Chapter 1—The Environment of Financial Reporting Key
1. Exchanges of capital stock and bonds that occur between investors take place in
2. Exchanges of capital stock and bonds between a corporation and investors take place in
3. Creditors’ information needs revolve around all of the following decisions, except
4. Which of the following is an internal user of a company’s financial information?
5. Which of the following is not a decision that external users of a company’s financial information would
make?
6. Which characteristic applies more to financial accounting than to managerial accounting?
7. The primary reason that financial accounting and managerial accounting have somewhat different objectives
is because they
8. Agency theory suggests that managers’ behavior
9. The four major financial statements of a corporation consist of the
10. Notes to financial statements provide
11. Which of the following documents includes all of the accounting standards?
12. The organization that presently has the primary responsibility to establish generally accepted accounting
principles that are applicable to the financial statements of entities in the U.S. private sector is the
13. Assume that authoritative support regarding GAAP for a particular transaction is needed. A correct
hierarchy of authority to be followed (highest, second, third) would be
14. Which of the following statements is true?
15. The FASB Accounting Standards Codification is expected to provide all of the following benefits except
16. Going from 1938 to the present, which is the correct sequence of accounting rule-making bodies?
17. Concerning FASB membership, which statement is not true?
18. How many FASB members are there?
19. Which pronouncements are not issued by the FASB?
20. Which of the following pronouncements issued by the FASB does not provide for the highest level of
authoritative support?
21. Which organization has the most legal authority?
22. The Securities and Exchange Commission has the legal authority to prescribe accounting principles and
reporting practices for
23. Issuance of a new International Accounting Standard requires approval of at least
24. The FASB Emerging Issues Task Force issues which of the following?
25. While formally the SEC is charged with the responsibility for establishing accounting principles to be
followed in the preparation of SEC filings, the impact of the SEC generally has been
26. Three major organizations in the private and public sector develop U.S. and international GAAP. They
include all of the following except the
27. Auditors face ethical issues because
28. The Sarbanes-Oxley Act of 2002 established the Public Company Accounting Oversight Board (PCAOB).
The PCAOB was established to
29. Critical thinking is most important in which of the following problem-solving steps?
30. The purposes of the joint long-term project of the FASB and IASB to converge revenue recognition
principles include all of the following except
31. Certain U.S. accounting standards have been, and will be, amended to aid in the international convergence
process. The process of changing these standards usually involves
32. Conversion to IFRS reporting by all U.S. companies would be best accomplished with a transition plan for
all of the following reasons except
33. Listed below are 12 characteristics of accounting, some of which are more closely related to financial
accounting, while others are related to managerial accounting.
____
a.
Focuses on external users.
____
b.
Uses a present and future timeframe.
____
c.
Uses qualitative and quantitative data.
____
d.
Reports are concerned primarily with the total company.
____
e.
Is governed by GAAP.
____
f.
Focuses on internal users.
____
g.
Uses report formats prescribed by GAAP.
____
h.
Reports are concerned with individual departments.
____
i.
Uses quantitative data.
____
j.
Is governed by the internal needs of a company.
____
k.
Uses report formats best suited for the specific decisions being made.
____
l.
Uses an historical timeframe.
Required:
Indicate which characteristic is financial and which is managerial by placing an (F) or an (M) in the space provided.
34. Listed below are several types of pronouncements that the FASB issues. Following the list is a series of
descriptive statements.
a.
b.
c.
d.
e.
____
1.
Establishes a theoretical foundation upon which to base financial accounting and reporting standards.
____
2.
Provides clarification of conflicting or unclear issues relating to previously issued pronouncements.
____
3.
FASB Q’s and A’s.
____
4.
Establishes generally accepted accounting principles.
____
5.
Provides guidance on accounting and reporting problems related to an underlying standard.
Required:
Match each pronouncement with its descriptive statement by placing the appropriate letter in the space provided.
1.
d
2.
b
3.
e
4.
a
5.
c
a.
F
e.
F
F
b.
M
M
M
c.
M
g.
F
k.
M
d.
F
h.
M
F
35. Listed below are the ten steps the FASB goes through in issuing a new Statement.
____
a.
Conduct research
____
b.
Deliberate on findings
____
c.
Hold public hearings
____
d.
Identify topic
____
e.
Issue Discussion Memorandum
____
f.
Issue Exposure Draft
____
g.
Issue Statement
____
h.
Modify Exposure Draft
____
i.
Vote
Required:
Indicate the proper sequence of these steps.
36. Assume you are tutoring a beginning accounting student who tells you that the members of the FASB must
have a great deal of power because they have the authority to issue standards that dictate accounting procedure.
Required:
Explain why accounting standards are the result of compromise and how such compromises are reached.
a.
2
d.
1
g.
9
b.
5
e.
3
h.
7
c.
4 (or 7, and existing 7, 6, & 5 would move up to 6, 5, & 4)
6
i.
8
37. Your accounting instructor allows you to look at his grade book in order to verify the points you have
received to date in the final course taken by all accounting majors. While looking at your points, you notice that
your best friend’s score on the last exam was recorded incorrectly. He received a 68 on the test but it has been
recorded as an 86 in the grade book. Your friend needs a passing grade in this class in order to graduate. If the
correct score is recorded, he might not have enough points to pass the course.
Required:
Discuss the steps you should take to deal with this ethical dilemma using three ethical criteria. You need not
indicate the ethical action you would take.
38. The FASB has undertaken six key initiatives to help attain the goal of convergence of U.S. accounting
standards with international accounting standards.
Required:
Identify the FASB initiatives and briefly discuss each of the six initiatives.
39. The SEC has several reporting choices. It can require that U.S. companies use U.S. GAAP in their financial
statement filings. Alternatively, the SEC can require or allow U.S. companies to use IFRS in their financial
statement filings. Many issues and complexities surround the use of IFRS.
Required:
Identify and discuss five of the issues to be considered by the SEC in deliberating this proposal.
Note: Twelve issues are discussed below. Five should be selected and discussed.