Chapter 1 Reading Quiz (Graded)

Which of the following items are considered key elements of ethical behavior for a professional accountant? a. Maintaining integrity: being honest and forthright in one's dealings and communications with others. b. Accepting an obligation to serve in the best interests of the employer, the client, and the public. c. Maintaining independence, both in appearance and in fact. d. Maintaining objectivity: being impartial and free from conflicts of interest. e. Having competence by acquiring and maintaining the professional knowledge and skill to adequately perform the work assigned. f. Working closely with management to present the financial statements in the most favorable manner. g. Accepting contingent fee arrangements as the usual form of compensation for services to align the results of the engagements with the client's wishes.

a. Maintaining integrity: being honest and forthright in one's dealings and communications with others. b. Accepting an obligation to serve in the best interests of the employer, the client, and the public. c. Maintaining independence, both in appearance and in fact.

Accounting information is required by which entities? (Check all that apply). a. Not-for-profit entities, such as hospitals and voluntary health and welfare organization b. Not-for-profit entities, such as trade associations and country clubs c. Only for-profit entities, such as libraries and museums d. Only for-profit entities, such as colleges and universities

a. Not-for-profit entities, such as hospitals and voluntary health and welfare organization b. Not-for-profit entities, such as trade associations and country clubs

An unqualified, or, clean, independent auditor's opinion does which of the following? a. States that it is the independent auditor's responsibility to express an opinion about the financial statements b. States that the named financial statements "present fairly, in all material respects" the entity's cash flows for the period c. Explains that the audit was conducted in accordance with the standards of the GAAP (United States) d. Explains that the financial statements are the responsibility of the company's internal auditors e. States that the financial statements are free of any errors or irregularities

a. States that it is the independent auditor's responsibility to express an opinion about the financial statements b. States that the named financial statements "present fairly, in all material respects" the entity's cash flows for the period c. Explains that the audit was conducted in accordance with the standards of the GAAP (United States)

An unqualified, or "clean," independent auditor's opinion does which of the following? Select all that apply. a. States that the named financial statement "present fairly, in all material respects" the entity's results of operations for the period. b. Explains that the financial statements are the responsibility of the independent auditor c. Explains that the audit was conducted in accordance with the standards of the AICPA d. States that the named financial statements "present fairly, in all material respects" the financial position of the entity e. Describes briefly the work that is involved in performing an audit

a. States that the named financial statement "present fairly, in all material respects" the entity's results of operations for the period. d. States that the named financial statements "present fairly, in all material respects" the financial position of the entity e. Describes briefly the work that is involved in performing an audit

Which of the following statements are true regarding the Governmental Accounting Standards Board (GASB)? (Check all that apply). a. The GASB is attempting to unify the accounting practices of many state and municipal entities in the U.S. b. The GASB was established in 2002 as a result of the Sarbanes-Oxley Act. c. The GASB reports directly to the FAF, which is also the parent organization of the FASB. d. The GASB was established to develop accounting and reporting standards for state and local governmental units.

a. The GASB is attempting to unify the accounting practices of many state and municipal entities in the U.S. c. The GASB reports directly to the FAF, which is also the parent organization of the FASB. d. The GASB was established to develop accounting and reporting standards for state and local governmental units.

Which of the following do financial statements present? a. The results of an entity's operations for some period of time b. The employment statistics about the company at a point in time c. The financial position of an entity at a point in time d. The expected levels of economic activity for a future period of time e. The cash flow activities of an entity for some period of time

a. The results of an entity's operations for some period of time d. The expected levels of economic activity for a future period of time e. The cash flow activities of an entity for some period of time

Financial reporting is: a. done for individual firms or entities. b. primarily aimed at meeting the needs of taxing authorities. c. done for industries and for the economy as a whole. d. primarily aimed at meeting the needs of managers within an organization.

a. done for individual firms or entities.

Financial statements are primarily oriented toward: a. external users and are based on transactions and events that have happened in the past b. internal users and are based on transactions and events that are expected to happed in the future. c. internal users and are based on transactions and events that have happened in the past. d. individuals who are aware of the day-to-day financial and operating activities of the entity

a. external users and are based on transactions and events that have happened in the past

Financial reporting is primarily aimed at meeting the needs of: a. external users of accounting information who do not otherwise have access to the firm's records. b. qualified CPA and MBA degree holders who are experts in business and financial reporting. c. hedge fund managers and other sophisticated institutional investors. d. governmental and regulatory authorities requiring detailed disclosures of the firm's operations.

a. external users of accounting information who do not otherwise have access to the firm's records.

Financial accounting when compared to managerial and cost accounting: a. has primarily an external orientation and are based primarily on past historical cost data b. is oriented toward the employees, and data are more likely to be used in a future-oriented way c. has primarily an internal orientation and are based primarily on future estimates d. has primarily an internal orientation, and data are more likely to be used in a future-oriented way

a. has primarily an external orientation and are based primarily on past historical cost data

Managerial accounting and cost accounting when compared to financial accounting: a. have primarily an internal orientation, and the data are more likely to be used in a future-oriented way b. have primarily an external orientation and are based primarily on future estimates c. have primarily an external orientation and always require to use all the data generated by the financial accounting process d. are oriented toward the creditors and always require to use all the data used in the financial accounting process

a. have primarily an internal orientation, and the data are more likely to be used in a future-oriented way

Accounting for the effect of a transaction when the activity takes place rather than when the cash receipt or payment takes place is known as ___ (activity/conservative/accrual/matching) accounting.

accrual

Earnings information is reported on a(n) ___ basis of accounting. a. cash b. economic c. estimated d. accrual

accrual

In the process of measuring a firm's ___ (cash/accrual) accounting earnings, some costs applicable to one year's results of operations may have to be estimated.

accrual

Which of the following statements are true about the Cost Accounting Standards Board (CASB)? (Check all that apply). a. CASB is responsible for ensuring full disclosure to investors about companies and their securities that are traded in interstate commerce. b. CASB operated as a governmental body to establish standards applicable to government contracts during the 1970-1980 period. c. CASB was established in 2002 with the authority to set and enforce auditing and ethics standards for public companies. d. CASB is authorized by the U.S. Congress to establish cost accounting standards for governmental contractors.

b. CASB operated as a governmental body to establish standards applicable to government contracts during the 1970-1980 period. d. CASB is authorized by the U.S. Congress to establish cost accounting standards for governmental contractors.

The Cost Accounting Standards Board (CASB) establishes which of the following? (Check all that apply) a. Cost accounting standards applicable to colleges and universities that receive major state and local research grants b. Cost accounting standards applicable to government contracts in excess of $750,000 c. Auditing standards applicable to government contracts d. Cost accounting standards applicable to colleges and universities that receive major federal research grants

b. Cost accounting standards applicable to government contracts in excess of $750,000 d. Cost accounting standards applicable to colleges and universities that receive major federal research grants

Which of the following are primary users of a firm's accounting information? (Check all that apply). a. Customers b. Employees c. Investors d. Regulatory agencies e. Management f. Competitors

b. Employees c. Investors d. Regulatory agencies e. Management

Which of the following best describe Luca Pacioli? (Select all that apply) a. He was a famous violinist b. He was the author of "method of Venice" system. c. He was a German scientist d. He was a mathematics professor. e. He was a Franciscan monk.

b. He was the author of "method of Venice" system. d. He was a mathematics professor. e. He was a Franciscan monk.

Which of the following is a correct statement about the process of measuring a firm's accrual accounting earnings? a. Estimated amounts cannot be used because they would be in violation of the matching principle. b. Some costs applicable to the current year may need to be estimated. c. Exact precision is required in terms of the timing of cash flows. d. Cash receipts are recorded as revenues and cash payments are recorded as expenses.

b. Some costs applicable to the current year may need to be estimated.

An unqualified, or "clean," independent auditor's opinion does which of the following? (Select all that apply) a. Explains that the financial statements are the responsibility of the independent auditor b. States that the named financial statements "present fairly, in all material respects" the financial position of the entity c. Explains that the audit was conducted in accordance with the standards of the AICPA d. Describes briefly the work that is involved in performing an audit e. States that the named financial statements "present fairly, in all material respects" the entity's results of operations for the period

b. States that the named financial statements "present fairly, in all material respects" the financial position of the entity d. Describes briefly the work that is involved in performing an audit e. States that the named financial statements "present fairly, in all material respects" the entity's results of operations for the period

Which of the following statements is true regarding the Financial Accounting Standards Board's (FASB's) standard-setting process? a. The FASB issues accounting standards to adhere to the dictates of the SEC b. The FASB follows an open, due process procedure. c. The FASB Codification is no longer subject to change except for a limited number of unusual circumstances. d. The FASB's standard-setting process is directed by the IASB as U.S. generally accepted accounting principles (GAAP) must be in conformity with IFRS.

b. The FASB follows an open, due process procedure.

Tax practitioners typically develop specialization in the taxation of which of the following? (Check all that apply). a. Partnerships whose annual profit exceeds $5 million b. Trusts and estates c. International tax law issues d. Partnerships whose financial statements include amounts in excess of $1 million

b. Trusts and estates c. International tax law issues

Bookkeeping procedures: a. are part of the managerial accounting process b. are used to accumulate the financial results of many of an entity's activities c. include the calculation of return on investment (ROI) and the current ratio d. include the preparation of the notes to the financial statements

b. are used to accumulate the financial results of many of an entity's activities

Financial accounting information is: a. based on future transactions and events. b. based primarily of past transactions and events. c. frequently used to assess a firm's employment management practices. d. the only source of information to accurately predict the future prospects of a firm.

b. based primarily of past transactions and events.

The ___ (cost/benefit) to the user of accounting information should exceed the ___ (cost/benefit) of providing it.

benefit, cost

The objectives of financial reporting for government-sponsored entities engaged in activities that are not unique to government should be similar to those of ___ (business/nonbusiness/not-for-profit) enterprises.

business

The authoritative accounting standard-setting body for companies whose securities are publicly traded in the United States since 1973 has been the: a. Committee on Accounting Procedures (CAP) b. International Accounting Standards Board (IASB) c. Financial Accounting Standards Board (FASB) d. Accounting Principles Board (APB)

c. Financial Accounting Standards Board (FASB)

The authoritative accounting standard-setting body for state and local governmental units in the United States since 1984 has been the: a. Governmental Unit Account Oversight Board (GUAOB) b. Accounting Principles Board (APB) c. Governmental Accounting Standards Board (GASB) d. Financial Accounting Standards Board (FASB)

c. Governmental Accounting Standards Board (GASB)

Which of the following items is not considered a key element of ethical behavior for a professional accountant? a. Maintaining objectivity: being impartial and free from conflicts of interest. b. Maintaining integrity: being honest and forthright in one's dealings and communication with others. c. Maintaining profitability: to the greatest extent possible, ensure that the client's accounting records show a profit. d. Maintaining independence, both in appearance and in fact.

c. Maintaining profitability: to the greatest extent possible, ensure that the client's accounting records show a profit.

An internal auditor is responsible for which of the following? a. Preparation and fair presentation of the company's financial statements b. Expressing an opinion about the fairness of the company's financial statements c. Performing functions much like those performed by an independent (external) auditor, but perhaps on a smaller scale d. Analyzing the operating efficiency of one of the company's divisions

c. Performing functions much like those performed by an independent (external) auditor, but perhaps on a smaller scale d. Analyzing the operating efficiency of one of the company's divisions

Which of the following statements are true regarding the objectives of general-purpose external financial reporting for government-sponsored entities engaged in activities that are not unique to government? a. They should be different than those of business organizations engaged in similar activities. b. They should be different than those of nonbusiness organizations engaged in similar activities. c. They should be similar to those of business enterprises engaged in similar activities. d. They should be similar to those of nonbusiness organizations engaged in similar activities.

c. They should be similar to those of business enterprises engaged in similar activities. d. They should be similar to those of nonbusiness organizations engaged in similar activities.

Accounting information is usually required for: a. governmental units b. not-for-profit social service organizations c. nearly every kind of organization d. social clubs e. business firms f. political committees

c. nearly every kind of organization

The Financial Accounting Standards Board (FASB) Accounting Standards Codification: a. was later superseded by the FASB'S issuance of 168 Statements of Financial Accounting Standards (SFAS) b. represents a reorganization of the FASB's Concepts Statements c. represents a single source of U.S. generally accepted accounting principles (GAAP) d. made it more difficult to access and research authoritative accounting standards

c. represents a single source of U.S. generally accepted accounting principles (GAAP)

A report by management on the effectiveness of the company's internal control over financial reporting is required for all Securities and Exchange Commission-regulated companies under: a. regulation S-X of the Securities and Exchange Commission. b. the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. c. section 404 of the Sarbanes-Oxley Act of 2002. d. executive order number 1,000,001 by President Biden.

c. section 404 of the Sarbanes-Oxley Act of 2002.

A primary objective of financial reporting is to provide timely information about a firm's earnings and ___ ___ (employee turnover/cash flow).

cash flow

It is important to recognize that financial accounting information is developed at a ___ (cost/benefit) and that the ___ (cost/benefit) to the user of the information should exceed the cost of providing it.

cost, benefit

The Financial Accounting Standards Board (FASB) reports directly to the: a. Institute of Management Accountants (IMA) b. Securities and Exchange Commission (SEC) c. American Institute of Certified Public Accountants (AICPA) d. Financial Accounting Foundation (FAF)

d. Financial Accounting Foundation (FAF)

The statutory authority to establish accounting principles for companies whose securities are publicly traded in the United States rests with the: a. Financial Accounting Standards Board (FASB) b. Public Company Accounting Oversight Board (PCAOB) c. American Institute of Certified Public Accountants (AICPA) d. Securities and Exchange Commission (SEC)

d. Securities and Exchange Commission (SEC)

Which statement is correct about the role of an internal auditor? a. The scale of work of an internal auditor is larger than the scale of work of an external auditor. b. An internal auditor acts as a chief accounting officer of a corporation. c. An internal auditor is usually responsible for both the financial and managerial accounting functions. d. The qualifications of an internal auditor are similar to those of any other professional accountant

d. The qualifications of an internal auditor are similar to those of any other professional accountant

Section 404 of the Sarbanes-Oxley Act of 2002 requires all SEC-regulated companies to include in their annual reports: a. a statement in management's discussion and analysis that references the company's code of ethics or similar policies. b. a statement of cash flows, reconciled to the income statement on the accrual basis. c. a 5-year or longer summary of key financial data. d. a report by management on the effectiveness of the company's internal control over financial reporting.

d. a report by management on the effectiveness of the company's internal control over financial reporting.

Primary users of a firm's accounting information include all of the following except ___. a. investors b. employees c. management d. competitors e. creditors

d. competitors

Accounting is the process of ___. a. identifying, measuring, and communicating information about an organization exclusively for managerial decision making b. identifying, measuring, and communicating information about an organization only for financial reporting purposes c. preparing financial statements intended only for internal use d. identifying, measuring, and communicating information about an organization for the purpose of making decisions and informed judgments

d. identifying, measuring, and communicating information about an organization for the purpose of making decisions and informed judgments

The first known text to describe a comprehensive double-entry bookkeeping system was called the: a. Pacioli's Credo system b. Dutch Trading Company method c. Italian mercantile method d. method of Venice system

d. method of Venice system

The first known text to describe a comprehensive double-entry bookkeeping system was called the: a. Italian mercantile method b. Dutch Trading Company method c. Pacioli's Credo System d. method of Venice system

d. method of the Venice system

Financial reporting is designed to meet the needs of users by providing information that is: a. a reasonably accurate estimation of the firm's expected future earnings stream and forecasted financial position. b. primarily aimed at meeting the needs of taxing authorities. c. helpful to managers and others within the firm to prepare next year's operating and capital budgets. d. relevant to making rational investment and credit decisions and other informed judgments.

d. relevant to making rational investment and credit decisions and other informed judgments.

One of the objectives of financial reporting is: a. to directly measure the value of a firm. b. to predict employee turnover and financial flexibility of a firm. c. to serve as the only reliable source of information about an entity. d. to provide timely information about an entity.

d. to provide timely information about an entity.

Accrual accounting records transactions: a. after the economic activity has occurred and the related cash receipt or payment has taken place. b. when cash payment is made. c. when cash receipt takes place. d. when economic activity has occurred.

d. when economic activity has occurred.

Financial statements are primarily oriented toward the ___ (external/internal) user and are primarily concerned with ___ (past/present/future) information.

external, past

The process that results in the preparation and reporting of financial statements for an entity is referred to as ___ (financial/managerial/tax) accounting.

financial

The consulting practices of several large auditing firms have been split off into separate entities in an effort to help achieve ___ (profitability/independence/control/liquidity) in fact and appearance.

independence

The results of operations for an entity are reported for a ___ of time.

period

The cash flow activities for an entity are reported for a(n) ___ of time.

period or point

The Financial Accounting Standards Board (FASB) ___ reorganized divergent sources of U.S. generally accepted accounting principles (GAAP) in a more accessible and researchable format.

Codification

The goal of the ___ (IASB/IASC/IFRS) is to develop a single set of high-quality, understandable, enforceable, and globally accepted financial reporting standards.

IASB

The ___ (IASB/IFRS/GAAP) and the FASB have been working together since 2002 to achieve convergence of IFRS and U.S. ___ (IASB/FASB/GAAP).

IASB, GAAP

In 2001, the ___ (IASB/IASC/IFRS), which operates under the ___ (IASB/IASC/IFRS) Foundation, was formed in a restructuring effort and has since assumed the responsibilities of the ___ (IASB/IASC/IFRS), which was disbanded at that time.

IASB, IFRS, IASC

The statutory authority to establish accounting principles for companies whose securities are publicly traded in the United States rests with the ___ and ___ Commission.

Securities, Exchange

True or false: The growing complexity of federal, state, municipal, and foreign income tax laws has led to a demand for professional accountants who are specialists in various aspects of taxation.

True

Which statement about bookkeeping is correct? a. Bookkeeping procedures have been thoroughly systematized using manual, mechanical, and computer techniques. b. Bookkeeping helps in collecting the nonfinancial results of an entity's activities. c. Bookkeeping procedures do not support the financial accounting and reporting process. d. Bookkeeping and managerial accounting are synonymous with each other.

a. Bookkeeping procedures have been thoroughly systematized using manual, mechanical, and computer techniques.

Accounting information is required by governmental units at which of the following levels? (Check all that apply) a. Federal b. Municipal c. Regional d. State

a. Federal b. Municipal d. State

Which of the following is true of financial accounting? (Check all that apply). a. It is a form of historical scorekeeping. b. It is not the sole source of information about an entity. c. It is helpful in evaluating a company's employee turnover rate. d. It may provide information that is helpful in assessing an entity's future prospects. e. It is measured in dollars. f. It is adjusted for the effects of inflation.

a. It is a form of historical scorekeeping. b. It is not the sole source of information about an entity. d. It may provide information that is helpful in assessing an entity's future prospects. e. It is measured in dollars.