A normal four-to-three majority vote is required for passing new accounting standards.
The Litigation Reform Act of 1995 requires that an audit include procedures designed
to guarantee that illegal acts that would materially affect financial statements will be
detected.
SFAS No. 33 specified that the effects of changing prices should be presented as
supplementary information in annual reports.
Information symmetry exists when potential investors do not all have equal access to the
same information.
Information economics has relatively recently included agency theory assumptions in
its analysis.
Countries following the continental model include most major countries of Western
Europe as well as Japan.
Intraperiod and intrastatement allocation both refer to showing income statement items
such as extraordinary items and changes in accounting principle net of the tax effect.
True market demand for public goods may be determined by the number of consumers
who pay for the goods.
In the capital asset pricing model, beta is used to represent systematic risk of individual
securities and to predict the risk-based price of securities.
Post-earnings-announcement drift refers to the fact that it takes up to 90 days for
security prices to react significantly to earnings announcements.
The FASB has implicitly adopted the cash flow valuation model.
Which of the following has been cited as a reason for the alleged low quality of
financial reporting, even under regulation?
a. Not enough management flexibility in the choice of accounting policies
b. Poor accounting and auditing standards
c. Laxity by securities analysts
d. All of the above
Which of the following is the major problem underlying future events and their impact
upon event recognition?
a. Management intent
b. The probabilistic nature of future events
c. The perception of the past event
d. Future economic conditions
Which of the following is not a valuation technique that may be applied according to
SFAS No. 157?
a. The Net realizable value approach
b. The market approach
c. The income approach
d. The cost approach
Which of the following characteristics does not describe the Anglo-Saxon model of
financial reporting?
a. A strong accounting profession
b. Strong governmental influence
c. The importance of securities markets for raising equity capital
d. An emphasis upon the true and fair view of audited financial statements
Which of the following is not a true statement regarding the legal remedies available to
lessors in the event of lessee default?
a. The lease is significantly different from other debt arrangements.
b. The lessee is not liable for future lease payments.
c. The lease is considered unilaterally unperformed.
d. The lessor must first mitigate the loss of rents by selling the asset or leasing it again.
Which of the following valuation approaches has/have been defended as more suitable
as a means for distributing income because it is not based on hypothetical opportunity
cost figures?
a. Income tax valuation
b. Discounted cash flows
c. Historical cost
d. Current value
Which of the following is not a characteristic of a defined benefit plan?
a. The employee makes all contributions to the plan.
b. Benefits may be paid as a single lump sum amount at retirement date.
c. Benefits can be based on career average salary.
d. In all cases, the value of pension benefits is directly related to the employee’s years of
service.
Which of the following is not a theoretical consideration relative to partial allocation?
a. Agency theory
b. Future events
c. Financial statement articulation
d. Verifiability
Which of the following is a true statement?
a. Disclosure is concerned with information in the financial statements as well as
information in the footnotes, management’s discussion and analysis, financial and
operating forecasts, and other supplementary communications.
b. Disclosure is concerned with information in the financial statements only.
c. Disclosure is concerned with information in the footnotes only.
d. Disclosure is concerned with information in the financial statements and all
supplementary communications except financial and operating forecasts.
Which of the following statements does not apply to SFAS No. 33?
a. It was withdrawn in part because of the abatement of inflation.
b. It required current-cost-adjusted income to be published as supplemental
information.
c. It required purchasing power gains and losses on monetary items to be disclosed.
d. It considered constant dollar adjustments to be of little value.
Post-SOX, the accounting/auditing standards setting function has been relegated to
a. The FASB alone
b. The FASB and the PCAOB
c. The AICPA
d. The IASB
Which of the following specifically refers to the process of arriving at a pronouncement
issued by the FASB or SEC?
a. Standard setting
b. Accounting research
c. Policy determination
d. Accounting valuation measurement
Which of the following statements is true?
a. The problems of the FASB stem from its limited use of due process.
b. The FASB has not been as successful as its predecessors were.
c. Many studies have found that large accounting firms tend to dominate policy at the
FASB.
d. With the implementation of the FASB, the capture theory argument lost much of its
validity.
Which of the following groups carry out most accounting research?
a. Public accounting firms
b. Private industry
c. Accounting professors
d. Chartered Financial Analysts
_________ refers to a firm’s use of the same accounting methods over consecutive time
periods.
a. Comparability
b. Materiality
c. Consistency
d. Objectivity
Respond to the following:
a. Explain what is meant by price indexes.
b. Compare and contrast the two types of price indexes, specific price indexes and
general price indexes.
c. How did SFAS No. 33 make use of price indexes?
Goods that possess hard property rights so that nonpurchasers are excluded from
consuming them are called:
a. Public goods.
b. Regulated goods.
c. Private goods.
d. Underproduced goods.
What was the purpose of SATTA?
a. To develop standards for accounting
b. To determine an appropriate valuation system for financial statements
c. To provide a survey of the current financial accounting literature and a statement of
where the profession stood relative to accounting theory
d. To develop metatheoretical guidelines for the evaluation of accounting information
and valuation systems
Which of the following is not a currently allowed practice related to pensions?
a. The use of cash balance plans
b. Redistributing benefits away from older employees and shifting them to younger
employees
c. The raiding of overfunded pension plans by acquiring corporations
d. Discretionary funding of defined benefit plans
Which country has the oldest professional accounting organizations?
a. The UK
b. The US
c. France
d. Germany
Which of the following is a true statement?
a. Liquidity is the ability of the firm to adapt to new situations and opportunities.
b. Cash flow measurement is more uniform than income measurement.
c. The current-noncurrent classification system in the balance sheet is a good guide to
liquidity.
d. The balance sheet gives insight into the cash-generating potential of operations.
Another term for a timing difference is:
a. Permanent difference.
b. Perpetual difference.
c. Temporary difference.
d. Interim difference.
Which of the following cases would cause the tax liability to be greater than tax
expense?
a. Receipt of cash for rent prior to the period in which services are performed
b. Income from long-term construction contracts using the percentage-of-completion
approach for financial accounting and the completed-contract approach for income
taxes
c. Installment sale income recognized for financial purposes at the time of sale and
when cash is collected for taxes
d. Accelerated depreciation for taxes and straight-line depreciation for income taxes
Discuss arguments supporting the need for improving the Statement of Cash Flows
(SCF). What suggestions do Broom and the authors of the text make regarding
improvement?
How is pension expense calculated under SFAS No. 87, and when is pension liability
recognized?
What is “one-line consolidation,” and when is it used?
What are the arguments against regulation of financial reporting?
List five differences in accounting practices between the United States and other
countries.
Describe how the reporting of extraordinary items is a good example of the shift away
from finite uniformity to rigid uniformity in accounting standards.
What is cross-sectional valuation and how has this approach been used in research
studies?
Explain how the matching concept is applied in tax allocation and how this differs from
other applications of matching.
Identify and describe the two balancing sections of the statement of changes in financial
position.