit entities.

A liability has which of the following characteristics? (Select all that apply.)

It is due to a past transaction or event. It is a probable future sacrifice of an economic benefit. It is a present obligation.

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

Management

Conservatism is inconsistent with which characteristic of accounting information?

Neutrality

Select the four criteria used to determine if an item is recognized in the financial statements according to SFAC 5.

Reliability Relevance Definition Measurability

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? (Select all that apply.)

Require CEO accountability. Regulate auditors. Provide penalties for violators. Prevent conflicts of interests.

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.