Chapter 1
An internal auditor is responsible for which of the following?
Analyzing the operating efficiency of one of the company's divisions Performing functions much like those performed by an independent (external) auditor, but perhaps on a smaller scale
The five-member Public Company Accounting Oversight Board (PCAOB) has the authority to set and enforce which of the following? Multiple select question. Cost accounting standards for government contractors Auditing standards for public companies Attestation standards for public companies Quality control standards for public companies Financial accounting standards for public companies Ethics and independence standards for public companies
Auditing standards for public companies Attestation standards for public companies Quality control standards for public companies Ethics and independence standards for public companies
Which of the following statements are true about the Cost Accounting Standards Board (CASB)? (Check all that apply).
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.
The Cost Accounting Standards Board (CASB) establishes which of the following? (Check all that apply).
Cost accounting standards applicable to government contracts in excess of $750,000 Cost accounting standards applicable to colleges and universities that receive major federal research grants
An unqualified, or, clean, independent auditor's opinion does which of the following? Multiple select question. Explains that the financial statements are the responsibility of the company's internal auditors Explains that the audit was conducted in accordance with the standards of the GAAP (United States) States that it is the independent auditor's responsibility to express an opinion about the financial statements States that the named financial statements "present fairly, in all material respects" the entity's cash flows for the period States that the financial statements are free of any errors or irregularities
Explains that the audit was conducted in accordance with the standards of the GAAP (United States) States that it is the independent auditor's responsibility to express an opinion about the financial statements States that the named financial statements "present fairly, in all material respects" the entity's cash flows for the period
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
True or false: 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
True or false: The Public Company Accounting Oversight Board (PCAOB) was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
False
The Financial Accounting Standards Board (FASB) reports directly to the:
Financial Accounting Foundation (FAF)
The authoritative accounting standard-setting body for companies whose securities are publicly traded in the United States since 1973 has been the:
Financial Accounting Standards Board (FASB)
The authoritative accounting standard-setting body for state and local governmental units in the United States since 1984 has been the:
Governmental Accounting Standards Board (GASB)
Which of the following best describe Luca Pacioli?
He was a Franciscan monk. He was a mathematics professor. He was the author of "method of Venice" system.
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
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
Tax practitioners typically develop specialization in the taxation of which of the following? (Check all that apply).
International tax law issues Trusts and estates
Which of the following is true of financial accounting? (Check all that apply).
It is a form of historical scorekeeping. It is measured in dollars and cents. It may provide information that is helpful in assessing an entity's future prospects. It is not the sole source of information about an entity.
Which of the following are true regarding the Financial Accounting Standards Board (FASB) Accounting Standards Codification?
It superseded the FASB's SFAS series and other divergent sources of U.S. generally accepted accounting principles (GAAP). It made it easier to access and research authoritative accounting standards. It became effective in July 2009.
Which of the following items are considered key elements of ethical behavior for a professional accountant?
Maintaining integrity: being honest and forthright in one's dealings and communication with others. Maintaining independence, both in appearance and in fact. Accepting an obligation to serve in the best interests of the employer, the client, and the public. Maintaining objectivity: being impartial and free from conflicts of interest. Having competence by acquiring and maintaining the professional knowledge and skill to adequately perform the work assigned.
Which of the following items is not considered a key element of ethical behavior for a professional accountant?
Maintaining profitability: to the greatest extent possible, ensure that the client's accounting records show a profit.
Accounting information is required by which entities? (Check all that apply). Multiple select question. Only for-profit entities, such as colleges and universities Only for-profit entities, such as libraries and museums Not-for-profit entities, such as hospitals and voluntary health and welfare organizations Not-for-profit entities, such as trade associations and country clubs
Not-for-profit entities, such as hospitals and voluntary health and welfare organizations Not-for-profit entities, such as trade associations and country clubs
Accounting information is required by which entities?
Not-for-profit entities, such as trade associations and country clubs Not-for-profit entities, such as hospitals and voluntary health and welfare organizations
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 which of the following?
Reporting for business combinations and noncontrolling interests Revenue recognition and stock compensation Fair value measurements and borrowing costs
The statutory authority to establish accounting principles for companies whose securities are publicly traded in the United States rests with the:
Securities and Exchange Commission (SEC)
Which of the following is a correct statement about the process of measuring a firm's accrual accounting earnings?
Some costs applicable to the current year may need to be estimated.
Accounting information is required by governmental units at which of the following levels?
State Municipal Federal
Which of the following statements is true regarding the Financial Accounting Standards Board's (FASB's) standard-setting process?
The FASB follows an open, due process procedure. The FASB invites input from any individual or organization who cares to participate in the process.
Which of the following statements are true regarding the Financial Accounting Standards Board's (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.
Which of the following statements are true regarding the Governmental Accounting Standards Board (GASB)?
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.
Which statement is correct regarding the statutory authority of the U.S. Internal Revenue Code? Multiple choice question. The U.S. Internal Revenue Code and related regulations guide corporations in avoiding paying taxes. 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 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.
Financial accounting information as presented in financial statements may help users to assess which of the following?
The firm's working capital and cash management practices Relative strengths and weaknesses of the firm's financial position The firm's future earnings potential based on an analysis of past results
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 due to which of the following?
The huge switching cost that domestic companies and auditors would have to pay to change from U.S. GAAP to IFRS A lack of interest in accounting convergence on the part of U.S. investors and corporations
A qualified audit opinion may be issued in cases where which of the following are true?
The independent auditor determines that one or more items presented in the financial statements represent a significant departure from GAAP. The independent auditor is unable to perform certain auditing procedures.
Which statement is correct about the role of an internal auditor?
The qualifications of an internal auditor are similar to those of any other professional accountant.
Which of the following statements are true regarding the objectives of general-purpose external financial reporting for government-sponsored entities engaged in activities that are not unique to government?
They should be similar to those of business enterprises engaged in similar activities. They should be similar to those of nonbusiness organizations engaged in similar activities.
True or false: 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
True or false: The numbers reported in a firm's financial statements are not adjusted for changes in the firm's stock price.
True
A qualified audit opinion may be issued in which of the following cases?
When the independent auditor determines that one or more items as shown in the financial statements are not presented fairly When an explanatory paragraph is added regarding the firm's inability to continue as a going concern
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 a(n) Blank______ basis of accounting.
accrual
The Sarbanes-Oxley Act of 2002 (SOX) now prohibits:
auditing firms from performing a variety of non-auditing services for financial statement audit clients.
Financial accounting information is:
based primarily on past transactions and events.
The (cost/benefit) to the user of accounting information should exceed the (cost/benefit) 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
It is important to recognize that financial accounting information is developed at a (cost/benefit) and that the (cost/benefit) to the user of the information should exceed the cost of providing it.
cost benefit
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 reporting
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 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.
The consulting practices of several large auditing firms have been split off into separate entities in an effort to help achieve in fact and appearance.
independence
The objectives of financial reporting for nonbusiness organizations focus on providing:
information about obligations, net resources, economic resources, and organizational performance.
The first known text to describe a comprehensive double-entry bookkeeping system was called the:
method of Venice system
Establishment of (objectives/concepts/standards) and identification of fundamental (objectives/concepts/standards) will not directly solve accounting and reporting problems.
objectives concepts
The objectives of financial reporting for nonbusiness organizations focus on providing information for resource (providers/allocations/users) rather than investors.
providers
The Financial Accounting Standards Board (FASB) Accounting Standards Codification:
represents a single source of U.S. 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.
The statutory authority to establish accounting principles for companies whose securities are publicly traded in the United States rests with the and Commission.
securities and exchange
The Internal Revenue Code and related regulations:
specify the rules followed in determining an entitys tax liabiity
An unqualified, or "clean" independent auditor's opinion:
states that the auditor's work requires the application of generally accepted auditing standards (GAAS).
The Financial Accounting Standards Board's (FASB's) two predecessor 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
