Financial Accounting One

The International Accounting Standards Committee (IASC) reorganized in 2001 to create a new standard-setting body called the International Accounting Standards Board (IASB). The IASB issues global accounting standards called International Financial Reporting Standards Global Financial Reporting Standards International Accounting Standards European Accounting Standards

International Financial Reporting Standards

The International Accounting Standards Committee issued International Accounting Standards (IAS), whereas the International Accounting Standards Board currently issues Globally Accepted Accounting Principles. General Guidelines for Global Reporting. International Accounting and Auditing Standards. International Financial Reporting Standards.

International Financial Reporting Standards.

The International Accounting Standards Committee issued International Accounting Standards (IAS), whereas the International Accounting Standards Board currently issues Globally Accepted Accounting Principles. International Financial Reporting Standards. General Guidelines for Global Reporting. International Accounting and Auditing Standards.

International Financial Reporting Standards.

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

clean

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

comparability

Which of the following are enhancing characteristics of financial information? (Select all that apply.) comparability cost effectiveness timeliness decision usefulness

comparability timeliness

Select all that apply In developing standards, the FASB considers the: effect on the financial position of constituents concerns and opinions of constituents economic transactions that standards will address

concerns and opinions of constituents economic transactions that standards will address

What component of financial information helps investors analyze their prior assessments regarding a company's cash flow generating ability? faithful representation materiality comparability confirmatory value

confirmatory value

The Sarbanes-Oxley Act increases accountability of who? FASB members securities analysts corporate executives

corporate executives

Who must personally certify the financial statements and company disclosures or risk financial penalties and criminal prosecution for fraudulent misstatements? SEC staff auditors board of directors of a corporation CPA firms who audit the company corporate executives

corporate executives

The primary focus of the qualitative characteristics of accounting information is: accuracy decision usefulness outcome certainty accountability

decision usefulness

The overriding objective in the hierarchy of qualitative characteristics of financial reporting information is conservatism. decision usefulness. neutrality. faithful representation.

decision usefulness.

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

differences

What are the requirements of most states to become a licensed certified public accountant? education testing income background check experience

education testing experience

The purpose of the FASB's conceptual framework in accounting is to Multiple choice question. define accounting procedures and set limitations for companies. establish objectives and fundamental concepts on which to base standards. enforce accounting standards on a uniform basis. create accounting rules to be applied uniformly.

establish objectives and fundamental concepts on which to base standards.

A code or moral system that provides criteria for evaluating right and wrong is referred to as a dilemma system. ethics. standards. a values model.

ethics

To be useful for decision making, information should possess the fundamental decision-specific qualities of (Select all that apply.) predictive value faithful representation neutrality relevance completeness

faithful representation relevance

When there is agreement between a measure or description of an item and the phenomenon it purports to represent, the item possesses the fundamental characteristic of relevance. faithful representation. confirmatory value. predictive value.

faithful representation.

Under IFRS, the primary purpose of the conceptual framework is to provide guidance to both standard setters and practitioners guidance to practitioners when judgment is required guidance to standard setters

guidance to both standard setters and practitioners

Pressure from____________and ________ influenced the FASB to revise guidance on fair value accounting.

lobbyists politics

Which of the following fields are considered a profession that has its own code of professional ethics? (Select all that apply.) medicine accounting management marketing law

medicine accounting law

The characteristic that a new accounting standard should not favor one group of companies over others or achieve a particular social outcome is an example of confirmatory value. neutrality. relevance. understandability.

neutrality.

Before issuing an Accounting Standards Update, the FASB undertakes a series of information-gathering steps including open hearings company visits deliberations written comments

open hearings deliberations written comments

The most recent issue in implementing the fair value accounting standard is the attempts by Congress to prohibit historical cost accounting. pressure to reduce the extent to which fair value changes are reported in net income. the FASB's reluctance to issue an accounting pronouncement. the government's responsibility to measure fair value of assets.

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

Faithful representation exists when an item meets the definition of an element and is recognized in the financial statements. there is agreement between a measure or description and the phenomenon it purports to represent. the information can make a difference in the decision. the amounts on the financial statements are verifiable.

there is agreement between a measure or description and the phenomenon it purports to represent.

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

uncertainty amount timing

What concepts are contained in the FASB conceptual framework? (Select all that apply.) underlying concepts of accounting concepts regarding types of events to be accounted for SEC reporting requirements leasing and rental concepts measurement concepts

underlying concepts of accounting concepts regarding types of events to be accounted for measurement concepts

Multiple Choice Question The Private Company Council (PCC) determines whether changes to existing GAAP are necessary to meet the needs of users of non-profit company financial statements users of private company financial statements users of public company financial statements

users of private company financial statements

The Sarbanes-Oxley Act requires that lead audit partners are required to rotate every ______ years. 10 3 7 5

5

The Sarbanes-Oxley Act requires auditors to retain work papers for ______ years. 5 10 3 7

7

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 disclaimer opinion an adverse opinion a clean opinion a qualified opinion

A clean opinion

The conceptual framework includes what types of information? Requirements on presentation and disclosures on financial statements. Revenue recognition policies currently required by the FASB and SEC. A system of objectives and fundamentals that help in setting consistent accounting standards. Mandatory reporting requirements for all publicly traded companies. Requirements imposed by the Sarbanes-Oxley Act.

A system of objectives and fundamentals that help in setting consistent accounting standards.

The acronym for the Accounting Standards Codification is

ASC

As of July 1, 2009, the single source of nongovernmental U.S. GAAP is found in the Accounting Standards Codification. SEC literature. FASB statements. AICPA professional standards.

Accounting Standards Codification.

Who has the responsibility for preparing financial statements in accordance with generally accepted accounting principles? Corporate management Audit committee CPA firms who audit the company SEC staff auditors

Corporate management

Which of the following are steps in making an ethical decision? Notify the media Determine the facts Take action Identify the stakeholders

Determine the facts Take action Identify the stakeholders

In which of the following areas did the FASB and IASB already develop converged accounting standards? (Select all that apply.) Earnings-per-share Financial instruments Lease accounting Share-based compensation Non-monetary exchanges

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

Which of the following would be a likely advantage of a single set of accounting standards? Easier access to capital Less volatile exchange rates Enhanced export and import opportunities

Easier access to capital

Which of the following would be a likely advantage of a single set of accounting standards? Enhanced export and import opportunities Enhanced financial statement comparability Less need for issuing consolidated financial statements

Enhanced financial statement comparability

The Financial Accounting Foundation provides oversight, appoints members, and raises funds to support the: FASB EITF IASB SEC

FASB

The purpose of the Private Company Council (PCC) is to advise the ________ about its current projects that affect private companies. PCAOB IASB SEC FASB

FASB

The citation used to reference generally accepted accounting principles is FAS. FASB ASC. ACSS. GAAP.

FASB ASC.

The acronym for the private sector organization that sets accounting standards in the United States is the FASB SEC AICPA APB

FSAB

Which accounting standard setting body replaced the Accounting Principles Board in 1973? Public Company Accounting Oversight Board Securities and Exchange Commission Financial Accounting Standards Board American Institute of Certified Public Accountants

Financial Accounting Standards Board

Which of the following types of companies may currently utilize IFRS for financial reporting in the U.S.? All U.S. companies Foreign companies that issue stock in the U.S. Currently, IFRS is not permitted for any U.S. registered company All domestic companies that issue stock in the U.S.

Foreign companies that issue stock in the U.S.

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

Framework

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

Framework

The organization that is responsible for Accounting standards and the standard setting process for states and cities in the United States is the Generally Accepted Standards and Bylaws. Government Authority for Standards and Bylaws. General Accounting State Board. Governmental Accounting Standards Board.

Governmental Accounting Standards Board

The acronym GASB refers to the Governmental Accounting Standards Board. General Accounting Standards Bylaws. Generally Accepted Standards Board. Government Accounting and State Bylaws.

Governmental Accounting Standards Board.

The organization that is responsible for Accounting standards and the standard setting process for states and cities in the United States is the Governmental Accounting Standards Board. Generally Accepted Standards and Bylaws. Government Authority for Standards and Bylaws. General Accounting State Board.

Governmental Accounting Standards Board.

The International Accounting Standards Committee provides oversight, appoints members, and raises funds to support the: SEC FASB EITF IASB

IASB

What are the advantages of one global accounting framework? Reduce competition between alternative standard setting regimes. Improve comparability. Make enforcement actions easier. Facilitate access to capital.

Improve comparability. Facilitate access to capital.

The organization responsible for the code of ethics for accountants working in government and industry is the Securities and Exchange Commission American Institute of Certified Public Accountants Accounting Principles Board Institute of Management Accountants Public Accounting Standards Oversight Board

Institute of Management Accountants

In 2007, the SEC eliminated the requirement for _______________ companies that issue stock in the United States to include in their financial statements a reconciliation of IFRS to U.S. GAAP. (Enter only one word.)

International

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

International

The organization that develops global accounting standards is the International Accounting Standards Board. International Accountants Standards and Bylaws. International Accountants Society Bylaws.

International Accounting Standards Board.

A liability has which of the following characteristics? (Select all that apply.) It is a present obligation. It is a probable future sacrifice of an economic benefit. It is due to a past transaction or event. It is a probable future economic benefit.

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

What is the distinguishing feature of a profession? Its members accept responsibility for the interests of those it serves. It requires liability insurance to cover responsibilities. It is regulated by the SEC. It requires a federal permit to practice

Its members accept responsibility for the interests of those it serves.

Which of the following are common arguments against the creation of a single set of global accounting standards? (Select all that apply.) Maintaining competition between accounting standard-setting bodies improves quality Accounting under IFRS will appear more uniform than it actually is Global standards will lead to more complex 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 Implementation and enforcement of IFRS varies among nations

Who has the responsibility to appropriately apply GAAP when preparing financial statements? The FASB The SEC Auditors Management

Management

Conservatism is inconsistent with which characteristic of accounting information? Neutrality Comparability Timeliness Relevance

Neutrality

Which approach to standard setting emphasizes the use of professional judgment when choosing how to account for a transaction? Transaction-oriented Objectives-oriented Rules-oriented

Objectives-oriented

What are the costs of providing financial information? (Select all that apply.) Processing information Gathering information Disseminating information Interpreting information

Processing information Gathering information Disseminating information

What was the purpose of the FASB Accounting Standards Codification project? Reorganize all relevant accounting pronouncements in U.S. GAAP. Integrate international standards with U.S. accounting standards. Issue new accounting pronouncements.

Reorganize all relevant accounting pronouncements in U.S. GAAP.

Select all that apply 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. Prevent conflicts of interests. Regulate auditors. Provide penalties for violators. Issue capital requirements for companies.

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

Which of the following are steps the FASB takes before issuing an Accounting Standards Update? The Board visits companies that use the proposed standard The Board meets with individual shareholders The Board holds a public meeting Receives requests from stakeholders

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 deliberates at one or more public meetings. The Board issues an Accounting Standards Update. The board issues an Exposure Draft or Discussion Paper. The staff analyzes comment letters.

The Board issues an Accounting Standards Update.

Which of the following provides an underlying structure for the development of accounting standards? FASB Staff Positions EITF Issue Consensuses Statements of Financial Accounting Standards The Conceptual Framework

The Conceptual Framework

Where does political pressure come from in International standard setting? (Select all that apply.) The International Accounting Standards Board The European Union (EU) Politicians from countries utilizing IFRS The United States

The European Union (EU) Politicians from countries utilizing IFRS

Under the Sarbanes-Oxley Act, who is responsible for the selection of a corporation's auditor? The Securities and Exchange Commission. The American Institute of Certified Public Accountants. Corporate management. The audit committee of the Board of Directors.

The audit committee of the Board of Directors.

What does it mean if information is cost effective? Information should accurately reflect the economic condition of the business. The benefits of providing financial information exceed the costs of doing so. Information must be able to be understood by users. Information should have the ability to have an impact on the decisions of users.

The benefits of providing financial information exceed the costs of doing so.

Which of the following represent(s) an important objective of the IASB? To develop high quality global standards To control the global standard setting process To lower the cost of capital on global markets

To develop high quality global standards

Which of the following represents the IASB's primary objective? To control the international standard setting process To develop high quality global standards used to make economic decisions To lower the cost of capital on global markets

To develop high quality global standards used to make economic decisions

Which of the following represents the IASB's primary objective? To develop high quality global standards used to make economic decisions To control the international standard setting process To lower the cost of capital on global markets

To develop high quality global standards used to make economic decisions

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

True

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

True

The conceptual framework does not prescribe which of the following? Definitions of elements of financial statements. Objectives of financial reporting. Qualitative characteristics. U.S. GAAP.

U.S. GAAP.

What is the testing requirement for a licensed certified public accountant? Uniform CFA Examination Uniform CPA Examination Uniform CMA Examination

Uniform CPA Examination

Recent events suggest that full convergence ________ be achieved in the foreseeable future. will not will

Will Not

The concept of understandability assumes that the users of financial statements should have a business background and experience. a license as a certified public accountant. a reasonable understanding of business and economic activities. a finance or accounting certification.

a reasonable understanding of business and economic activities.

Accounting information meets the qualitative characteristic of consistency if it is measured and reported the same way across different reporting periods. in both internal and external reports. in both financial and managerial statements. among various companies.

across different reporting periods.

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

assets

The application of conservatism leads to: (Select all that apply.) losses being recognized later than gains assets tending to be biased downwards liabilities tending to be biased downwards losses being recognized quicker than gains

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

Accounting information is __________________if similar items are treated the same way among various companies highlighting similarities and differences between events and conditions.

comparable

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

conservatism

The tendency to recognize unfavorable items more quickly than favorable items is referred to as__________

conservative

The qualitative characteristic of using the same accounting method each period over time refers to the concept of ____________

consistency

Using the same accounting methods in each period refers to the qualitative characteristic of understandability. consistency. timeliness. verifiability.

consistency.

Cost effectiveness is a ______________on the accounting choices a company makes.

constraint

For information to be cost effective, the perceived benefit of increased decision usefulness must exceed the anticipated costs of providing that information. be equal to the anticipated costs of providing that information. be lower than the anticipated costs of providing that information.

exceed the anticipated costs of providing that information.

Which of the following is a probable future sacrifice of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events? asset liability stockholders' equity retained earnings

liability

Another term for equity is net assets. net income. gains. assets.

net assets.

Faithful representation requires that information be (Select all that apply.) conservative neutral free from error complete

neutral free from error complete

Which qualitative characteristic requires that financial information should not influence decision making to achieve a predetermined result? materiality neutrality conservatism periodicity

neutrality

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

quarterly annually

___________refers to information being available to users early enough to allow them to use it in the decision process.

timeliness

The qualitative characteristic wherein information is available early enough allowing it to be useful for a decision describes the concept of verifiability. timeliness. comparability. matching.

timeliness.

The accounting characteristic that requires a user to comprehend the information within the context of the decision being made is referred to as verifiability. consistency. understandability. comparability.

understandability.

A consensus among different individuals appraising the value of land describes which qualitative accounting characteristic? verifiability timeliness consistency comparability

verifiability

When the cost of an item can be traced to objective evidence of a transaction, such as a sales receipt, canceled check, and bank statement, the information has the quality of verifiability. comparability. consistency. timeliness.

verifiability.

Information is _____________-if different independent measures would reach consensus about whether it is representationally faithful.

verifiable

Information is ______________if different independent measures would reach consensus about whether it is representationally faithful.

verified

Select all that apply Before issuing an Accounting Standards Update, the FASB undertakes a series of information-gathering steps including written comments deliberations open hearings company visits

written comments deliberations open hearings

If the same accounting principles and methods are used for similar events by two different firms, this enhances what accounting qualitative characteristic? comparability relevance verifiability timeliness

Comparability

The key difference between the role of the conceptual framework in US GAAP and IFRS is that under IFRS, the conceptual framework ______________. guides standard setting and provides a basis for practitioners to make judgments only provides a basis for practitioners to make judgments primarily provides guidance to standard setters does not include a requirement that the financial statements provide a fair presentation of the company

guides standard setting and provides a basis for practitioners to make judgments

The IASB's main objective is to develop a single set of standards that have what characteristics? (Select all that apply.) high-quality enforceable understandable market driven accrual based

high-quality enforceable understandable

Auditors examine financial statements to express a professional, independent ________________on the financial statements.

opinion

The method for determining if an item is material and requires separate disclosure relies on professional judgment. whether the item is greater than 5% of net income. rules in SFAC 7.

professional judgment.

The AICPA has its own Code of Professional Conduct that prescribes ethical conduct specific to what members? Auditors Accountants in government Accountants in industry Certified public accountants

Certified public accountants

Why is accounting standard setting a political process? (Select all that apply.) Changes in standards can result in a substantial redistribution of wealth within our economy. Congress votes on the introduction of a new accounting standard. Standards can have significant effects on companies, investors, and creditors. Accounting standards can be legally enforced by the FASB.

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

Select all that apply Which of the following are provisions included in the Sarbanes-Oxley Act? Require that audit firms are hired by the audit committee of the board of directors. Require that the SEC audit publicly traded companies. Require that the auditors are responsible for preparing the financial statements. Require auditors to retain work papers for 7 years.

Require that audit firms are hired by the audit committee of the board of directors. Require auditors to retain work papers for 7 years.

What is the purpose of the auditor? To prepare the company's federal income tax returns in accordance with IRS guidelines. To help ensure management has appropriately applied IRS guidelines in preparing the federal income tax return. To help ensure management has appropriately applied GAAP in preparing the financial statements. To prepare the company's financial statements in accordance with GAAP.

To help ensure management has appropriately applied GAAP in preparing the financial statements.

True or false: Economic consequences for EU member nations are an important consideration in the adoption of International Financial Reporting Standards. True False

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 False

True

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

True

Criticisms of the objectives-oriented approach for accounting standards are (Select all that apply.) a lack of disclosure notes explaining accounting policies. the rules can be easily applied uniformly. professional judgment may result in different treatments of similar transactions. an absence of rules may lead to intentional misuse of a standard.

professional judgment may result in different treatments of similar transactions. an absence of rules may lead to intentional misuse of a standard.

Proponents of objectives-based standards assert that professional judgment minimizes sidestepping of rules less professional judgment will be needed in the preparation and audit of the financial statements financial statements will become more transparent

professional judgment minimizes sidestepping of rules

The main focus of accounting information is to regulate the stock markets. control the firm from a management perspective. provide useful information for decision making. provide information to taxing authorities.

provide useful information for decision making.

The primary purpose of financial reporting is to provide useful information for decision making to providers of capital capital market regulators management employees

providers of capital

The hierarchy of qualitative characteristics of financial information require that, in order to be useful for decision making, information should possess the fundamental characteristics of neutrality and materiality. cost and benefit. relevance and faithful representation. materiality and consistency.

relevance and faithful representation.

For accounting information to be ___________, it must possess predictive value and/or confirmatory value.

relevant

The key provisions of the Sarbanes-Oxley Act include requiring documentation and assessing effectiveness of internal controls. establishing the Securities and Exchange Commission. restricting activities of auditors to prevent conflicts of interest. requiring that corporate executives certify financial statements. limiting the role of the FASB in accounting standard setting.

requiring documentation and assessing effectiveness of internal controls. restricting activities of auditors to prevent conflicts of interest. requiring that corporate executives certify financial statements.

In which of the following areas did the FASB and IASB achieve converged standards? financial instruments lease accounting revenue recognition derivative instruments

revenue recognition

Ethics deals with the ability to distinguish ___________ from __________

right wrong

In practice, determining whether an item is material and requires separate disclosure or recognition is based on the absolute amount of the item. the relative amount of the item. whether the effect of the item is greater than 5% of net income.

the relative amount of the item.