practice quiz ch 1 acct

Accounting principles are “generally accepted” only when

I. an authoritative accounting rule-making body has established it in an official pronouncement.
II. it has been accepted as appropriate because of its universal application

I only.

II only.

I or II.

Neither I nor II.

I or II
The role of the Securities and Exchange Commission in the formulation of accounting principles can be best described as

consistently primary.

consistently secondary.

sometimes primary and sometimes secondary.

non-existent.

sometimes primary and sometimes secondary.
The first step taken in the establishment of a typical FASB statement is:

the board conducts research and analysis and a discussion memorandum is issued.

a public hearing on the proposed standard is held.

the board evaluates the research and public response and issues an exposure draft.

topics are identified and placed on the board’s agenda.

topics are identified and placed on the board’s agenda.
Generally accepted accounting principles

include detailed practices and procedures as well as broad guidelines of general application.

are influenced by pronouncements of the SEC and IRS.

change over time as the nature of the business environment changes.

all of these answer choices are correct.

all of these answers are correct
From the four statements that follow, which are true?

1. Technical competence is not enough when encountering ethical decisions.
2. The pressures “to bend the rules,” “to play the game,” “to just ignore it” can be considerable.
3. Time, job, client, personal, and peer pressures do not complicate the process of ethical sensitivity and selection among alternatives.
4. The decision may be easier because there is no comprehensive ethical system to provide guidelines.

1, 2, 3, and 4 are all true.

1, 2, and 4 are all true.

2 and 4 are all true.

1 and 2 are all true.

1 and 2 are true
Financial information that is better provided, or can only be provided, by means of financial reporting other than formal financial statements include all of the following except:

News releases.

Management’s forecasts.

President’s letter.

Cash flow information.

cash flow information
An effective capital allocation process

promotes productivity.

encourages innovation.

provides an efficient market for buying and selling securities.

all of these choices are correct.

all of these choices are correct
The objective of general purpose financial reporting adopts an entity perspective, which means that

financial reporting should be focused an assessing the company’s stewardship.

financial reporting should be focused solely on the needs of the owners.

companies are viewed as separate and distinct from their owners.

none of these answer choices are correct.

companies are viewed as separate and distinct from their owners.
Which of the following would result if there was not set of generally accepted and universally practiced accounting standards?

It would be almost impossible to prepare statements that could be compared.

Each company would have to develop its own standards.

Readers of financial statements would have to familiarize themselves with every company’s peculiar accounting and reporting practices.

All of these answer choices are correct.

all of the above
Which group selects members of the FASB?

FAF.

SEC.

AICPA.

FASAC.

FAF (financial accounting foundation)
The organization whose purpose is to reach consensus on how to account for new and unusual financial transactions that have potential for creating differing financial reporting practices is the:

FASB.

FASAC.

EITF.

AICPA.

EITF (emerging issues task force)
The mission of the International Accounting Standards Board is to

issue enforceable standards which regulate the financial accounting and reporting of multinational corporations.

develop a uniform currency in which the financial transactions of companies through-out the world would be measured.

develop a single set of high-quality and understandable IFRS for general-purpose financial statements.

arbitrate accounting disputes between auditors and international companies.

develop a single set of high-quality and understandable IFRS for general-purpose financial statements.
All of the following are true regarding IFRS except:

IFRS includes standards referred to as International Auditing Standards (IAS).

The adoption of IFRS by U.S. Companies would make it easier to compare them with foreign companies.

IFRS is more “principle-based than U.S. GAAP”.

IFRS are developed by the IASB.

IFRS includes standards referred to as International Auditing Standards (IAS).
Which of the following generally provides a better indication of an enterprise’s present and continuing ability to generate favorable cash flows?

Cash basis accounting.
Accrual basis accounting.
Managerial basis accounting.
Financial basis accounting.

Accrual basis accounting.
Which of the following was established by the federal government to help develop and standardize financial information presented to stockholders?

AICPA.
FASB.
GASB.
SEC.

sec
Which of the following publications is not considered a GAAP document?

Statements of financial standards issued by the FASB

Accounting interpretations issued by the FASB

APB Opinions

Accounting research studies issued by the AICPA

Accounting research studies issued by the AICPA
International Financial Reporting Standards (IFRS) are issued by the:

FASB.

IASB.

IASF.

SEC.

IASB
Which of the following is not a significant difference between the FASB and its predecessor, the APB?

Greater autonomy.

Larger membership.

Increased independence.

Broader representation.

larger membership
The objective of financial reporting identifies ______________ as the primary users for general-purpose financial statements.

Managers.

Regulators (IRS and SEC).

Investors and creditors.

Employees.

investors and creditors
Which of the following user groups influence the formulation of accounting standards?

Government.

Academicians.

CPAs and accounting firms.

All of these choices are correct.

all of the above
The failure of financial reports to provide information on customer satisfaction indexes, reject rates, and company sustainability efforts describes the financial reporting challenge of

Forward-looking information.

Nonfinancial measurements.

Soft assets.

Understandability.

non financial measurements
All of the following are true regarding the FASB Codification except:

the goal of the Codification was to provide one place where all authoritative literature about financial statement preparation could be found.

the purpose of the Codification is to create new GAAP.

the Codification was created to simplify user access.

the Codification changes the way GAAP is documented, presented, and updated.

the purpose of the Codification is to create new GAAP
T/F?

GAAP is the term used to indicate the whole body of FASB authoritative literature.

true
T/F?

Any company claiming compliance with GAAP must comply with most standards and interpretations but does not have to follow the disclosure requirements.

false. any company claiming compliance with GAAP must comply with all standards and interpretations, including disclosure requirements
T/F?

The primary governmental body that has influence over the FASB is the SEC.

true
T/F?

The FASB has a government mandate and therefore does not have to follow due process in issuing a standard.

false. in establishing financial accounting standards, the FASB relies on two basic premises: 1. the fasb should be responsive to the needs and viewpoints of the entire econoimc community not just the public accounting profession
2. it should operate in full view of the public through a “due process” system that gives interested people ample opportunities to make their view known
GAAP stands for:

governmental auditing and accounting practices.

government audit and attest policies.

generally accepted accounting principles.

generally accepted attest principles.

generally accepted accounting principles.
Accounting standard-setters use the following process in establishing accounting standards:

Research, exposure draft, discussion paper, standard.

Research, preliminary views, discussion paper, standard.

Research, discussion paper, exposure draft, standard.

Discussion paper, research, exposure draft, standard.

Research, discussion paper, exposure draft, standard.
GAAP is comprised of:

FASB standards, interpretations, and concepts statements.

any accounting guidance included in the FASB Codification.

FASB standards, interpretations, EITF consensuses, and accounting rules issued by FASB predecessor organizations.

FASB financial standards.

any accounting guidance included in the FASB Codification.
The authoritative status of the conceptual framework is as follows.

It takes precedence over all other authoritative literature.

It is used when there is no standard or interpretation related to the reporting issues under consideration.

It is not as authoritative as a standard but takes precedence over any interpretation related to the reporting issue.

It has no authoritative status.

It is used when there is no standard or interpretation related to the reporting issues under consideration.
The objective of financial reporting places most emphasis on:

providing specific guidance related to specific needs.

providing information to individuals who are experts in the field.

reporting to capital providers.

reporting on stewardship.

reporting to capital providers.
General-purpose financial statements are prepared primarily for:

external users.

auditors.

government regulators.

internal users.

external users.
Economic consequences of accounting standard-setting means:

accounting standards can have detrimental impacts on the wealth levels of the providers of financial information.

standard-setters must give first priority to ensuring that companies do not suffer any adverse effect as a result of a new standard.

standard-setters must ensure that no new costs are incurred when a new standard is issued.

the objective of financial reporting should be politically motivated to ensure acceptance by the general public.

accounting standards can have detrimental impacts on the wealth levels of the providers of financial information.
The expectations gap is:

what the users of financial statements want from the government and what is provided.

what financial information management provides and what users want.

what the public thinks accountants should do and what accountants think they can do.

what the governmental agencies want from standard-setting and what the standard-setters provide.

what the public thinks accountants should do and what accountants think they can do.