Chapter 6—THE SEARCH FOR OBJECTIVES
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TRUE/FALSE
1. The postulates and principles approach was concerned with user objectives.
2. Several important committee reports gave rise to objectives and standards in place of the
postulates and principles approach.
3. “A Statement of Basic Accounting Theory” (ASOBAT) assumed that the evaluative framework
of standards and guidelines was dependent upon the objectives of accounting.
4. The purpose of ASOBAT was to refine the objectives of financial statements as a part of a
metatheoretical structure.
5. Moonitz felt that APB Statement 4 should have been issued as an opinion rather than as a
statement because departures from GAAP made in a statement did not have to be disclosed.
6. APB Statement No. 4 acknowledges a conflict between the relevance and reliability objectives.
7. Relevance is considered the most important of the qualitative objectives of APB Statement 4.
8. APB Statement 4 adopted a very strong emphasis on the diversity of users.
9. APB Statement 4 was in agreement with ASOBAT that financial statements should be oriented
toward a limited group of users.
10. According to APB Statement 4, basic accounting terminology is defined by whatever is being
done in practice.
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11. Large parts of APB Statement 4 are restatements of the conventional wisdom of the time.
12. The Trueblood report noted that, during the short run, cash flows are a better predictor of cash–
generating power than are earnings.
13. In the Trueblood Committee Report, the meaning of the word accountability is limited to the
functions of safekeeping of assets and ensuring that they are used in accordance with investors’
purposes.
14. According to the Trueblood Committee Report, current values should be reported when they
differ significantly from historical costs.
15. The purpose of SATTA was to provide a survey of the current financial accounting literature and
a statement of where the profession stood relative to accounting theory.
16. The decision-usefulness approach is one of the classical approaches to accounting theory
mentioned in SATTA.
17. The overriding message of SATTA is that current-cost should be accepted as the dominate
valuation system.
18. A problem brought up by SATTA is the diversity of users in terms of their decisions and their
possible different information needs.
19. Accounting information is determined by supply and demand.
20. Empirical research has proven that user needs are heterogeneous.
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21. Accountability refers to the responsibility of management to report on achieving goals for the
effective and efficient utilization of enterprise resources.
22. Measurements based on the accountability objective would include earnings per share but not
return on investment.
23. The main problem standing in the way of newer information approaches is the perceived
competitive disadvantage of making public matters that management would prefer to keep secret.
24. The first statement to address the issue of user objectives extensively was ASOBAT.
25. SATTA expressed the opinion that choice among accounting theories could not be made at the
time because of the diversity of users and their presumably different objectives and information
needs.
26. The Chartered Financial Analysts’ business reporting model for equity investors shows a
preference for relevance over reliability.
MULTIPLE CHOICE
1. Which of the following bodies did not publish one of the important committee reports and
documents that lead to accounting objectives and standards?
a.
AAA
b.
AICPA
c.
APB
d.
CAP
2. Which of the following organizations published “Objectives of Financial Statements” (Trueblood
Committee Report)?
a.
AAA
b.
AICPA
c.
APB
d.
CAP
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3. Which of the following organizations published “A Statement of Basic Accounting Theory”
(ASOBAT)?
a.
AAA
b.
AICPA
c.
APB
d.
CAP
4. Which of the following documents stated fundamental concepts of financial reporting that would
serve as a foundation for the opinions of the APB?
a.
“Objectives of Financial Statements” (Trueblood Committee Report)
b.
“Basic Concepts and Accounting Principles Underlying Financial Statements of Business
Enterprises” (APB Statement 4)
c.
“A Statement of Basic Accounting Theory” (ASOBAT)
d.
“Statement of Accounting Theory and Theory Acceptance” (SATTA)
5. Which of the following documents contained a definition of accounting that fortified the
perception of the accountant as a learned professional whose presentation must be accepted by
those who do not have his qualifications and credentials?
a.
“Statement of Accounting Theory and Theory Acceptance” (SATTA)
b.
“A Statement of Basic Accounting Theory” (ASOBAT)
c.
“Basic Concepts and Accounting Principles Underlying Financial Statements of Business
Enterprises” (APB Statement 4)
d.
“Accounting Terminology Bulletin No. 1”
6. Which of the following documents defined accounting as a service activity whose function is “to
provide quantitative information… that is intended to be useful in making economic decisions”?
a.
“Objectives of Financial Statements” (Trueblood Committee Report)
b.
“Basic Concepts and Accounting Principles Underlying Financial Statements of Business
Enterprises” (APB Statement 4)
c.
“A Statement of Basic Accounting Theory” (ASOBAT)
d.
“Statement of Accounting Theory and Theory Acceptance” (SATTA)
7. Which of the following documents first stated that users of financial statements should be
knowledgeable and should understand the characteristics and limitations of financial statements?
a.
“Objectives of Financial Statements” (Trueblood Committee Report)
b.
“Basic Concepts and Accounting Principles Underlying Financial Statements of Business
Enterprises” (APB Statement 4)
c.
“A Statement of Basic Accounting Theory” (ASOBAT)
d.
“Statement of Accounting Theory and Theory Acceptance” (SATTA)
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8. ASOBAT emphasized which of the following in its definition of accounting?
a.
The creative ability of the accountant
b.
The work and skill of the accountant
c.
The needs of the users of accounting information
d.
Recording transactions
9. Which of the following was not a goal of ASOBAT?
a.
To identify the field of accounting so that useful generalizations about it could be made
and a theory developed
b.
To establish standards by which accounting information might be judged
c.
To point out possible improvements in accounting practice
d.
To emphasize the creative skill and ability of the accountant, whose presentation should be
accepted by those who do not have his or her qualifications and credentials
10. Which of the following is not one of the four objectives of accounting given by ASOBAT?
a.
To make decisions concerning the use of limited resources (including the identification of
crucial decision areas) and to determine objectives and goals
b.
To direct and control an organization’s human and material resources effectively
c.
To relate the evaluative framework of standards and guidelines to the objectives
themselves
d.
To facilitate social functions and controls
11. Which of the following set of standards is at the heart ASOBAT?
a.
Relevance, Verifiability, Objectivity, Usefulness
b.
Relevance, Verifiability, Freedom from Bias, Quantifiability
c.
Reliability, Verifiability, Freedom from Bias, Quantifiability
d.
Relevance, Usefulness, Freedom from Bias, Objectivity
12. Which of the following is not a problem of APB Statement 4 mentioned in the text?
a.
It is questionable whether the objectives can be implemented by means of the various
principles derived from the existing body of accounting.
b.
It contains a loosely worded set of definitions.
c.
It attempts to be all things to all people.
d.
It does not state important evolutionary changes that had begun to occur.
13. Which of the following standards is related to measurement theory?
a.
Quantifiability
b.
Freedom from bias
c.
Usefulness
d.
Objectivity
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14. Which of the following standards is related to the qualitative characteristic of neutrality?
a.
Quantifiability
b.
Freedom from bias
c.
Usefulness
d.
Objectivity
15. Which of the following statements is not true regarding the Trueblood Committee?
a.
It was formed at a time when the APB was under heavy criticism.
b.
It was formed when very little progress was being made in terms of reformulating the
structure of accounting theory.
c.
It was charged with using APB Statement 4 as a vehicle for refining the objective of
financial statements.
d.
It enumerated a total of twelve objectives of financial accounting.
16. According to Sorter and Gans, which of the following describes the intent of the Trueblood
Committee Report’s second financial statement objective?
a.
Financial statements should serve those with limited ability.
b.
Financial statements should serve special needs of specific users.
c.
Financial statements should serve the general needs of users.
d.
Financial statement should serve only those users who are very knowledgeable about
financial statements and information.
17. According to the text, “limited ability” in the Trueblood Committee Report’s second financial
statement objective may refer to:
a.
Full disclosure.
b.
Financial statements designed to meet the special needs of specific users.
c.
Serving users with specific limitations.
d.
Both a and b
18. Which of the following statements is true regarding the Trueblood Committee Report?
a.
It expresses the belief that different valuation bases are appropriate for different assets and
liabilities.
b.
It is concerned with guaranteeing additivity of asset and liability amounts.
c.
It expresses the belief that the same valuation base should be used for all assets and all
liabilities.
d.
Both b and c
19. Which of the following statements is not true regarding the Trueblood Committee Report?
a.
It emphasizes the importance of cash flows to users.
b.
It emphasizes the relation of earning-power measurements to the generation of future cash
flows.
c.
Its earning-power orientation to income is grounded in the notion that in computing
economic income, future cash flows should not be discounted to present value.
d.
Its objectives represented an important step taken toward establishing a meaningful
conceptual framework of objectives.
20. Which of the following is not true regarding SATTA?
a.
It attempted to develop metatheoretical guidelines for the evaluation of accounting
information and valuation systems.
b.
It took into account the many valuation systems of accounting as well as other theoretical
considerations.
c.
It enumerated the reasons why it was impossible to develop criteria that would enable the
profession to unequivocally accept a single valuation system for accounting.
d.
It was commissioned by the AAA.
21. 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
22. For which of the following areas is broad information applicable to many user groups?
a.
Predictive ability
b.
Accountability
c.
Both a and b
d.
None of the above
23. Which of the following is true regarding the predictive ability of accounting data?
a.
The predictive ability objective is validated by market efficiency.
b.
Previous studies have indicated that historical cost income is not as good a predictor of
itself as general price-level-adjusted income or current value income.
c.
Studies have found that income measurement methods that have the greatest predictive
ability are also best in terms of most other objectives.
d.
Predictive ability is the same as the quantifiability standard of ASOBAT.
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24. Which of the following statements is true regarding accountability?
a.
Accountability refers to a narrower concept than does stewardship.
b.
Measurements based on the accountability objective include earnings per share but not
return on investment.
c.
The question of which valuation system provides the best input for accountability-oriented
measurement is unimportant.
d.
Accountability refers to the responsibility of management to report on achieving goals for
the effective and efficient utilization of enterprise resources.
25. What is the most common thread running through various documents, reports, and monographs
discussed in the text?
a.
The historical cost method of income measurement is as good a predictor of itself as other
methods.
b.
Financial statements should be relevant to users for decision-making purposes.
c.
Earning-power measurements are essential to the prediction of future cash flows.
d.
The same valuation base should be used for all assets and all liabilities.
26. Which of the following documents was the first to be based on an orientation toward user
relevance?
a.
“Objectives of Financial Statements” (Trueblood Committee Report)
b.
“Basic Concepts and Accounting Principles Underlying Financial Statements of Business
Enterprises” (APB Statement 4)
c.
“A Statement of Basic Accounting Theory” (ASOBAT)
d.
“Statement of Accounting Theory and Theory Acceptance” (SATTA)
27. Which of the following documents was the first to address the issue of user objectives
extensively?
a.
“Objectives of Financial Statements” (Trueblood Committee Report)
b.
“Basic Concepts and Accounting Principles Underlying Financial Statements of Business
Enterprises” (APB Statement 4)
c.
“A Statement of Basic Accounting Theory” (ASOBAT)
d.
“Statement of Accounting Theory and Theory Acceptance” (SATTA)
28. Which of the following documents expressed the opinion that a choice among accounting
valuation systems could not be made because of the diversity of users?
a.
“Objectives of Financial Statements” (Trueblood Committee Report)
b.
“Basic Concepts and Accounting Principles Underlying Financial Statements of Business
Enterprises” (APB Statement 4)
c.
“A Statement of Basic Accounting Theory” (ASOBAT)
d.
“Statement of Accounting Theory and Theory Acceptance” (SATTA)
29. The major objectives of financial statements are:
a.
Capital maintenance measurement and adaptability.
b.
Accountability and adaptability.
c.
Predictive ability and accountability.
d.
Capital maintenance and predictive ability.
30. The secondary objectives of financial statements are:
a.
Capital maintenance measurement and adaptability.
b.
Accountability and adaptability.
c.
Predictive ability and accountability.
d.
Capital maintenance and predictive ability.
ESSAY
1. How did the definition of accounting change from the period before ASOBAT to the issuance of
SATTA in 1977?
dichotomized into decision models and decision-makers.
b.
The characteristics of the decision-model approach are:
2. List and define the four standards for evaluating accounting that are at the heart of ASOBAT.
(1)
It defined accounting along the user-oriented track taken by ASOBAT.
should understand the characteristics and limitations of financial statements.
oriented toward a limited group of users.
(4)
It noted that accounting is a measurement discipline.
statement concurs with ASOBAT on possible conflict among objectives.
(6)
It concentrated on developing the user-oriented approach.
the system of historical costing.
3. Identify the major contributions of APB Statement 4.
4. Respond to the following:
a.
What is the decision-usefulness approach to accounting theory?
b.
What are the characteristics and limitations of the decision-model approach?
c.
What are the characteristics of the decision-maker approach?
(1)
Relevance pertains to usefulness in making the decision at hand.
consensus among measurers.
(3)
Freedom from bias refers to neutrality in the preparation of financial statements.
(4)
Quantifiability refers to the ability to be measured.
5. Identify and explain the two primary objectives of financial statements and the two secondary
objectives of financial statements.
6. Respond to the following:
a.
List some of the possible groups of financial statement users.
b.
What is meant by “user diversity,” and does user diversity create a potential
problem?
extremely relevant information for decision making, an argument can be made that
users must be educated to understand the method.
what information is actually used or desired, the assumption being that the
information that is desired should be supplied.
