ACC 6501 Exam 1 Review

The Sarbanes-Oxley Act of 2002 (SOX) now prohibits:

auditing firms from prohibiting a variety of non-auditing services for financial statement audit clients

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

codification

Primary users of a firm's accounting information include all of the following except:

competitors

The subset of managerial accounting related to the determination and accumulation of product, process, or service costs is known as

cost accounting

Managerial accounting and cost accounting when compared to financial accounting:

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

Accounting is the process of:

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

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

Primary users of a firm's accounting information include:

management, employees, investors, regulatory agencies

The type of accounting work that is concerned with the use of economic and financial information to plan, control, and support the management decision-making process is known as

managerial accounting

The first known text to describe a comprehensive double-entry bookkeeping system was called the

method of venice system

Accounting information is usually required for

nearly every kind of organization

Establishment of ______________ and identification of fundamental ______________ will not directly solve accounting and reporting problems.

objectives, concepts

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

period

The financial position of an entity is reported at an __________________ in time.

point

Financial accounting generally refers to the

process that results in the preparation and reporting of financial statements for an entity.

A partnership is essentially a group of _____________ who have banded together.

proprietors

The objectives of financial reporting for nonbusiness organizations focus on providing information for resource (providers/allocations/users) rather than investors.

providers

The objectives of financial reporting for nonbusiness organizations focus on

providing information about obligations, net resources, economic resources, and organizational performance.

The FASB Accounting Standards Codification

represents a single source of US 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:

section 404 of the Sarbanes-Oxley Act of 2002

An audit is required by (usury/securities/antitrust) laws if the stock or bonds of a company are owned and (mutually/privately/publicly) traded by investors.

securities, publicly

T/F: The FASB follows an open, due process procedure.

True

The authoritative accounting standard-setting body for companies who securities are publicly traded in the US since 1973 has been the

Financial Accounting Standards Board (FASB)

Identify the correct statements about accounting information. - Not-for-profit social service organizations do not require accounting information. - Accounting information supports decisions and informed judgments. - Not all people become accountants, but almost all people use accounting information. - Accounting information is used only by people who are good with numbers.

- Accounting information supports decisions and informed judgments. - Not all people become accountants, but almost all people use accounting information.

Identify the firms that are counted amongst the "Big 4" CPA firms.

- Deloitte Touche Tohmatsu (Deloitte) - PricewaterhouseCoopers (known as PwC) - EY (formerly Ernst & Young) - KPMG International

Which of the following is not an advantage of proprietorship? - Its owner is his or her own boss - Its owner has limited personal liability - It is easy to form - No formal prerequisite is required to begin its operation

- Its owner has limited personal liability

Accounting graduates are frequently employed in which of the following areas of practice? - Public accounting, such as auditing, tax return preparation, and financial planning - Environmental accounting, working as accountants to help support the ecological and sanitation needs of mankind - Governmental accounting, working as accountants at the state or local level of government

- Public accounting, such as auditing, tax return preparation, and financial planning - Governmental accounting, working as accountants at the state or local level of government

Which of the following statements are true regarding the FASB's standard setting process? - The FASB invites input from any individual or organization who cares to participate in the process. - The FASB follows an open, due process procedure. - The FASB's board members make all of their deliberations and determinations in private and issue a final standard only when a consensus is reached.

- The FASB invites input from any individual or organization who cares to participate in the process. - The FASB follows an open, due process procedure.

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

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

Which of the following statements is true regarding what each financial statement of an entity reports? - The balance sheet reports the entity's earnings for a period - The balance sheet reports an entity's financial position at the end of a period - The statement of stockholders' equity reports the financial position at the end of a period - The statement of cash flows reports the entity's cash flows during a period - The income statement reports an entity's earnings for a period

- The balance sheet reports an entity's financial position at the end of a period - The statement of cash flows reports the entity's cash flows during a period - The income statement reports an entity's earnings for a period

Luca Pacioli was

- a Franciscan monk - author of "method of Venice" system - a mathematics professor

A qualified audit opinion may be issued in cases where

- an explanatory paragraph is added regarding the firm's inability to continue as a going concern - the independent auditor determines that one or more items as shown in the financial statements are not presented fairly

The five-member Public Company Accounting Oversight Board (PCAOB) has the authority to set and enforce:

- attestation standards for public companies - ethics and independence standards for public companies - quality control standards for public companies - auditing standards for public companies

The FASB Accounting Standards Codification

- became effective in July 2009 - superseded the FASB's SFAS series and other diverent sources of US generally accepted accounting principles - made it easier to access and research authoritative accounting standards

Accounting information is required

- by not-for-profit entities, such as hospitals, and voluntary health and welfare organizations - by not-for-profit entities, such as trade associations and country clubs

Tax practitioners:

- can develop specialization in the taxation of trusts and estates - can develop specialization in the taxation of international tax law issues

Transactions:

- economic interchanges between entities - summarized in accounts, and accounts are further summarized in financial statements

The Cost Accounting Standards Board (CASB)

- establishes cost accounting standards applicable to college and universities that receive major federal research grants - establishes cost accounting standards applicable to government contracts in excess of $700,000

An unqualified, or, clean, independent auditor's opinion:

- explains that the adit was conducted in accordance with the standards of the PCAOB - states that it is the independent auditor's responsibility to express an opinion about the financial statements - states that the named financial statement's "presented fairly, in all material aspects" the entity's cash flows for the period

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have achieved convergence of the U.S. GAAP and IFRS accounting standards with respect to:

- fair value measurements an borrowing costs - revenue recognition and stock compensation - reporting for business combinations and non-controlling interests

An internal auditor:

- in some cases performs functions much like those of the external auditor/public accountant, but perhaps on a smaller scale - may be responsible for analyzing the operating efficiency of one of the company's divisions

Financial accounting

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

Key elements of ethical behavior for a professional accountant

- maintaining integrity - having competence - maintaining objectivity - maintaining independence - accepting an obligation to serve

Accounting graduates are frequently employed in which of the following areas of practice?

- not-for-profit accounting, working as accountants for colleges or universities, hospitals, or voluntary health and welfare organization - industrial accounting, working as management accounts for manufacturing, merchandising, or services firms

An unqualified, or, clean, independent auditor's opinion:

- states that the named financial statements "present fairly, in all material respects the financial position of the entity - describes briefly the work that is involved in performing an audit - states that the named financial statements "present fairly, in all material respects" the entity's results of operations for the period

Financial accounting information as presented in the financial statements may help users to assess:

- the firm's future earnings potential based on an analysis of past results. - the firm's working capital and cash management practices. - the relative strengths and weaknesses of the firm's financial position.

A qualified audit opinion may be issued in cases where:

- the independent auditor determines that one or more items as shown in the financial statements are not presented fairly - an explanatory paragraph is added regarding the firm's inability to continue as a growing concern

A qualified audit opinion may be issued in cases where:

- the independent auditor is unable to perform certain auditing procedures - the independent auditor determines that one or more items presented in the financial statements represent a significant departure from GAAP

Which of the following is not one of the three principle forms of business organization? - Proprietorship - Partnership - LLC - Corporation

-LLC

Most states allow CPA candidates to sit for the CPA examination with a minimum of ____________ semester hours of college study, but all states have enacted legislation that now requires (or will require) a minimum of __________ semester hours to be granted licensure as a CPA.

120, 150

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

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

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

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

Identify the correct statement about cost accounting. - Cost accounting relates to the determination and accumulation of product, process, or service costs - Cost accounting has primarily an external orientation, in contrast to the primarily internal orientation of financial accounting - Cost accounting is concerned with the historical results of an entity's performance - Cost accounting is a subset of financial accounting

Cost accounting relates to the determination and accumulation of product, process, or service costs

T/F: The Public Company Accounting Oversight Board (PCAOB) was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

FALSE: The PCAOB was created by the Sarbanes Oxley Act (SOX) in 2002.

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

FASB, IFRS

T/F: Concepts Statements are a key part of the Financial Accounting Standards Board (FASB) Accounting Standards Codification, which is the source of authoritative generally accepted accounting principles (GAAP) recognized by the FASB and applied by nongovernmental entities.

False: Concepts Statements are not a part of the FASB Codification and thus do not provide authoritative guidance to directly solve accounting and reporting problems.

The Financial Accounting Standards Board (FASB) reports directly to the

Financial Accounting Foundation (FAF)

The authoritative accounting standard-setting body for state and local governmental units in the US since 1984 has been the:

Governmental Accounting Standards Board (GASB)

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 goal of the _____________ 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(IASB/IASC/IFRS) is an accounting standard issued by the (IASB/IASC/IFRS).

IFRS, IASB

What does it mean to state that the accounting process should support decisions and informed judgments?

It means that accounting is a service activity that helps many different users of accounting information who use the information in many ways

What does matching of revenue and expense in the income statement mean?

It means that all expenses incurred in generating revenue for the period are subtracted from those revenues to determine net income for that period. Matching does not mean that revenues equal expenses.

What does it mean when a stockholder says that she needs to look at her firm's set of four financial statements to fully understand its financial position and results of operations?

It means that each financial statement provides unique information but focuses on only a part of the big picture, so all four statements need to be reviewed to achieve a full understanding of the firm's financial position and results of operation.

What does it mean to state that generally accepted accounting principles are not a set of rules to be blindly followed?

It means that generally accepted accounting principles sometimes permit alternative ways of accounting for identical transactions, thus requiring professional judgment, and that these principles are still evolving

What does the accrual concept mean?

It means that revenues and expenses are recognized in the accounting period in which they are earned or incurred, even though cash may be received or paid in a different accounting period.

What does it mean when a company that has a high net income doesn't have enough cash to pay its bills?

It means that revenues have been earned from selling products or providing services but that the accounts receivable from those revenues have not yet been collected - or if the receivables have been collected, the cash has been used for some purpose other than paying bills.

What does it mean when the FASB issues a new Accounting Standards Update?

It means that the FASB has completed an extensive process of research and development, including receiving input from interested individuals and organizations, and has made an authoritative pronouncement (i.e., an Update to the FASB codification) that defines accounting and reporting for a specific activity or transaction and becomes a generally accepted accounting principle.

What does it mean that the FASB and IASB have been working together to achieve convergence?

It means that the FASB is committed to working with the IASB to ensure that a solution can be reached whereby US accounting standards will eventually be merged with international accounting standards to the greatest extent possible.

What does it mean to state that the objectives of financial reporting given in Statements of Financial Accounting Concepts No. 8 provide a framework for this text?

It means that the accounting and financial reporting topics explained in the financial accounting part of the text should: - related to external financial reporting - support business and economic decisions - provide information about cash flows - focus on earnings based on accrual accounting - not seek to directly measure the value of a business enterprise - report information that is subject to evaluation by individual financial statement users

What does it mean to be a CPA?

It means that the individual has met the educational requirements and has passed the uniform examination. Subsequently, the individual has met the experience requirements and has applied for and been issued a license by the state board of accountancy granting the individual the right to practice as a Certified Public Accounting.

What does it mean to state that ethical behavior includes being objective and independent?

It means that the individual is impartial, free from conflict of interest, and will not receive a personal gain rom the activity in which she or he is involved.

What does it mean when a balance sheet has been prepared for an organization?

It means that the organization's financial position at a point in time has been determined and summarized.

What does it mean to say that there has been an accounting transaction between you and your school? Give an example of such a transaction.

It means that there has been some sort of economic interchange; for example, you have agreed to pay tuition in exchange for classes.

What does it mean when some investors state that a corporation's published financial statements don't tell the whole story about a firm's financial position and results of operations/

It means that there may be both qualitative (e.g. workforce morale) and quantitative (e.g. opportunity cost) factors that are not reflected int he financial statements.

What does it mean to say that the balance sheet must be in balance after every transaction even though a lot of transactions affect the income statement?

It means that transactions affecting the income statement also affect the stockholders' equity section of the balance sheet as well as the asset and/or liability sections of the balance sheet.

What does it mean to refer to a balance sheet for the year ended August 31, 2020?

It means the persons doing this is really mixed up because the balance sheet presents data as a point in time. It's a balance sheet as of August 31, 2020 and shows balances as that specific point in time rather than for a period of time.

What does it mean to work in public accounting?

It means to perform professional services for clients principally in the areas of auditing, income tases, management consulting, and/or accounting systems evaluation and development.

Identify the correct statement about managerial accounting. - The data used in or generated by the financial accounting is of no use in managerial accounting - Managerial accounting is concerned with the use of economic and financial information to plan and control the activities of the entity. - Managerial accounting has primarily an external orientation and is concerned mostly with the historical results of an entity's performance. - Managerial accounting is a subset of cost accounting.

Managerial accounting is concerned with the use of economic and financial information to plan and control the activities of the entity.

Accounting information is required by governmental units at which of the following levels?

Municipal, federal, state

Identify the three principal forms of business organization.

Proprietorship, Partnership, Corporation

The statutory authority to establish accounting principles for companies whose securities are publicly traded in the US rests with the

Securities and Exchange Commission (SEC)

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

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

T/F: A CPA exam is given nationally but is administered by individual states; thus each state has it's own education and experience requirements to sit for the exam and to be granted licensure as a CPA.

TRUE

Identify the correct statement about the statutory authority of the US Internal Revenue Code. - The U.S. Internal Revenue Code and related regulations specify the rules to be followed in determining an entity's income tax liability. - The U.S. Internal Revenue Code and related regulations guide corporations in avoiding paying taxes. - The U.S. Internal Revenue Code and related regulations provide the rules to be followed in minimizing an entity's income tax liability. - The U.S. Internal Revenue Code and related regulations provide guidelines for financial accounting and reporting by state governmental units.

The U.S. Internal Revenue Code and related regulations specify the rules to be followed in determining an entity's income tax liability.

T/F: CASB is authorized by the US Congress to establish cost accounting standards for government contractors.

True

T/F: CASH operated as a governmental body to establish standards applicable to government contracts during the 1970-1980 period.

True

T/F: 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

T/F: The numbers reported in a firm's financial statements are not adjusted for changes in stock market price.

True

T/F: The title controller is used to designate the chief accounting officer of a corporation.

True

In recent years, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have backed away almost completely from the goal of a single global accounting language because of:

a lack of interest in accounting convergence on the part of U.S. investors and corporations. the huge switching cost that domestic companies and auditors would have to pay to change from U.S. GAAP to IFRS.

Section 404 of the Sarbanes-Oxley Act of 2002 requires all SEC-regulated companies to include in their annual reports

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

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 the ____________ basis of accounting.

accrual

In the process of measuring a firm's Input Field 1 of 1 accrual unavailable correct (cash/accrual) accounting earnings, some costs applicable to one year's results of operations may have to be estimated.

accrual

Earnings information is reported on the (cash/accrual) basis rather than the(cash/accrual) basis because it allows past performance to be measured more accurately.

accrual, cash

The qualifications of an internal auditor

are similar to those of any other professional accountant.

Bookkeeping procedures:

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

Financial accounting information is

based primarily on past transactions and events

The _______________ to the user of accounting information should exceed the ______ 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 Committee on Accounting Procedures of the American Institute of Accountants (1939-1959) and the Accounting Principles Board (1959-1973) both issued important accounting standards but failed to:

develop a conceptual underpinning for accounting and financial reporting.

The Committee on Accounting Procedure of the American Institute of Accountants (1939-1959) and the Accounting Principles Board (1959-1973) both issued important accounting standards but failed to:

develop a conceptual underpinning for accounting and financial reproting.

Financial reporting is:

done for individual firms, or entities

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

earnings

Financial statements are primarily oriented toward the

external user and are based on transactions and evets that have happened in the past.

Financial reporting is primarily aimed at meeting the needs of

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

Financial statements are primarily oriented towards 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 accounting

The "controller" is usually responsible for both the ______________ and _________ accounting functions of the organization.

financial, managerial

Financial accounting when compared to managerial and cost accounting...

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

The objectives of general-purpose external financing reporting for government-sponsored entities engaged in activities that are not unique to government

should be similar to those of business enterprises engaged in similar activities should be similar to those of nonbusiness organizations engaged in similar activities

The Internal Revenue Code and related regulations

specify the rules followed in determining an entitys tax liabiity

The investments by and distributions to owners during a reporting period are reported on the:

statement of stockholders' equity

Accounts are summarized in financial ______________, whereas ______________ are summarized in accounts.

statements, accounts

The Financial Accounting Standards Board (FASB) two predecessors accounting standard-setting bodies in the United States were:

the Committee on Accounting Procedures of the American Institute of Accountants (1939-1959) and the Accounting Principles Board (1959-1973)

One of the objectives of financial reporting is

to provide timely information about a firm's earnings and cash flow

Accrual accounting records transactions

when economic activity has occurred

Audits are required for companies

whose securities (stocks or bonds) are publicly traded by investors