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61. FASB Technical Bulletins
a. are similar to FASB Interpretations in that they establish enforceable standards under
the AICPA’s Code of Professional Ethics.
b. are issued monthly by the FASB to deal with current topics.
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.
d. were recently discontinued by the FASB because they dealt with specialized topics
having little impact on financial reporting in general.
62. The purpose of the Emerging Issues Task Force is to
a. develop a conceptual framework as a frame of reference for the solution of future
problems.
b. lobby the FASB on issues that affect a particular industry.
c. do research on issues that relate to long-term accounting problems.
d. issue statements which reflect a consensus on how to account for new and unusual
financial transactions that need to be resolved quickly.
63. The American Institute of Certified Public Accountants (AICPA) continues to be involved in
all of the following except
a. developing and enforcing professional ethics.
b. developing auditing standards for public companies.
c. providing professional education programs.
d. All of the answer choices are correct.
P64. Which of the following pronouncements were issued by the Accounting Principles Board?
a. Accounting Research Bulletins
b. APB Opinions
c. APB Statements of Position
d. Statements of Financial Accounting Concepts
65. Which of the following organizations has not been instrumental in the development of
financial accounting standards in the United States?
a. AICPA
b. FASB
c. IASB
d. SEC
66. Which of the following organizations has not published accounting standards?
a. American Institute of Certified Public Accountants.
b. Securities and Exchange Commission.
c. Financial Accounting Standards Board.
d. All of these have published accounting standards.
67. The purpose of Statements of Financial Accounting Concepts is to
a. establish GAAP.
b. modify or extend an existing FASB Accounting Standards Update.
c. form a conceptual framework for solving existing and emerging problems.
d. determine the need for FASB involvement in an emerging issue.
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P68. Members of the Financial Accounting Standards Board are
a. employed by the American Institute of Certified Public Accountants (AICPA).
b. part-time employees.
c. required to hold a CPA certificate.
d. independent of any other organization.
P69. 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:
a. 1, 2, 3.
b. 1, 3, 2.
c. 2, 3, 1.
d. 3, 1, 2.
70. Which of the following is true of generally accepted accounting principles?
a. GAAP includes detailed practices and procedures as well as broad guidelines of
general application.
b. GAAP is influenced by pronouncements of the SEC and IRS.
c. GAAP changes over time as the nature of the business environment changes.
d. All of these answer choices are correct.
71. The most significant current source of generally accepted accounting principles is the
a. AICPA.
b. SEC.
c. APB.
d. FASB.
72. Which of the following is not a part of generally accepted accounting principles?
a. The FASB Interpretations
b. The CAP Accounting Research Bulletins
c. The APB Opinions
d. All of these are part of generally accepted accounting principles.
73. Which of the following publications does not qualify as a statement of generally accepted
accounting principles?
a. Statements of financial standards issued by the FASB
b. Accounting interpretations issued by the FASB
c. APB Opinions
d. Accounting research studies issued by the AICPA
74. Rule 203 of the Code of Professional Conduct addresses:
a. ethical requirements.
b. financial statements being based on generally accepted accounting principles.
c. advertising to obtain clients.
d. auditing financial statements.
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75. What is the purpose of a FASB Staff Position?
a. Provide interpretation of existing standards.
b. Provide a consensus on how to account for new and unusual financial transactions.
c. Provide interpretive guidance.
d. Provide timely guidance on select issues.
76. Which of the following is not considered a component of generally accepted accounting
principles?
a. FASB Implementation Guides.
b. Widely recognized industry practices.
c. Articles published in CPA journals.
d. AICPA Accounting Interpretations.
77. 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.
b. is based solely on research and empirical findings.
c. is a legalistic process based on rules promulgated by governmental agencies.
d. is democratic in the sense that a majority of accountants must agree with a standard
before it becomes enforceable.
78. The purpose of the International Accounting Standards Board is to
a. issue enforceable standards which regulate the financial accounting and reporting of
multinational corporations.
b. develop a uniform currency in which the financial transactions of companies through-
out the world would be measured.
c. promote uniform accounting standards among countries of the world.
d. arbitrate accounting disputes between auditors and international companies.
79. Which of the following is a source of pressure that may influence the accounting standard
setting process?
a. Congress.
b. Lobbyist.
c. CPA firms.
d. All of these answers are correct.
80. 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.
b. Individuals may influence the standards.
c. User groups become active.
d. The FASB delegates its authority to elected officials.
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81. What is the “expectations gap”?
a. The difference between what the public thinks the accountant should not do and what
the accountant knows they should do.
b. The difference between what the public thinks the accountant is doing and what
Congress says the accountant is doing.
c. The difference between what the public thinks the accountant should do and what the
accountant thinks they can do.
d. The difference between what the accountant is doing and what the Courts say the
accountant should be doing.
82. What is not a reason that accounting standards may differ across countries?
a. Governments.
b. Language.
c. Culture.
d. Past practice.
83. What would be an advantage of having all countries adopt and follow the same
accounting standards?
a. Agreement.
b. Comparability.
c. Lower preparation costs.
d. Comparability and lower preparation costs.
84. Which of the following is an ethical concern of accountants?
a. Earnings manipulation.
b. Conservative accounting.
c. Industry practices.
d. None of these answers are correct.
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EXERCISES
Ex. 1-85—Objective of financial reporting.
What is the objective of financial reporting? How do general-purpose financial statements help
meet this objective.
Solution 1-85
Ex. 1-86—Development of accounting principles.
Presented below are three independent, unrelated statements regarding the formulation of
generally accepted accounting principles. Each statement contains some incorrect or debatable
statement(s).
Statement I
The users of financial accounting statements have coinciding and conflicting needs for
statements of various types. To meet these needs, and to satisfy the financial reporting
responsibility of management, accountants prepare different sets of financial statements for
different users.
Statement II
The FASB should be responsive to the needs and viewpoints of the entire economic community,
not just the public accounting profession. The FASB therefore will succeed because it will deal
effectively with all interested groups.
Statement III
The Securities and Exchange Commission is very concerned about financial reporting and has
formulated a committee called the Accounting Standards Executive Committee (AcSEC). This will
provide input to the FASB. In addition, after each FASB Statement is issued, the AcSEC issues
Statements of Position stating its position on the FASB statement.
Instructions
Evaluate each of the independent statements and identify the areas of fallacious reasoning in
each. Explain why the reasoning is incorrect. Complete your discussion of each statement before
proceeding to the next statement.
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Solution 1-86
Statement I
Ex. 1-87—Publications and organizations.
Significant accounting publications are listed below (1-8). Sources or sponsors of accounting
publications are identified next by alphabetical character (a-e). Match the publications with their
sources.
Publications
____ 1. Accounting Research Bulletins (1953-1959)
____ 2. Accounting Standards Updates
____ 3. Statements of Position (SOPs)
____ 4. Statements of Financial Accounting Concepts
____ 5. Opinions (1962-1973)
Sources/Sponsors
a. Financial Accounting Standards Board d. Committee on Accounting Procedure
b. Accounting Standards Executive Committee e. Accounting Principles Board
c. The AICPA
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Solution 1-87
Ex. 1-88—FASB.
The Financial Accounting Standards Board was established because many groups interested in
financial reporting believed that the Accounting Principles Board was not effective. Discuss the
apparent advantages that the FASB should have over its earlier counterpart, the APB.
Solution 1-88
Ex. 1-89—Evolution of a statement of financial accounting standards.
In establishing financial accounting standards, two basic premises of the FASB are (1) The FASB
should be responsive to the needs and viewpoints of the entire economic community, not just the
accounting profession. (2) It should operate in full view of the public through a “due process”
system that gives interested persons ample opportunity to make their views known. To ensure
achievement of these goals, what are the steps taken in the evolution of an FASB Statement of
Financial Accounting Standards?
Solution 1-89
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IFRS QUESTIONS
True/False:
1. IFRS includes both International Financial Reporting Standards and International Accounting
Standards.
2. International Financial Reporting Standards preceded International Accounting Standards
3. The standard-setting structure used by the International Accounting Standards Board is very
similar to that used by the Financial Accounting Standards Board.
4. The rules-based standards of IFRS are more detailed than the simpler, principles-based
standards of U.S. GAAP.
5. The International Accounting Standards Board has seven members.
6. The internal control standards applicable to Sarbanes–Oxley (SOX) apply only to large public
companies listed on U.S. exchanges.
Answers to True/False questions:
Multiple Choice:
7. Authoritative standards for IFRS include:
a. International Financial Reporting Standards only.
b. International Financial Reporting Standards and International Accounting Standards only.
c. International Financial Reporting Standards, International Accounting Standards and U.S.
GAAP only.
d. International Financial Reporting Standards, International Accounting Standards and any
GAAP standard recognized by an organized stock exchange.
8. Which of these statements regarding the IFRS and U.S. GAAP is correct?
a. U.S. GAAP is considered to be “principles-based“.
b. U.S. GAAP is considered to be less detailed than IFRS.
c. IFRS is considered to be “principles-based” and less detailed than U.S. GAAP
d. Both U.S. GAAP and IFRS are considered to be “rules-based”, but U.S. GAAP tends to be
more complex.
9. The IASB’s standard-setting structure includes all of the following except
a. the Standing Interpretations Committee
b. the Standards Advisory Council
c. the Standards Comparison Committee
d. the Trustees
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10. Which of the following organizations have committed to develop high-quality, compatible
accounting standards that could be used for domestic and cross-border financial reporting
a. The Financial Accounting Standards Board (FASB) and the International Organization of
Securities Commission (IOSCO)
b. The Financial Accounting Standards Board (FASB) and the International Accounting
Standards Board (IASB)
c. The International Accounting Standards Board (IASB) and International Organization of
Securities Commission (IOSCO)
d. The International Accounting Standards Board (IASB) and the Standards Advisory Council
(SAC)
11. Which of the following organizations is not among the four international standard-setting
organizations?
a. The International Accounting Standards Committee Foundation (IASCF)
b. The Standards Advisory Council (SAC)
c. The International Financial Reporting Interpretations Committee (IFRIC)
d. The Financial Executives Institute (FEI)
12. Which of the following organizations selects members for the IASB?
a. The Accounting Standards Committee Foundation
b. The Standards Advisory Council
c. The International Financial Reporting Interpretations Committee
d. The International Accounting Standards Committee Foundation
13. The IASB consists of _________ part-time members.
a. seven
b. two
c. three
d. five
14. The purpose of the International Accounting Standards Board is to:
a. regulate stock prices at the international level.
b. develop a uniform currency in which the financial transactions occur.
c. develop a single set of high-quality financial reporting standards.
d. arbitrate accounting disputes between auditors and international companies.
Answers to Multiple Choice:
Short Answer:
15. Why would it be advantageous for U.S. GAAP and International GAAP to be the same?
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16. What is the difference between principles-based and rules-based accounting rules? Is IFRS
more principles-based than U.S. GAAP? Explain.