Exam 1 (Modules 3-7)

A company will typically engage in which of the following three sets of accounting activities?

Financing, investing, and operating

In the absence of evidence to the contrary, the business can be reasonably expected to operate long enough to carry out its existing commitments.

Going concern

The Financial Accounting Standards Board

Has 7 members appointed by the Financial Accounting Foundation

The members of the Financial Accounting Standards Board (FASB)

Have no other organization ties

A company's cash flow information is used by investors, lenders, and other creditors to

Help understand its operations and cash-generating ability. Evaluate its strategic sourcing and use of cash for financing and investing activities. and Assess its liquidity and solvency.

Transactions and events are recognized initially at the exchange price to provide relevant and reliable information.

Historical cost

Which of the following is the international accounting standard setter?

IASB

For foreign companies that list their securities on U.S. capital markets, the SEC mandates that they are subject to the accounting standards established by the

IFRS or their national accounting standards boards.

Who are the stakeholders with an interest in a company?

Investors, lenders, and governmental authorities

The Codification

Is an electronic database that integrates and topically organizes U.S. GAAP into one coherent body of literature. Is the only source of authoritative GAAP for U.S. companies. and Does not change GAAP.

Which source of information useful for investors and lenders is not directly affected by existing FASB standards?

Management's discussion and analysis.

Separation of ownership and control

"Agency Theory" Problems can arise because of SOC... The investors and creditors (principals) who provided financial capital own the resources, but are separate from the executives, managers, and employees (agents) who have day-to-day control of those resources

A proposed standard becomes an International Financial Reporting Standard if _____ of the 16 members of the IASB approve.

10

Overall objective of financial information.

Decision usefulness

Pronouncements of the Committee on Accounting Procedure (CAP) that constitute generally accepted accounting principles unless superceded or amended by the FASB.

Accounting research bulletins

Recognizing an economic effect in the current period even though the cash flows will occur in a later period is known as

An accrual

The notes to the financial statements include all except

Analyst reports

The Codification framework contains six levels going from general to specific in which order?

Areas, Topics, Subtopics, Sections, Subsections, Paragraphs

Which of the following is an enhancing qualitative characteristic of decision-useful financial information?

Comparability. Timeliness. and Understandability.

An accounting alternative is selected that is least likely to overstate assets and income.

Conservatism

Accounting methods and procedures applied in the same manner from period to period.

Consistency

The Securities and Exchange Commission (SEC)

Delegates its authority to establish accounting standards to the FASB

Appropriate recognition when a company consumes economic resources in conducting business operations.

Expense recognition

Which of the following are working closely to bring together GAAP and IFRS?

FASB, IASB

The FASB Emerging Issues Task Force issues

consensus positions on the implementation of issues involving the application of standards.

Absence of bias intended to influence financial statement users' behavior in a particular direction.

nuetrality

Helps decision makers form expectations about the future.

predictive value

The three specific objectives of financial reporting are

provide information about changes in a company's economic resources and claims resulting from its financial performance, provide information about a company's comprehensive income and its components, and provide information about a company's cash flows.

The cornerstone of financial reporting is the

Balance sheet

Which of the following presents a snapshot of the resources of and claims on a firm as of a specific date?

Balance sheet

The FASB's Conceptual Framework does all except

C. A. Identify the goals and purpose of accounting. B. Provide definitions of accounting concepts and principles. C. Provide the Accounting Standards Codification. D. Provide guidance in establishing accounting standards.

The FASB developed the Codification to achieve all of the following goals except to

C. A. create a codification research system that is up to date. B. simplify user access by codifying all authoritative U.S. GAAP into one database. C. eliminate all pronouncements prior to 1983. D. ensure the codified content accurately represents all authoritative U.S. GAAP.

Which of the following statements is not true?

C. a. Standards are applications of concepts and principles to different types of transactions, events, and arrangements. b.Concepts Statements and principles are broad and definitional. c.Concepts Statements are narrow and open to interpretation. d.Rules are specific implementation procedures.

"A member should observe the profession's technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member's ability" is a description of the AICPA's principle of

Due care

Identification, measurement, recording, and reporting relevant and reliable financial information about companies to present and potential future stakeholders is the role of

Financial accounting

Pronouncements that provide clarification of conflicting or unclear issues relating to previously issued FASB Statements of Standards, APB Opinions, or Accounting Research Bulletins.

Interpretations

The nature and magnitude of an omission or misstatement that would influence the judgment of reasonable users of that information.

Materiality

__________ refers to the nature and magnitude of an omission or misstatement of accounting information that would influence the judgment of a reasonable person relying on that information.

Materiality

Which accounting assumption or principle states that historical cost can lose relevance and other valuation methods may be more relevant to financial statement users?

Mixed attribute measurement model

Accounting measurements for U.S. companies are reported in dollars.

Monetary unit

A company typically engages in three sets of activities. These include the day-to-day activities which are classified as _____ activities and the raising of capital needed to run the company which is considered a(n) _____ activity.

Operating; financing

Pronouncements of the APB that constitute generally accepted accounting principles unless specifically amended or rescinded.

Opinions

To provide timely information, companies prepare and report financial statements at the end of each year.

Period of time

According to Statement of Financial Accounting Concepts No. 8, to be relevant an earnings report is expected to have which of the following?

Predictive value AND Confirmatory value

The stated mission of the Securities and Exchange Commission (SEC) is to

Protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation

The primary objective of financial reporting is to

Provide useful information for decision making

The process of formally recording and reporting an item in the financial statements of a company.

Recognition

Under Statement of Financial Accounting Concepts No. 6, which of the following means the process of formally recording and reporting an item in the financial statements of a company?

Recognition

Comprehensible to users.

Understandability

Different knowledgeable and independent observers can reach consensus that a particular representation is faithful.

Verifiability

Which characteristic states that accounting information should be supported by sufficient evidence to allow two or more qualified individuals to arrive at similar measures and conclusions?

Verifiability

The need to solve information asymmetry problems gives rise to

demand for financial accounting information

Situations in which accountants must make decisions about what is the "right" action to take in given circumstances are

ethical dilemmas

Financial reporting is the process of communicating _____ accounting information to existing and potential future investors, creditors, lenders, and other _____ decision makers.

financial; external

Presented as accurately as possible, using a process that reflects the best available inputs.

free from error

The ongoing globalization of business activities has given rise to the need for consistent and comparable financial statements for companies in different countries. The FASB and IASB recognize a need for

internationally comparable financial information.

The SEC exercises its most direct impact on accounting standards through

its input and informal approval (or rejection) of standards that have been proposed but not yet issued.

Recognition is the process of formally recording and reporting an item in the financial statements of a company. To be recognized, an item must

meet the definition of an element, be measurable, be relevant, and be representationally faithful.

Pronouncements issued to provide more timely and consistent application guidance in regard to FASB literature.

staff positions

Which of the following statements provides useful information about how a firm is generating and using cash?

statement of cash flows

Pronouncements issued by the FASB that establish generally accepted accounting principles and indicate the methods and procedures required on specific accounting issues.

statements of financial accounting standards

To "protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation" is the stated mission of

the SEC

The FASB states the intent of __________ is to establish objectives and fundamental concepts that are the basis for development of financial accounting and reporting guidance.

the conceptual framework

The demand for financial standards and independent audits is driven by all of the following except

the need for internal management reports

Accrual accounting relates the financial effects of a company's transactions

to the period in which they occur rather than to when the cash receipt or payment occurs.

Issuing stock to shareholders is

A financing activity

An accrued expense is an expense:

Incurred but not paid

The FASB and IASB have been working together toward convergence since 2002. When did the two organizations achieve convergence of accounting standards for revenue recognition?

2014

There are __________ members of the FASB.

7

The going-concern assumption states that

A company will continue to operate into the foreseeable future.

The FASB states that the ultimate goal of convergence is

A single set of high-quality international standards that companies worldwide would use for domestic and cross-border financial reporting.

The following is a list of qualitative characteristics of useful accounting information identified in the FASB's and the IASB's Statement of Financial Accounting Concepts No. 8 and statements describing the qualities.

A. Comparability B. Decision usefulness C. Relevance D. Faithful representation E. Predictive value F. Confirmatory value G. Verifiability H. Neutrality I. Free from error J. Consistency K. Materiality L. Timeliness M. Understandability N. Completeness

The following is a list of accounting assumptions and principles that have had an important impact on the development of generally accepted accounting principles and statements describing certain accounting practices.

A. Reporting entity B. Going concern C. Period of time D. Historical cost E. Monetary unit F. Recognition G. Accrual accounting H. Revenue recognition I. Expense recognition J. Conservatism

Which of the following organizations adopted the Code of Professional Conduct?

AICPA

Which of the following establish the authoritative guidance on how U.S. companies should account for and report specific transactions, events, and arrangements in their financial statements?

Accounting standards in GAAP

The process of measuring and reporting the economic effects of transactions, events, and circumstances in the appropriate period when those effects occur, even though the cash consequences may occur in a different period.

Accrual accounting

Enables users to identify and explain similarities and differences between two or more sets of economic facts.

Comparability

Full disclosure of all the information necessary to understand the information being reported.

Completeness

Helps decision makers confirm or correct prior predictions or expectations.

Confirmatory value

Faithful representation of financial information includes all except

D. A. Completeness. B. Neutrality. C. Accuracy (error free). D. Materiality

Which of the following statements regarding ethical behavior is not correct?

D. A. The professional accountant must realize that he or she owes a responsibility of ethics and fairness to all current and potential stakeholders depending on the information produced. B. The professional accountant must realize that he or she serves the greater good of society. C. Accounting is a professional service that plays a major role in society. D. The professional accountant who acts ethically will destroy social welfare and can do great harm to innocent stakeholders misled by unreliable information.

When the words and amounts accurately depict the economic substance of what they purport to depict.

Faithful representation

How does Agency Theory relate to GAAP?

GAAP started helping investors spend their money based off financial reports rather than guessing

In 2007, the SEC decided to allow foreign companies to use

IFRS rather than U.S. GAAP.

Which of the following financial statements measures and reports results for a period of time rather than as of a specific date?

Income statement. Statement of cash flows. and Statement of shareholders' equity.

The need to solve ____ _____ _____ controls the demand for financial accounting information

Information asymmetry problems

Capacity to make a difference in a decision, enabling users to predict future outcomes and/or confirm prior expectations.

Relevance

Which of the following qualitative characteristics is related to predictive value?

Relevance

The financial statements represent the business, rather than its owners.

Reporting entity

The __________ states that a business enterprise is a legally and economically distinct entity, so that financial statements can be prepared and reported specifically for that entity.

Reporting entity assumption

Appropriate recognition when a company creates economic benefits (inflows of assets or settlements of obligations) by providing goods or services to customers.

Revenue recognition

Within GAAP, _____ have the highest level of authority.

Statements of Financial Accounting Standards

Issued by the FASB as a series establishing a theoretical foundation upon which to base financial accounting and reporting standards.

Statements of financial accounting concepts

Issued by the FASB to provide guidance on accounting and reporting problems related to Statements of Standards or Interpretations.

Technical Bulletins

Which of the following statements is correct?

The Financial Accounting Standards Advisory Council as well as the Private Company Council provide advisory input to the FASB on standard-setting issues.

What is the Securities and Exchange Commission's current role in accounting standard setting?

The SEC delegates its authority to private standard-setting bodies within the accounting profession.

What single, pervasive constraint bounds the qualitative characteristics of financial reports?

The cost constraint.

Members of the AICPA must act in a way that will best serve

The public interest

Making information available to decision makers before it loses its capacity to influence decisions.

Timeliness

Under Statement of Financial Accounting Concepts No. 8, which of the following enhances decision-useful information?

Timeliness