AL 1-Financial Accounting and Accounting Standards

The objectives of financial reporting include all of the following EXCEPT to provide information that - is useful to the Internal Revenue Service in allocating the tax burden to the business community. -is useful to those making investment and credit decisions. -is helpful in assessing future cash flows. -helps regulators to better understand a company's financial position and related performance.

- is useful to the Internal Revenue Service in allocating the tax burden to the business community.

The purpose of the Emerging Issues Task Force is to - develop a conceptual framework as a frame of reference for the solution of future problems. - lobby the FASB on issues that affect a particular industry. - do research on issues that relate to long-term accounting problems. - issue statements which reflect a consensus on how to account for new and unusual financial transactions that need to be resolved quickly.

- issue statements which reflect a consensus on how to account for new and unusual financial transactions that need to be resolved quickly.

All of the following are true regarding the FASB Codification EXCEPT -the goal of the Codification was to provide one place where all authoritative literature about a particular topic could be found. -the purpose of the Codification is to create new GAAP. -the Codification was created to simplify user access. -the Codification changes the way GAAP is documented, presented, and updated.

-the Codification changes the way GAAP is documented, presented, and updated. The Codification's purpose is to integrate and synthesize existing GAAP-not to create new GAAP.

Which of the following four statements are true? 1. Technical competence in accounting is not enough when encountering ethical decisions in business. 2. The pressures "to bend the rules," "to play the game," or "to just ignore it" can be considerable for accountants. 3. Time, job, client, personal, and peer pressures do not complicate the process of ethical sensitivity and selection among alternatives for accountants. 4. The decision about what is right and wrong in accounting may be easier because there is no comprehensive ethical system to provide guidelines.

1 and 2 are both true.

The following published documents are part of the "due process" system used by the FASB in the evolution of a typical FASB Statement of Financial Accounting Standards: 1. Exposure Draft 2. Statement of Financial Accounting Standards/Accounting Standards Updates 3. Topics placed on FASB's agenda 1, 2, 3. 1, 3, 2. 2, 3, 1. 3, 1, 2.

3, 1, 2.

Statement of Financial Accounting Concepts

A series of statements(literature) by the FASB that set forth fundamental objectives and concepts that the Board uses in developing future standards of financial accounting and reporting. Unlike a Standards Statement, these statements of concepts do not establish GAAP. However, this cohesive set of interrelated concepts is intended to be a conceptual framework that will serve as tools for solving existing and emerging problems in a consistent manner. (p. 12). *Can be used if events not covered by Codification.

Which of the following organizations regularly consults with the FASB on major policy issues? A.Financial Accounting Standards Advisory Council (FASAC) B.Committee on Accounting Procedure (CAP) C.Accounting Principles Board (APB) D.American Institute of Certified Public Accountants(AICPA)

A.Financial Accounting Standards Advisory Council (FASAC)

The organization responsible for overseeing the development of financial auditing standards is the This is correct answer : A.Public Company Accounting Oversight Board. B.Committee on Accounting Procedure. C.Accounting Standards Executive Committee. D.Auditing Standards Board

A.Public Company Accounting Oversight Board.

Because financial reports can be complex and use technical language, many financial reports today lack A.understandability. B.nonfinancial measurements. C.forward-looking information. D.timeliness.

A.understandability.

Accounting Principles Board (APB)

APB's mission: to develop an overall conceptual framework to assist in resolution of problems as they become evident and to substantively research individual issues before the AICPA issued pronouncements. Purpose: 1-Advance the written expression of accounting principles 2- determine appropriate practices 3-Narrow the areas of difference and inconsistency in practice

Publishing written accounting principles, determining appropriate accounting practices, and reducing inconsistencies in accounting practices were the major purposes of the ____ when it was established.

Accounting Principles Board(APB)

International Financial Reporting Standards (IFRS)

Accounting standards, issued by the IASB, that have been adopted by many countries outside of the United States-international use.

An effective capital allocation process -promotes productivity. -encourages innovation. -provides an efficient market for buying and selling securities. -all of these choices are correct.

An effective capital allocation process does all of these items. It promotes productivity, encourages innovation and provides an efficient market for buying and selling securities.

Financial Accounting Standards Board Codification Research System (CRS)

An online, real-time database that provides easy access to the Codification, through a topically organized structure, subdivided into topics, subtopics, sections, and paragraphs, using a numerical index system.

Decision-usefulness approach

Approach used by investors that requires that financial reporting be useful to investors by helping them assess (1) the company's ability to generate net cash inflows and (2) management's ability to protect and enhance the capital providers' investments. and make decisions

When it was established, the purpose of the Accounting Principles Board (APB) was to (select all that apply) A.select members of the Financial Accounting Standards Board. B.determine appropriate accounting practices. C.assist the SEC with reporting issues by conducting research and analysis. D.reduce inconsistencies in accounting practices. E.summarize accounting practices for specific industries. F.publish accounting principles.

B.determine appropriate accounting practices. D.reduce inconsistencies in accounting practices. F.publish accounting principles.

Which of the following is not a significant difference between the FASB (Financial Accounting Standards Board) and its predecessor, the APB? -Greater autonomy. -Larger membership. -Increased independence. -Broader representation.

Board membership decreased from 18 to 7 members.

Which of the following would be inaccurately described as a document included in GAAP? A. AICPA Research Bulletins B.FASB Standards C.APB Technical Bulletins D.APB Opinions

C.APB Technical Bulletins

Which of the following roles is frequently filled by the Financial Accounting Foundation? You got it wrong : A.Consulting with the FASB on major policy issues. B.Assisting the FASB by performing research and analysis. C.Selecting members of the FASB and funding their activities. D.Improving standards of financial accounting.

C.Selecting members of the FASB and funding their activities.

Nichols Manufacturing Company has recently published a sustainability report. Which of the following topics would you expect to find in this report? A.The company's change in stock price and owners' equity over the past 10 years. B.The company's efforts to reduce expenses. C.The company's water use and conservation. D.The company's net income growth over the past 10 years.

C.The company's water use and conservation.

Which of the following is the level of the codification where you will find the substantive content related to the issue researched? A.subtopic B.section C.paragraph D.topic

C.paragraph

An FASB Staff Position A.provides a consensus on how to account for new and unusual financial transactions. B.provides interpretive guidance. C.provides interpretation of existing standards. D.provides timely guidance on select issues.

C.provides interpretation of existing standards.

Which of the following works to provide online access to the Codification in the form of a database? A.the FASB B.the APB C.the CRS D.the AICPA

C.the CRS

Committee on Accounting Procedure (CAP)

Committee established by the AICPA in 1939 at the urging of the SEC to deal with accounting problems. The CAP issued 51 Accounting Research Bulletins and was replaced by the Accounting Principles Board in 1959. Composed of practicing CPAs.

What is the primary purpose of the Codification? A. to create a new and better GAAP B. to assign codes for each file name in order to increase organization C.to create multiple levels of GAAP D. to gather all of the literature on a particular topic in one place

D. to gather all of the literature on a particular topic in one place

Having multiple allowable alternatives is common when A.trying to meet objectives of executives versus shareholders. B.dealing with conflicts between GAAP and IFRS. C.balancing quality versus cost effectiveness. D.making difficult choices from allowable alternatives is common while facing ethical dilemmas.

D.making difficult choices from allowable alternatives is common while facing ethical dilemmas.

Financial Accounting Standards Board Accounting Standards Codification (Codification)

Developed by the FASB (primary goal), it provides in one place all the authoritative literature related to a particular topic.

The organization whose purpose is to reach consensus on how to account for new and unusual financial transactions that have potential for creating differing financial reporting practices is the: FASB. FASAC. EITF. AICPA.

EITF The Emerging Issues Task Force has this responsibility.

Due Process System

Employed by FASB. -Enables interested parties to express their views on issues under consideration.

One weakness of accrual accounting is that it does not provide a good indication of the enterprise's present and continuing ability to generate favorable cash flows. True False

FALSE

IFRS is more "rules-based" in its approach to standards than U.S. GAAP. T/F

FALSE IFRS is more "principles-based", NOT "rules-based", in its approach to standards than is U.S. GAAP.

Financial reports generally focus on soft assets such as Apple's brand image or Wal-Mart's supply chain management system. True False

FALSE Financial reports focus on hard assets such as inventory and plant assets, instead of soft assets such as intangibles which are often the best assets.

Financial reports generally focus on soft assets such as Apple's brand image or Walmart's supply chain management system. True False

FALSE Financial reports focus on hard assets such as inventory and plant assets.

Politics play no role in establishing GAAP (Generally Accepted Accounting Principles). T/F

FALSE GAAP is as much a product of political action as it is of careful logic or empirical findings.

The passage of a new FASB Standards Statement requires the support of all of the board members. True False

FALSE Passage just requires the support of the majority of the board members.

Accounting Research Bulletins (ARBs) were issued by the Accounting Principles Board (APB). You Answered True False

FALSE-CAP ARBs were issued by the Committee on Accounting Procedures (CAP).

APB Opinions were issued by the Accounting Practices Board. True False

FALSE-Principles APB Opinions were issued by the Accounting Principles Board.

Corporations whose securities are listed on a U.S. stock exchange are required to file audited financial statements with the Financial Accounting Standards Board. True False

FALSE-SEC Public corporations are required to file audited statements with the Securities Exchange Commission.

Emerging Issues Task Force consensuses are (were) approved by the

FASB

User groups often target the _____ in order to influence change in GAAP

FASB

Which of the following is the most significant current source of generally accepted accounting principles?

FASB

The most significant current source of generally accepted accounting principles is the AICPA. SEC. APB. FASB.

FASB.

Securites and Exchange Commission (SEC)

Federal agency established to help develop and standardize financial information presented to stockholders. It administers the Securities Exchange Act of 1934 and several other acts. Most companies that issue securities to the public are required to file audited financial statements with the SEC. The SEC also has broad powers to prescribe the auditing practices and standards to be employed by companies that fall within its jurisdiction.

Accounting Research Bulletins (ARB)

Fifty-one bulletins from the Committee on Accounting Procedure (CAP) during the years 1939 to 1959, issued to deal with accounting problems as they arose. Subsequently, the AICPA created the Accounting Principles Board to provide a structured body of accounting principles.

Which of the following organizations is not part of the current standard-setting structure? Financial Accounting Foundation. Financial Accounting Standards Board. Financial Accounting Council. Financial Accounting Standards Advisory Council.

Financial Accounting Council. All of the above, except the Financial Accounting Council, are part of the current standard-setting structure.

GAAP is established strictly through the application of careful logic and empirical findings. True/False

GAAP is as much a product of political action as it is of careful logic or empirical findings. FALSE

Objective of financial reporting

Goal for financial accounting and reporting, established by the accounting profession, which is to provide information about the reporting entity that is useful to present and potential to equity investors, lenders, and other creditors in decisions about providing resources to the entity.

Emerging Issues Task Force (EITF)

Group created in 1984 by the FASB to reach a consensus on how to account for new and unusual financial transactions that might create differing financial reporting practices. The FASB reviews and approves all EITF consensuses, and the SEC views consensus solutions as preferred accounting.

International Financial Reporting Standards (IFRSs) are issued by the: FASB IASB SEC EU

IASB The International Accounting Standards Board issues IFRS.

FASB Staff Positions

Issued by the FASB, these provide interpretive guidance and also minor amendments to standards and interpretations.

Sarbanes-Oxley Act

Legislation, enacted by the U.S. Congress, intended to combat accounting fraud, curb poor reporting practices, and make sweeping changes to the institutional structure of the accounting profession. An act passed into law by Congress in 2002 to establish strict accounting and reporting rules in order to make senior managers more accountable and to improve and maintain investor confidence.

Public Company Accounting Oversight Board (PCAOB)

Organization established by the Sarbanes-Oxley Act that has oversight and enforcement authority for accounting practices and that establishes auditing, quality control, and independence standards and rules. A five-member body created by an act of Congress in 2002 to set auditing standards

Financial Statements

Principal means through which company communicates financial information. Statements reflect collection, tabulation, and final summarization of accounting data. Financial reports that summarize the financial condition and operations of a business: Balance Sheet, Income Statement, Statement of Cash Flows, Statement of Owner's or Stockholders Equity. Note disclosures integral part of company's financial statements.

SEC Pronouncements

Pronouncements issued by the SEC are NOT considered to be GAAP documents

Financial Reporting

Reporting of financial information other than in formal financial statements. Examples include the president's letter or supplementary schedules in the corporate annual report, prospectuses, reports filed with government agencies, news releases, management's forecasts, and social or environmental impact statements.

From the four statements that follow, which are true? 1. Technical competence is not enough when encountering ethical decisions. 2. The pressures "to bend the rules," "to play the game," "to just ignore it" can be considerable. 3. Time, job, client, personal, and peer pressures do not complicate the process of ethical sensitivity and selection among alternatives. 4. The decision may be easier because there is no comprehensive ethical system to provide guidelines. -1, 2, 3, and 4 are all true. -1, 2, and 4 are true. -2 and 4 are true. -1 and 2 are true.

Statements 1 and 2 are true; Statements 3 and 4 are false because pressures do complicate ethics and the decision is more difficult because there is no comprehensive ethical system to provide guidelines. 1 and 2 are true.

Interpretations

Statements issued by the FASB that modify or extend existing standards.

Which of the following publications is not considered a GAAP document? -FASB Standards -AICPA Research Bulletins -APB Opinions -Statements of Financial Accounting Concepts

Statements of Financial Accounting Concepts are not considered GAAP documents.

According to the AICPA's Code of Professional Conduct, members must prepare financial statements in accordance with GAAP(True/FALSE)?

TRUE

The SEC relies on FASB to develop accounting standards. True False

TRUE

Section 404 of the Sarbanes Oxley-Act requires public companies to attest to the effectiveness of their internal controls. True False

TRUE Section 404 requires public companies to document and test the effectiveness of their internal controls systems for financial reporting.

Financial Accounting Concepts are a major type of pronouncement issued by the FASB. True False

TRUE Financial Accounting Concepts are a major type of pronouncement issued by the FASB.

All listed companies in the European Union use International Financial Reporting Standards (IFRS). True False

TRUE Over 115 countries including those in the European Union use IFRS.

The Financial Accounting Standards Advisory Council (FASAC) consults with the FASB on major policy and technical issues and helps select task force members. T/F

TRUE The Financial Accounting Standards Advisory Council (FASAC) consults with the FASB on major policy and technical issues and helps select task force members.

Which of the following non-government organization is responsible for issuing pronouncements for business organizations? FASB. SEC. AICPA. GASB.

The FASB is the current body that issues pronouncements for business organizations and is not a government agency.

Wheat Committee

The Study Group on Establishment of Accounting Principles, chaired by Francis Wheat, that examined the organization and operation of the Accounting Principles Board and determined the changes needed to attain better productivity and more timely correction of accounting abuses. The Study Group submitted its recommendations to the AICPA Council in the spring of 1972, which adopted the recommendations in total and implemented them by early 1973.

Auditing Standards Board (ASB)

The arm of the AICPA that had been responsible for developing auditing standards. The Public Company Accounting Oversight Board (PCAOB), established by the Sarbanes-Oxley Act, now oversees the development of auditing standards. Technical body within the AICPA that holds the authority to set the rules for appropriate audits of organizations that do not issue securities to the public (often referred to as privately held organizations)..

Generally Accepted Accounting Principles (GAAP)

The common set of accounting standards and procedures, for which either an authoritative accounting rule-making body has established a principle of reporting in a given area, or over time, a given practice has been accepted as appropriate because of its universal application.

Financial Accounting Standards Board (FASB)

The major (private) organization of the standard-setting structure for financial accounting. 1959 to 1973 -Mission is to establish,improve, develop an overall conceptual framework standards of financial accounting and reporting for the guidance and education of the public. -7 members, appointed for 5 yr terms by the Financial Accounting Foundation (FAF). -Accounting guidance issued by the FASB is considered generally accepted accounting principles (GAAP).

American Institute of Certified Public Accountants (AICPA)

The national professional organization of practicing Certified Public Accountants (CPAs), whose various committees and boards have been an important contributor to the development of GAAP.

APB Opinions

The official pronouncements of the Accounting Principles Board, intended to be based mainly on research studies and be supported by reasons and analysis. Between its inception in 1959 and its dissolution in 1973, the APB issued 31 opinions.

International Accounting Standards Board (IASB)

The organization, based in London, that sets accounting standards accepted for international use. Although many of these international standards are similar to GAAP, the FASB and the IASB are currently working on a convergence project to reduce differences between IFRS and GAAP

Accounting Standards Updates

The products of standard-setting (e.g., FASB standards and EITF consensuses) included in the FASB Codification. The Updates include the background and basis for conclusions for the new pronouncement in a common format, regardless of the form in which such guidance may have been issued. Updates are also issued for amendments to the SEC content in the Codification. These Updates amend the Accounting Standards Codification.

Entity Perspective

The view that companies are distinct and separate from their owners (present shareholders).

The Sarbanes Oxley Act does all of the following except Requires codes of ethics for senior financial officers. Transfers the final authority for GAAP to the PCAOB. Strengthens independence rules for auditors. Requires independence and financial expertise for members of the audit committee.

Transfers the final authority for GAAP to the PCAOB. The Sarbanes Oxley Act created the PCAOB, an oversight board with enforcement authority and the responsibility for establishing auditing, quality control and independence standards.

Currently, both U.S. GAAP and the International Financial Reporting Standards are acceptable for international use. True False

True

Financial accounting standard-setting in the United States: -can be described as a social process which reflects political actions of various interested user groups as well as a product of research and logic. -is based solely on research and empirical findings. -is a legalistic process based on rules promulgated by governmental agencies. - is democratic in the sense that a majority of accountants must agree with a standard before it becomes enforceable.

can be described as a social process which reflects political actions of various interested user groups as well as a product of research and logic.

The purpose of the International Accounting Standards Board is to - regulate multinational corporations. -develop a uniform currency in which the financial transactions of companies through-out the world would be measured. -promote uniform accounting standards among countries of the world. -arbitrate accounting disputes between auditors and international companies.

promote uniform accounting standards among countries of the world.

General-purpose financial statements

provide financial reporting information to a wide variety of users, at the least costs.

Accrual Basis Accounting

the method of accounting that recognizes revenue when it is earned and matches expenses to the revenues they helped produce

Financial Accounting

the process that culminates in the preparation of financial reports on the enterprise for use by both internal and external parties

Accounting Standards Codification

the single source of GAAP in the United States and includes all pronouncements issued by any of the standard-setting bodies that have not been superseded

Objective (purpose) of financial reporting

to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in decisions about providing resources to the entity

Expectations Gap

what the public thinks accountants should do and what accountants think they can do