Intermediate Accounting Test 1

Which organization is responsible for issuing Emerging Issues Task Force Statements?

a. The FASB

A characteristic of generally accepted accounting principles includes:

a. a common set of standards and principles.

Financial accounting standard-setting in the United States

a. 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.

General-purpose financial statements are the product of

a. financial accounting.

The information provided by financial reporting pertains to

a. individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers.

The Financial Accounting Foundation

a. oversees the operations of the FASB.

Which of the following pronouncements were issued by the Accounting Principles Board?

b. APB Opinions

Which of the following is not a publication of the FASB?

b. Accounting Research Bulletins

What is not a reason that accounting standards may differ across countries?

b. Language

Which of the following represents a form of communication through financial reporting but not through financial statements?

b. President's letter.

What is the purpose of Emerging Issues Task Force?

b. Provide implementation guidance within the Codification framework to reduce diversity in practice on a timely basis.

Which organization was responsible for issuing Accounting Research Bulletins?

b. The Committee on Accounting Procedure.

Why did the AICPA create the Accounting Principles Board?

b. The previous standard setting organization did not provide a structured set of accounting principles.

The major distinction between the Financial Accounting Standards Board (FASB) and its predecessor, the Accounting Principles Board (APB), is

b. all members of the FASB are fully remunerated, serve full time, and are independent of any companies or institutions.

The American Institute of Certified Public Accountants (AICPA) continues to be involved in

b. developing auditing standards for public companies.

The Financial Accounting Standards Board employs a "due process" system which

b. enables interested parties to express their views on issues under consideration.

Rule 203 of the Code of Professional Conduct addresses:

b. financial statements being based on generally accepted accounting principles.

A common set of accounting standards and procedures is called

b. generally accepted accounting principles.

Accrual accounting is used because

b. it provides a better indication of a company's ability to generate cash flows than the cash basis.

The process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, evaluate, and control an organization's operations is called

b. managerial accounting.

Which of the following is not a major challenge facing the accounting profession?

c. Accounting for hard assets.

Which of the following is a requirement for an accounting principle to be called "generally accepted"?

c. An authoritative accounting rule-making body has established it and it has been accepted because of its universal application.

Which perspective is adopted as a part of the objective of general-purpose financial reporting?

c. An entity perspective.

Which of the following is not considered a component of generally accepted accounting principles?

c. Articles published in CPA journals.

Which of the following will be of interest to investors in decision-making?

c. Both assessing the company's ability to generate net cash inflows and assessing management's ability to protect and enhance the capital provider's investments.

Which of the following organizations has not been instrumental in the development of financial accounting standards in the United States?

c. IASB

What is the objective of financial reporting?

c. Provide information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors

What is the purpose of a FASB Staff Position?

c. Provide interpretive guidance.

The body that has the power to prescribe the accounting practices and standards to be employed by companies that fall under its jurisdiction is the

c. SEC.

What is the relationship between the Securities and Exchange Commission and accounting standard setting in the United States?

c. The SEC has a mandate to establish accounting standards for enterprises under its jurisdiction.

What is the "expectations gap"?

c. The difference between what the public thinks the accountant should do and what the accountant thinks they can do.

FASB Technical Bulletins

c. are not expected to have a significant impact on financial reporting in general and provide guidance when it does not conflict with any broad fundamental accounting principle.

Characteristics of generally accepted accounting principles include all of the following except

c. each principle is approved by the SEC.

The purpose of Statements of Financial Accounting Concepts is to

c. form a conceptual framework for solving existing and emerging problems.

The passage of a new FASB Accounting Standards Update requires the support of

c. four Board members.

Financial statements in the early 2000s provide information related to

c. hard assets (inventory and plant assets).

The purpose of the International Accounting Standards Board is to

c. promote uniform accounting standards among countries of the world.

Each of the following are true of the Securities and Exchange Commission except that

c. the FASB relies on the SEC to develop accounting standards.

The following are part of the "due process" system used by the FASB in the evolution of a typical FASB Accounting Standards Update: 1. Exposure Draft 2. FASB Accounting Standards Update 3. Preliminary Views The chronological order in which these items are released is as follows:

d. 3, 1, 2.

Which of the following is not a part of generally accepted accounting principles?

d. AICPA Research Analysis.

Which of the following publications does not qualify as a statement of generally accepted accounting principles?

d. Accounting research studies issued by the AICPA

Which of the following organizations has been responsible for setting U.S. accounting standards?

d. All of the answer choices are correct.

Which of the following is a source of pressure that may influence the accounting standard setting process?

d. All of these answers are correct.

Which of the following organizations has not published accounting standards?

d. American Institute of Certified Private Accountants.

What would be an advantage of having all countries adopt and follow the same accounting standards?

d. Comparability and lower preparation costs.

Which of the following is not a user of financial reports?

d. Employees.

The most significant current source of generally accepted accounting principles is the

d. FASB.

Which of the following is not true of generally accepted accounting principles?

d. GAAP does not have substantial authoritative support.

Which of the following does not help in determining whether a business thrives?

d. Lack of innovation.

What is not due process in the context of standard setting at the FASB?

d. No public hearings are held on proposed accounting standards.

Which of the following is related to an effective capital allocation?

d. Provides timely, relevant information and encourages innovation.

Companies that are listed on a stock exchange are required to submit their financial statements to the

d. SEC.

The Financial Accounting Standards Board (FASB) was proposed by the

d. Study Group on establishment of Accounting Principles (Wheat Committee).

Why was it believed that accounting standards that were issued by the Financial Accounting Standards Board would carry more weight?

d. The FASB follows due process.

Which of the following is true of the Financial Accounting Standards Board?

d. The members of the FASB are appointed by the Financial Accounting Foundation.

Primary users for general-purpose financial statements include each of the following except

d. employees.

Members of the Financial Accounting Standards Board are

d. independent of any other organization.

All the following are ways in which accounting information is used by financial accounting except to

d. plan and control company's operations.

The purpose of the Emerging Issues Task Force is to

d. provide implementation guidance within the Codification framework to reduce diversity in practice on a timely basis.

The financial statements most frequently provided include all of the following except the

d. statement of retained earnings.

A conceptual framework is a coherent system of concepts that flow from an objective.

true

A soundly developed conceptual framework enables the FASB to issue more useful and consistent pronouncements over time.

true

Accounting standards are now less likely to require the recording or disclosure of fair value information.

False

Although the FASB has developed a conceptual framework, no Statements of Financial Accounting Concepts have been issued to date.

False

Ethical issues in financial accounting are governed by the AICPA.

False

Financial accounting is the process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, evaluate, and control a company's operations.

False

Financial reports in the early 21st century did not provide any information about a company's soft assets (intangibles).

False

GAAP is a product of careful logic or empirical findings and is not influenced by political action.

False

Revenues, gains, and distributions to owners all increase equity.

False

The FASB's Codification creates a new set of GAAP.

False

The Securities and Exchange Commission appointed the Committee on Accounting Procedure.

False

The economic entity assumption means that economic activity can be identified with a particular legal entity.

False

The first level of the conceptual framework identifies the recognition, measurement, and disclosure concepts used in establishing accounting standards.

False

The objective of financial reporting is to report the plans made by a company to improve the productivity of its employees.

False

The passage of a new FASB Accounting Standards Update requires the support of five of the seven board members.

False

Timeliness and neutrality are two ingredients of relevance.

False

U.S. companies that list overseas are required to use International Financial Reporting Standards, issued by the International Accounting Standards Board.

False

Users of financial statements are assumed to need no knowledge of business and financial accounting matters to understand information contained in financial statements.

False

Verifiability and predictive value are two ingredients of faithful representation.

False

An effective process of capital allocation promotes productivity and provides an efficient market for buying and selling securities and obtaining and granting credit.

True

Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

True

Financial statements are the principal means through which a company communicates its financial information to those outside it.

True

Investors are interested in financial reporting because it provides information that is useful for making decisions.

True

Relevance and faithful representation are the two fundamental qualities that make accounting information useful for decision making.

True

Statements of Financial Accounting Concepts set forth fundamental objectives and concepts that are used by the FASB in developing future standards of financial accounting and reporting.

True

The AICPA created the Accounting Principles Board in 1959.

True

The AICPA's Code of Professional Conduct requires that members prepare financial statements in accordance with generally accepted accounting principles.

True

The Public Company Accounting Oversight Board has oversight and enforcement authority and establishes auditing and independence standards and rules.

True

The expectations gap is due to the difference between what the public thinks accountants should do and what accountants think they can do.

True

The historical cost principle would be of limited usefulness if not for the going concern assumption.

True

The idea of consistency does not mean that companies cannot switch from one accounting method to another.

True

The objective of financial reporting is the foundation of the conceptual framework.

True

The second level of the conceptual framework provides the qualitative characteristics that make accounting information useful and the elements of financial statements.

True

Users of financial accounting statements have both coinciding and conflicting needs for information of various types.

True

Users of financial reports of a company use the information provided by these reports to make their capital allocation decisions.

True

What is a possible danger if politics plays too big a role in accounting standard setting?

a. Accounting standards that are not truly generally accepted.

How does accounting help the capital allocation process attract investment capital?

a. By providing timely, relevant information.

Which of the following is an ethical concern of accountants?

a. Earnings manipulation.

Which of the following is a general limitation of "general purpose financial statements"?

a. General purpose financial statements may not be the most informative for a specific enterprise.