Ch 1 Smartbook
List the private accounting standard setting bodies in chronological order beginning with the oldest organization.
1. Committee on Accounting Procedure 2. Accounting Principles Board 3. Financial Accounting Standards Board
On January 1, an investor purchases shares of stock in a company for $10,000 cash. At the end of the year, the investor receives $400 in dividends and sells their ownership for $10,600. What is the return on investment?
10%
On January 1, Jennifer purchases common stock of Gamma Corporation for $100,000. During the year, Gamma Corporation stock pays a dividend of $3,000. At the end of the year, Jennifer sells the Gamma stock for $104,000. What is the return on investment of the Gamma stock?
7%
Which of the following instances indicate net operating cash flow may not be a good predictor of long-run cash-generating ability?
A company pays cash to purchase a 2 year insurance policy A customer pays for services provided in a prior period
Which organization is currently the national professional organization for certified professional public accountants?
AICPA
The acronym for the Accounting Standards Codification is
ASC
A(n) _____ opinion signals that a company's financial statements do not contain material departures from US GAAP.
Auditor
The first private accounting standard setting body in the United States was the
Committee on Accounting Procedure
Differences in implementation and enforcement of IFRS across countries can impact the ____ of financial statements.
Comparability
Differences in implementation and enforcement of IFRS across countries can impact the ______ of financial statements.
Comparability
Which of the following would be a likely advantage of a single set of accounting standards?
Easier access to capital
What are the requirements of all states to become a licensed certified public accountant?
Education Testing Experience
Which of the following would be a likely advantage of a single set of accounting standards?
Enhanced financial statement comparability
The ___ was established to set U.S. accounting standards and is the current standard setting body
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
FASB
The citation used to reference generally accepted accounting principles is
FASB ASC
True or false: Over short periods of time, net operating cash flow is a good indicator of a company's long-run cash-generating ability.
False
True or false: The term financial reporting is used to refer to the process of providing financial information to internal users.
False
Which accounting standard setting body replaced the Accounting Principles Board in 1973?
Financial Accounting Standards Board
The process of providing information to external users is referred to as
Financial accounting
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.
Generally accepted accounting principles are abbreviated as
GAAP
The acronym GASB refers to the
Governmental Accounting Standards Board
The organization that is responsible for the accounting standard setting process for states and cities in the United States is the
Governmental Accounting Standards Board
Emerging Issues Task Force
Group dealing with emerging issues - U.S. GAAP
Which of the following are common arguments against the creation of a single set of global accounting standards?
Implementation and enforcement of IFRS varies among nations Maintaining competition between accounting standard-setting bodies improves quality Accounting under IFRS will appear more uniform than it actually is
The IASB is dedicated to developing a set of high-quality, understandable, and enforceable _____ accounting standards.
Internacional
The organization that develops global accounting standards is the
International Accounting Standards Board
The International Accounting Standards Committee issued International Accounting Standards (IAS), whereas the International Accounting Standards Board currently issues
International Financial Reporting Standards
Jody's expenses exceed revenues for the period. Jody has a net ____ for the period.
Loss
Which approach to standard setting emphasizes the use of professional judgment when choosing how to account for a transaction?
Objectives-oriented
Accrual income attempts to measure the resource inflows and outflows generated by the company's ______ during the reporting period.
Operations
Where does political pressure come from in International standard setting?
Politicians from countries utilizing IFRS The European Union (EU)
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?
Provide penalties for violators. Addresses conflicts of interests. Require accountability of corporate executives. Regulate auditors.
What is the primary function of financial accounting?
Provide useful information to users external to the business.
International Organization of Securities Commissions
Regulatory oversight - IFRS
In which of the following areas did the FASB and IASB already develop converged accounting standards?
Share-based compensation Non-monetary exchanges Earnings-per-share
IASB
Standard-setting board - IFRS
Why is accounting standard setting a political process?
Standards can have significant effects on companies, investors, and creditors. Changes in standards can result in a substantial redistribution of wealth within our economy.
Which of the following are steps the FASB takes before issuing an Accounting Standards Update?
The Board holds a public meeting Receives requests from stakeholders
The FASB's standard setting process begins when the board adds a project to its technical agenda. Identify the final step in this process.
The Board issues an Accounting Standards Update.
Which of the following represent(s) an important objective of the IASB?
To develop high quality global standards
True or false: Both profit-oriented companies and not-for-profit companies are providers of financial information.
True
True or false: Financial accounting is primarily concerned with providing financial information to external users.
True
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
True or false: In the United States, sole proprietorships and partnerships outnumber corporations.
True
True or false: Political pressure has deterred the FASB from issuing particular standard changes.
True
True or false: Resource inflows and outflows may not correspond to cash inflows and outflows.
True
True or false: The uncertainty of the return on an investment is also referred to as risk.
True
True or false: The FASB considers written comments from interested parties before issuing an Accounting Standards Update.
True The FASB has an extensive due process including open hearings, deliberations, and written comments.
The financial reporting model used by the majority of profit oriented companies is ____ accounting.
accrual
What financial reporting model is used by most profit-oriented businesses and not-for-profit entities?
accrual accounting
Which accounting model best meets the primary goal of users of financial reporting?
accrual basis
External users of a company's financial information include
banks. credit-rating agencies. labor unions.
The first body to set accounting standards in the U.S. was the
cap
The accrual accounting model measures the entity's accomplishments and resource sacrifices during the period regardless of when ____ is received or paid.
cash
______ basis accounting measures the difference between cash receipts and payments during a reporting period.
cash
What accounting model produces a measure called net operating cash flow?
cash basis
What classification would the following auditor opinion receive?: "In our opinion, the consolidated financial statements listed in the accompanying index present fairly . . . in conformity with U.S. GAAP."
clean opinion
The FASB Accounting Standards _____ organizes all relevant accounting pronouncements in a searchable, online database
codification
Which of the following provides an underlying structure for the development of accounting standards?
conceptual framework
The 1933 and 1934 Acts were designed to restore investor ______ in the stock market.
confidence
The Sarbanes-Oxley Act increases accountability of who?
corporate executives
Who has the responsibility for preparing financial statements in accordance with generally accepted accounting principles?
corporate management
We can think of the capital markets as a composite of all
creditors investors
The FASB and IASB will continue to work together to converge where possible, but ______ between IFRS and U.S. GAAP will likely remain.
differences
The primary role of financial accounting is to provide useful financial information to users who are Blank______ to the business enterprise.
external
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 majority of productive resources are privately owned in a ______ enterprise economy.
free
In the United States, we have an economy where the majority of productive resources are privately owned rather than government owned. This is an example of what?
free enterprise
The accrual accounting model is best able to achieve the goal of predicting ___ cash flows.
future
The IASB's main objective is to develop a single set of standards that have what characteristics?
high-quality enforceable understandable
Which of the following are providers of financial information?
households schools companies
The Emerging Issues Task Force (EITF) was formed to
identify potential problem areas and provide a timely response to issues.
______ and ______ are willing to provide capital to a corporation only if they expect to receive more cash in return at some time in the future.
investors and creditors
Who has the responsibility to appropriately apply GAAP when preparing financial statements?
management
1934 Securities and Exchange Act
mandates reporting requirements for companies whose stock is publicly traded
Which of the following fields are considered a profession that has its own code of professional ethics?
medicine accounting law
An investment that has higher risk also has
more uncertainty of returns
The Emerging Issues Task Force (EITF) was formed to resolve ______ financial accounting issues within the framework of existing GAAP.
narrowly defined
Auditors examine financial statements to express a professional, independent ____ on the financial statements
opinion
The primary forms of business organization in the United States are the sole proprietorship, the _______ and the corporation.
partnership
A corporation's shareholders will receive cash from their investment in which of the following ways?
periodic dividends
The most recent issue in implementing the fair value accounting standard is
pressure to reduce the extent to which fair value changes are reported in net income.
Proponents of objectives-based standards assert that
professional judgment minimizes sidestepping of rules
The objectives of financial accounting include
provide information to investors and creditors. provide information used to evaluate future cash flows.
What are the most important factors for an investor to consider when choosing an investment?
rate of return risk
The capital markets foster an efficient allocation of
resources
The accrual accounting model's measure of resources provided by business operations is called
revenues
The uncertainty regarding an investment is also referred to as
risk
The ______ has the authority to set accounting standards for companies, but has delegated the task to the private sector.
sec
The legal authority to set accounting and reporting standards for companies whose securities are publicly traded lies with the
sec
1933 Securities Act
sets forth accounting and disclosure requirements for initial offerings of securities (stocks and bonds)
Which are the financial statements most frequently provided to external users?
statement of cash flows statement of shareholders' equity income statement balance sheet
Which of the following is a financial statement provided to investors?
statement of shareholders' equity
Which of the following are external users of financial information?
suppliers investors government agencies creditors
Financial accounting provides investors with information that should help them to evaluate the
timing of the firm's future cash flow. amounts of the firm's future cash flow. uncertainty of the firm's future cash flow.
The Accounting Standards Codification is organized into
topics and subtopics
Recent events suggest that full convergence ______ be achieved in the foreseeable future.
will not