Chapter 1 SB

The conceptual framework includes what types of information? Multiple choice question. 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. Revenue recognition policies currently required by the FASB and SEC. Requirements on presentation and disclosures on financial statements.

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

An essential assumption underlying GAAP is that all economic events can be identified with what? Multiple choice question. Company executives An economic entity An individual

An economic entity

accounting is chiefly concerned with providing information to external users.

Blank 1: Financial

The abbreviation GAAP stands for generally..... accounting principles. (Enter one word per blank.)

Blank 1: accepted

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

Blank 1: accrual

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

Blank 1: external or outside

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

Blank 1: financial Blank 2: reporting or accounting

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

Corporate management

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

FASB

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

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

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

Management

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.) Regulate auditors. Prevent conflicts of interests. Issue capital requirements for companies. Require CEO accountability. Provide penalties for violators.

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

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

SEC

Which of the following is a financial statement provided to investors? Statement of shareholders' equity Statement of audit report Statement of investments Statement of management discussion

Statement of shareholders' equity

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

The audit committee of the Board of Directors.

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

True The FASB deals with intense political pressure over controversial accounting standards, and has changed standards in response.

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

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

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

comparability timeliness

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

faithful representation relevance

If the SEC does not agree with a standard issued by the private sector, it can Multiple choice question. remove FASB board members from their position. issue a new FASB statement. force a change in the standard. create another accounting standard setting body.

force a change in the standard.

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

historical cost

Under the Sarbanes-Oxley Act, corporate management is responsible for Multiple select question. analyst's reports. the stock price. internal control. the financial statements.

internal control. the financial statements.

It is the responsibility of...... to apply Generally Accepted Accounting Principles in preparation of the company's financial statements. (Enter only one word.)

management or managers

Financial reporting is the process of providing information to outside users reporting current period income to the board of directors preparing proforma financial statements and notes closing the temporary accounts

providing information to outside users

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

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

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

Financial Accounting Standards Board.

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

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

concerns and opinions of constituents economic transactions that standards will address

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

corporate executives

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

corporate executives

External users of a company's financial information include (Select all that apply.) credit-rating agencies. labor unions. banks. company executives.

credit-rating agencies. labor unions. banks.

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

decision usefulness.

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

deliberations open hearings written comments

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

economic entity periodicity monetary unit going concern

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

education testing experience

Measuring assets and liabilities based on their original transaction value is an example of Multiple choice question. fair value. current cost. net realizable value. present value. historical cost.

historical cost.

Which are the financial statements most frequently provided to external users? (Select all that apply.) income statement balance sheet statement of cash flows statement of shareholders' equity management discussion section audit report

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

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 Multiple choice question. historical cost. liquidation values. depreciated value. future value.

liquidation values/the worth of a firm when the assets of the firm are sold.

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

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

Which organizations provide financial information to external users? profit-oriented businesses charitable organizations creditors financial intermediaries

profit-oriented businesses charitable organizations

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

uncertainty amount timing

The principle stating that asset and liability measurements should be based on the amount given or received in the original transaction is referred to as the ........ principle. (Enter one word per blank.)

Blank 1: historical or historic Blank 2: cost

Predictive value, confirmatory value, and .........all relate to the fundamental characteristic of relevance in financial information. (Enter only one word.)

Blank 1: materiality or material

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

Blank 1: opinion

Ethics deals with the ability to distinguish ...............from.............. . (Only one word per blank)

Blank 1: right Blank 2: wrong

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

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

Relevance =Predictive value and confirmatory value Faithful representation= Completeness, neutrality, and freedom from material error Enhancing qualitative characteristics=Comparability, consistency, verifiability, timeliness, and understandability Constraints=Cost effectiveness

Relevance =Predictive value and confirmatory value Faithful representation= Completeness, neutrality, and freedom from material error Enhancing qualitative characteristics=Comparability, consistency, verifiability, timeliness, and understandability Constraints=Cost effectiveness

Which of the following are provisions included in the Sarbanes-Oxley Act? Multiple select question. Require that audit firms are hired by the audit committee of the board of directors. Require that the auditors are responsible for preparing the financial statements. Require that the SEC audit publicly traded companies. 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 prepare the company's financial statements in accordance with GAAP. 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 help ensure management has appropriately applied GAAP in preparing the financial statements.

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

True The primary objective of financial accounting is to provide financial information to external users.

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

True Profit-oriented companies, non-profit companies and households are all providers of financial information.

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

Uniform CPA Examination

What financial reporting model is used by most profit-oriented businesses and not-for-profit entities? accrual accounting tax accounting cost accounting cash basis accounting

accrual accounting