Question 1

In countries where capital is typically provided by a broad base of external investors,financial reporting practices tend to be different from those found in countries where capital is primarily provided by banks or the government.

Accepted Answer

Countries with a broad base of external investors tend to have more developed financial markets and greater demand for transparency and accountability, which leads to different financial reporting practices compared to countries where capital comes primarily from banks or the government.

Question 2

U.S.GAAP has been criticized as being too "rules-based" thus allowing managers to invent "loopholes" that conform to the letter of a standard but simultaneously violate its spirit.

Accepted Answer

This is a common criticism of U.S.GAAP, which has been described as relying too heavily on specific rules and lacking the flexibility to address complex transactions. This can lead to managers finding ways to comply with the rules without accurately reflecting the economic substance of the transaction.

Question 3

U.S.GAAP and IFRS are both grounded in the same economic performance philosophy.

Accepted Answer

Both U.S. GAAP and IFRS aim to provide a fair and accurate representation of the economic performance of a company. They share the same underlying principles and concepts, such as matching revenues with expenses and providing relevant and reliable financial information to stakeholders. Therefore, it is true that they are both grounded in the same economic performance philosophy.

Question 4

The ability to raise additional cash by selling assets,issuing stock,or borrowing more is
A)financial flexibility.
B)a credit risk indicator.
C)a stock price predictor.
D)one way to project earnings.

Accepted Answer

Financial flexibility refers to a company's ability to raise additional cash through various means such as selling assets, issuing stock or borrowing more. This ability provides the company with the flexibility to respond to changes in the market and meet unexpected expenses. Therefore, option A is the correct answer. Option B is incorrect as financial flexibility is not related to credit risk indicator. Option C is also incorrect as financial flexibility does not directly impact the stock price. Finally, option D is incorrect as the ability to project earnings is a separate concept from financial flexibility.

Question 5

Foreign companies registered with the SEC that use IFRS no longer have to reconcile their financial statements to U.S.GAAP.

Accepted Answer

In 2007, the SEC permitted foreign companies that use IFRS to file their financial statements without reconciling them to US GAAP.

Question 6

A company's financial statements reflect information about
A)future projections of sales,expenses,and other future economic events.
B)product information and competitive positions.
C)the general economy of the industry in which the company operates.
D)economic events that affect a company that can be translated into accounting numbers.

Accepted Answer

A company's financial statements provide information about economic events that have already occurred and can be translated into accounting numbers, such as revenues, expenses, assets, and liabilities. Financial statements do not typically provide information about future projections, product information, competitive positions, or the general economy of the industry in which the company operates.

Question 7

IFRS are frequently much more detailed than their U.S.GAAP counterpart standards.

Accepted Answer

U.S. GAAP is generally considered to be more detailed and rule-based, whereas IFRS is more principles-based and often less detailed in its accounting and disclosure requirements.

Question 8

A firm's financial statements contain trends that give users insight into the firm's
A)future market share.
B)position within its industry.
C)profitability,productivity,and liquidity.
D)current market price for common and preferred stock.

Accepted Answer

Financial statements provide information on a company's profitability, productivity, and liquidity through metrics such as net income, return on assets, and current ratio. They do not necessarily provide information on future market share or current market price for common and preferred stock, although they may indirectly impact these factors.

Question 9

A major factor underlying the rise of IFRS is that companies needing to seek global sources of capital are at a disadvantage when they only produce financial statements based on the commercial and tax law approach.

Accepted Answer

This statement is true. International Financial Reporting Standards (IFRS) have been developed to provide a globally recognized set of accounting standards that companies can use to produce financial statements that are comparable across different countries and jurisdictions. Companies that only produce financial statements based on local commercial and tax law may find it more difficult to access global capital markets, as investors may not be familiar with the relevant accounting rules and may have difficulty comparing financial performance across different companies and countries. As a result, many companies have chosen to adopt IFRS in order to enhance their access to global sources of capital.

Question 10

The goal of the growing movement toward international convergence of accounting standards is a single set of accounting standards accepted worldwide and superior to the choices presently available.

Accepted Answer

The statement accurately reflects the goal of the international convergence of accounting standards movement. The aim is to eliminate differences and inconsistencies between accounting standards in different countries and to have a single set of high-quality accounting standards that are globally recognized and adopted.

Question 11

The FASB endeavors to draft pronouncements that clearly identify the accounting objective,explain the accounting principle(s)being applied,avoid bright-line rules,and provide enough implementation guidance for consistent application.

Accepted Answer

This statement accurately describes the FASB's approach to standard-setting. The FASB aims to provide clear guidance on accounting objectives and principles, while avoiding strict rules that may not be applicable in all situations. They also provide implementation guidance to ensure consistent application of the standards.

Question 12

IFRS consists of a set of rigid standards that are now in use in over 100 countries worldwide.

Accepted Answer

IFRS (International Financial Reporting Standards) are designed to be flexible and adaptable to a wide range of business circumstances, rather than being rigid. They are indeed used in over 100 countries worldwide, aiming to bring transparency, accountability, and efficiency to financial markets around the world.

Question 13

IFRS often permits different accounting treatments for similar business transactions and events.

Accepted Answer

IFRS allows for judgment and interpretation in determining the appropriate accounting treatment for similar transactions and events. Therefore, different companies may record these transactions differently, as long as they comply with the principles and guidelines set out in the IFRS standards. This can sometimes result in variations in financial reporting among companies, even when they operate in the same industry and have similar transactions.

Question 14

Creditors assess credit risk by comparing a firm's required principal and interest payments to estimates of the firm's current and future
A)net assets.
B)gross income.
C)net income.
D)cash flows.

Accepted Answer

Creditors assess credit risk based on the ability of the firm to generate sufficient cash flows to meet its required principal and interest payments. Net assets, gross income, and net income are important, but ultimately it is the ability to generate cash that determines the firm's ability to meet its obligations.

Question 15

The costs of providing financial information is ultimately borne by
A)management.
B)shareholders.
C)auditors.
D)professional analysts.

Accepted Answer

Shareholders ultimately bear the costs of providing financial information as they are the ones who invest their money and rely on the accuracy of the information to make informed decisions. While management is responsible for generating financial statements and auditors are responsible for ensuring their accuracy, the costs associated with these activities are ultimately passed on to shareholders through fees, reduced profitability, or lower returns. Professional analysts may also incur costs in analyzing financial information, but these costs are typically borne by the firms they work for or their clients, rather than directly by shareholders.

Question 16

The IASB and FASB are working together to develop a single set of high-quality,compatible accounting standards that can be used for both domestic and cross-border financial reporting.

Accepted Answer

The statement is true as the IASB and FASB have been working together since 2002 to develop a set of high-quality, global accounting standards known as IFRS (International Financial Reporting Standards). Their goal is to create a single set of standards that can be used for both domestic and cross-border financial reporting, thereby improving the comparability and consistency of financial statements across different countries and markets.

Question 17

Compared to U.S.GAAP,IASB standard generally allow firms more latitude.

Accepted Answer

Generally, IASB standards are considered more principles-based, allowing for more flexibility and judgment in applying the standards compared to the more rules-based U.S. GAAP. This can result in more latitude for firms in certain situations. However, it is important to note that both sets of standards have their own specific requirements and limitations.

Question 18

Currently,publicly traded companies located in the European Union must adopt IFRS for financial reporting in consolidated statements.

Accepted Answer

This is true, as per the requirements of the EU's Fourth Directive, publicly traded companies located in the European Union must adopt International Financial Reporting Standards (IFRS) for financial reporting in consolidated statements.

Question 19

All financial statements:
A)provide a picture of the company at a moment in time.
B)describe changes that took place over a period of time.
C)help to evaluate what happened in the past.
D)contain the most up to date information about the company.

Accepted Answer

The answer of All financial statements:
A)provide a picture of the...

Question 20

Professional analysts need information on a company's future earnings and cash flow to evaluate audit vulnerabilities,to assess debt repayment prospects and to
A)certify good values in the stock market.
B)indemnify creditors against losses.
C)certify that no fraud exists in the company.
D)value its equity securities.

Accepted Answer

Professional analysts evaluate a company's future earnings and cash flow to assess its financial health and prospects, which is crucial for valuing its equity securities. This involves analyzing the company's potential for growth, profitability, and its ability to meet financial obligations, which directly impacts the valuation of its stocks or equity securities in the market.

Quiz 1: The Economic and Institutional Setting for Financial Reporting

In countries where capital is typically provided by a broad base of external investors,financial reporting practices tend to be different from those found in countries where capital is primarily provided by banks or the government.

U.S.GAAP has been criticized as being too "rules-based" thus allowing managers to invent "loopholes" that conform to the letter of a standard but simultaneously violate its spirit.

U.S.GAAP and IFRS are both grounded in the same economic performance philosophy.

The ability to raise additional cash by selling assets,issuing stock,or borrowing more is

Foreign companies registered with the SEC that use IFRS no longer have to reconcile their financial statements to U.S.GAAP.

A company's financial statements reflect information about

IFRS are frequently much more detailed than their U.S.GAAP counterpart standards.

A firm's financial statements contain trends that give users insight into the firm's

A major factor underlying the rise of IFRS is that companies needing to seek global sources of capital are at a disadvantage when they only produce financial statements based on the commercial and tax law approach.

The goal of the growing movement toward international convergence of accounting standards is a single set of accounting standards accepted worldwide and superior to the choices presently available.

The FASB endeavors to draft pronouncements that clearly identify the accounting objective,explain the accounting principle(s)being applied,avoid bright-line rules,and provide enough implementation guidance for consistent application.

IFRS consists of a set of rigid standards that are now in use in over 100 countries worldwide.

IFRS often permits different accounting treatments for similar business transactions and events.

Creditors assess credit risk by comparing a firm's required principal and interest payments to estimates of the firm's current and future

The costs of providing financial information is ultimately borne by

The IASB and FASB are working together to develop a single set of high-quality,compatible accounting standards that can be used for both domestic and cross-border financial reporting.

Compared to U.S.GAAP,IASB standard generally allow firms more latitude.

Currently,publicly traded companies located in the European Union must adopt IFRS for financial reporting in consolidated statements.

All financial statements:

Professional analysts need information on a company's future earnings and cash flow to evaluate audit vulnerabilities,to assess debt repayment prospects and to