ACCT 3023 ch1 The development of Financial Acct. and Reporting Standards

FAF

Financial Accounting Foundation

Measurement is the process of associating numerical amounts to the _________________reported in financial statements.

elements

Measurement is the process of associating numerical amounts to the_______________ , reported in financial statements.

elements

Expenses are______________ to revenues from the same transaction

matched

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 can be matched with associated revenues. the item can be valued at fair value. the information about the item is reliable. the information about the item is relevant to decision making. the item has relevant attributes that are measurable.

1) Definition:The item meets the definition of an element. 2)Measurability: the item has relevant attributes that are measurable. 3)Relevance: the information about the item is relevant to decision making. 4) Reliability: the information about the item is reliable.

A company purchases a building by signing a $200,000 10% interest-bearing note due at the end of five years. At what amount should the building be recorded? $200,000 plus interest paid over the five-year period $200,000 less interest paid over the five-year period $200,000

200,000

Hernandez Corporation purchases a building for $300,000 cash. The building was appraised at $310,000. The tax assessment on the building was $280,000. Three months after purchasing the building, Company Z offers Hernandez $320,000 for the building. At what amount should the building be reported in Hernandez's financial statements according to the historical cost principle? $320,000 $310,000 $300,000 $280,000

300,000

APB

Accounting Principles Board

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

Accounting Standards Codification.

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

Accrual

AIA

American Institute of Accountants

AICPA

American Institute of Certified Public Accountants

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

Codification

CAP

Committee on Accounting Procedures

The full-disclosure principle requires that financial reports should include any information that could affect the decisions made by external users, within the constraint that the benefits of that information should exceed the ______________of providing the information

Cost

The cost that would be incurred to purchase or reproduce an asset is referred to as current cost. net realizable value. present value. historical cost. fair value.

Current costs

The process of including additional pertinent information in the financial statements and accompanying notes is referred to as______________

Disclosure

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

Easier access to capital

net realizable value

Expected selling price (value) of an item minus the cost of making the sale.

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

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 APB AICPA FASB SEC

FASB

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

Facilitate access to capital. Improve comparability.

The price that would be received to sell assets or paid to transfer a liability in an orderly transaction between market participants at the measurement date is the__________ __________

Fair value

The price that would be received to sell assets or paid to transfer a liability in an orderly transaction between market participants at the measurement date is the_______________ ____________

Fair value

____________ ____________ bases measurements on the price that would be received in an orderly market transaction.

Fair value

The private sector organization that is currently responsible for setting accounting standards in the United States is the Committee on Accounting Procedure. Financial Accounting Standards Board. Securities and Exchange Commission. Accounting Principles Board.

Financial Accounting Standards Board.

Disclosure is the process of including additional pertinent information in (Select all that apply.) Media press releases Financial statements Notes to the financial statements

Financial statements Notes to the financial statements

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

Foreign companies that issue stock in the U.S.

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. Currently, IFRS is not permitted for any U.S. registered company All domestic companies that issue stock in the U.S. All U.S. companies

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

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

Global

GASB

Governmental Accounting Standards Board

GASB

Governmental Accounting Standards Board; develops GAAP for state and local governments. like states and cities The FAF oversees and funds GASB and the Gov. Acct. standard Advisory Council provides input

What accounting principle states that an asset or liability should be recorded at the amount given or received in the exchange transaction? going concern net realizable value monetary unit historical cost

Historical cost

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

IASB

IASB

International Accounting Standards Board

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

International Accounting Standards Board.

IFRS

International Financial Reporting Standards

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 European Accounting Standards Global Financial Reporting Standards International Accounting 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 General Guidelines for Global Reporting. International Financial Reporting Standards. International Accounting and Auditing Standards. Globally Accepted Accounting Principles.

International Financial Reporting Standards.

The fair value approach that uses current information from recent transactions or exchanges in active trading on stock exchanges is the_________ approaches.

Market

Predictive value, confirmatory value, ___________and all relate to the fundamental characteristic of relevance in financial information.

Material

Conservatism is inconsistent with which characteristic of accounting information? Multiple choice question. Neutrality Comparability Relevance Timeliness

Neutrality

The measurement method based on future cash flows discounted for the time value of money is referred to as_________ value.

Present

The process of admitting information into the financial statements is referred to as______________

Recognition

The _____ has the authority to set accounting standards for companies, but has delegated the task to the private sector. PCAOB FASB SEC

SEC

The legal authority to set accounting and reporting standards for companies whose securities are publicly traded lies with the AICPA. SEC. FASB. APB.

SEC

Recording depreciation on fixed assets is an example of which approach to expense recognition? When incurred, without regard to revenues. Cause-and-effect relationship. Association in a specific period of time. Systematic and rational allocation.

Systematic and rational allocation.

Which organization is currently the national professional organization for certified professional public accountants? The APB The AIA The AICPA The CAP

The AICPA (American Institute of Certified Public Accountants)

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

The Conceptual Framework

Income Approach

The method that adds all the income generated by the production of final goods and services to measure the gross domestic product.

fair value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Cost Approach

The process of estimating the value of a property by adding to the estimated land value the appraiser's estimate of the reproduction or replacement cost of the building, less depreciation.

GAAP (Generally Accepted Accounting Principles)

The standards and rules that accountants follow while recording and reporting financial activities.

What is the purpose of the audit report? To provide investment advice. To add credibility to the financial statements. To report taxable income to the IRS.

To add credibility to the financial statements.

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

To develop high quality global standards

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

To develop high quality global standards used to make economic decisions

Auditors

Trained individuals hired by a company as an independent party to express a professional opinion of the conformity of that company's financial statements with GAAP

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

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

across different reporting periods.

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

amount timing uncertainty

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

assets

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.) Multiple select question. assets tending to be biased downwards liabilities tending to be biased downwards losses being recognized later than gains losses being recognized quicker than gains

assets tending to be biased downwards

Expense recognition is implemented by which of the following ways? (Select all that apply.) associating expenses and revenues in a specific period of time. operational investment method. in the period incurred cause-and-effect relationship. systematic and rational allocation. asset and liability offsetting.

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

The FASB recently issued a standard that requires companies recognize revenue (Select all that apply.) at a point in time or over a period of time even if collection is not probable when goods or services are transferred to customers for the amount the company expects to be entitled to receive

at a point in time or over a period of time when goods or services are transferred to customers for the amount the company expects to be entitled to receive

Who serves as an independent intermediary to help ensure that management has appropriately applied GAAP in preparing the financial statements? financial analysts the Financial Accounting Standards Board auditors financial press

auditors

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

comparable

According to the conceptual framework, for accounting information to be relevant, what qualities must it possess? (Select all that apply.) confirmatory value consistency predictive value free from error

confirmatory value predictive value

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

conservatism

The ___________________approach determines fair value by estimating the amount that would be required to buy or construct an asset of similar quality and condition

cost

The full-disclosure principle requires that financial reports should include any information that could affect the decisions made by external users, within the constraint that the benefits of that information should exceed the ___________of providing the information.

cost

Which approach to measuring fair value determines fair value by estimating the amount that would be required to buy or construct an asset of similar quality and condition? Multiple choice question. cost approach market approach replacement approach income approach

cost approach

Schoene Company reports its inventory at replacement cost. This is an application of the measurement attribute of present value current cost historical cost fair value

current cost

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

decision usefulness

The process of including additional pertinent information in the financial statements and accompanying notes is referred to as______________

disclosure

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

economic transactions that standards will address concerns and opinions of constituents

Market Approach

firms respond to the preferences of their customers for environmentally friendly products

Faithful representation requires information to have which of the following characteristics? (Select all that apply.) Multiple select question. free from material error completeness confirmatory value neutrality predictive value

free from material error completeness neutrality

The_______ _________ principle requires that any information useful to decision makers be provided in the financial statements, subject to the cost effectiveness constraint

full disclosure

Any information useful to decision makers should be provided in the financial statements, subject to the cost effectiveness constraint. This describes which accounting principle? realization principle matching principle full-disclosure principle historical cost principle

full-disclosure principle

Which of the following are among the basic assumptions underlying U.S. GAAP? (Select all that apply.) Multiple select question. going concern monetary unit revenue recognition full disclosure economic entity periodicity neutrality

going concern monetary unit periodicity economic entity

The securities and exchange Commission (SEC)

has the authority to set accounting standards for companies, but it relies on the private sector to do so

Expenses are ___________to revenues from the same transaction.

matched

The four basic accounting assumptions (Select all that apply.) identify asset and liability values assume the entity follows proper GAAP standards identify the frequency of reporting identify the entity being reported on assume the entity will continue to exist identify the denomination in which reporting occurs

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

What approach to measuring fair value estimates future amounts of earnings or cash flows and then mathematically converts these amounts to a single present value? Multiple choice question. market approach net realizable approach income approach cost approach

income approach

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.

international

The fair value approach that uses current information from recent transactions or exchanges in active trading on stock exchanges is the__________________ approach

market

Which approach to measuring fair value uses information from actively traded stock on the New York Stock Exchange? cost approach income approach market approach

market approach

Which approach to measuring fair value uses information from actively traded stock on the New York Stock Exchange? Multiple choice question. market approach cost approach income approach

market approach

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

matching revenue recognition

Measuring assets at what value helps financial statement users predict a company's future cash flows? current cost net realizable value historical cost book value

net realizable value

The income approach for measuring fair value estimates future amounts of earnings or cash flows first and then mathematically converts these amounts to a single___________ value

present

The measurement attribute that is based on future cash flows discounted for the time value of money is present value net realizable value historical cost current cost

present value

Measurements

process of assigning numbers to objects, events, or situations in accordance with some rule

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

provide useful information for decision making.

Recognition refers to the process of Multiple choice question. measuring the numbers associated with the elements. analyzing the financial statements. estimating amounts for allocation purposes. recording information in the basic financial statements.

recording information in the basic financial statements.

Recognition refers to the process of recording information in the basic financial statements. estimating amounts for allocation purposes. analyzing the financial statements. measuring the numbers associated with the elements.

recording information in the basic financial statements.

Recognition

refers the process of admitting information into the financial statements

The two fundamental characteristics of financial information are Multiple choice question. relevance and faithful representation. predictive value and completeness. cost and benefit. materiality and neutrality.

relevance and faithful representation.

Expense recognition often matches__________ and_________ that arise from the same transaction.

revenue and expenses

An emphasis is placed on proper income statement item recognition under what approach under US GAAP? balance sheet adjustment approach asset/liability approach income statement reconciliation approach revenue/expense approach

revenue/expense approach

Present Value

the amount of money you would need to deposit now in order to have a desired amount in the future (time value of money)

Current Cost

the cost that would be incurred to purchase or reproduce the asset

According to SFAC 5, the four criteria that must be met for an item to be recognized in the basic financial statements are Multiple select question. the item can be matched with associated revenues. the information about the item is reliable. The item meets the definition of an element. the item can be valued at fair value. the information about the item is relevant to decision making. the item has relevant attributes that are measurable.

the item can be matched with associated revenues. the information about the item is reliable. the information about the item is relevant to decision making. the item has relevant attributes that are measurable.

Ethics

the principles of right and wrong that guide an individual in making decisions

A recently issued FASB standard requires that companies recognize revenue when goods or services are_____________ to customers for the amount the company expects to be entitled to receive in exchange for those goods or services.

transferred

A recently issued FASB standard requires that companies recognize revenue when goods or services are______________to customers for the amount the company expects to be entitled to receive in exchange for those goods or services.

transferred

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

verifiability

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

written comments open hearings deliberations