Question 1

_____ is a private-sector financial accounting standard setter that promulgates accounting standards that are required or permitted to be used in over 100 countries, but has no enforcement powers.
A)Financial Accounting Standards Board (FASB)
B)International Accounting Standards Board (IASB)
C)Public Company Accounting Oversight Board (PCAOB)
D)U.S.Securities and Exchange Commission (SEC)
E)Governmental Accountability Office (GAO)

Accepted Answer

The International Accounting Standards Board (IASB) is a private-sector financial accounting standard setter that promulgates accounting standards that are required or permitted to be used in over 100 countries. However, the IASB has no enforcement powers. The Financial Accounting Standards Board (FASB) is a similar organization, but it operates primarily in the United States. The Public Company Accounting Oversight Board (PCAOB) is a regulatory organization that oversees public accounting firms that audit public companies in the United States. The U.S. Securities and Exchange Commission (SEC) is a government agency that regulates and oversees the securities industry and financial markets in the United States. The Government Accountability Office (GAO) is a government agency that provides auditing, evaluation, and investigative services for Congress.

Question 2

_____ must be used by U.S.Securities and Exchange Commission (SEC) registrants.
A)U.S.GAAP
B)International Financial Reporting Standards (IFRS)
C)U.S.GAAS
D)International GAAP
E)International GAAS

Accepted Answer

U.S. SEC registrants must use U.S. Generally Accepted Accounting Principles (GAAP) for financial reporting. While IFRS is gaining acceptance in some countries, it is not required in the United States. U.S. Generally Accepted Auditing Standards (GAAS) and International GAAP and GAAS are related to auditing and are not relevant to this question.

Question 3

The managers of a business prepare financial statements to present meaningful information about that business's activities to external users. Who are the external users?
A)owners
B)lenders
C)regulators
D)tax authorities
E)all of the above

Accepted Answer

External users include all of the choices given: owners, lenders, regulators, and tax authorities. Owners want to know the financial health of their investment, lenders want to assess the risk of lending money to the business, regulators need to ensure compliance with laws and regulations, and tax authorities use financial statements to calculate taxes owed.

Question 4

_____ refers to converting a noncash item to cash, for example, collecting an account receivable.
A)Actualization
B)Recognition
C)Realization
D)Materialization
E)Transformation

Accepted Answer

Realization refers to the process of converting a noncash item (such as an account receivable) to cash. This involves collecting the cash and recognizing the transaction in the financial statements. Actualization, recognition, materialization, and transformation do not refer specifically to converting noncash items to cash.

Question 5

FASB board members make standard-setting decisions guided by a conceptual framework that addresses the qualitative characteristics of accounting information. Which of the qualitative characteristics of accounting information holds that the information should be pertinent to the decisions made by users of financial statements, in the sense of having the capacity to affect their resource allocation decisions?
A)Relevance
B)Reliability
C)Comparability.
D)Subjective
E)all of the above

Accepted Answer

The qualitative characteristic of relevance holds that accounting information should be pertinent to the decisions made by users of financial statements, in the sense of having the capacity to affect their resource allocation decisions. Reliability pertains to information that is free of material error or bias, while comparability relates to the ability to compare financial information across different periods and companies. Subjectivity is not a qualitative characteristic of accounting information.

Question 6

FASB board members make standard-setting decisions guided by a conceptual framework that addresses the qualitative characteristics of accounting information. Which of the qualitative characteristics of accounting information holds that the information should facilitate comparisons across firms and over time?
A)Relevance
B)Reliability
C)Comparability.
D)Subjective
E)all of the above

Accepted Answer

Comparability is the qualitative characteristic that holds that the information should facilitate comparisons across firms and over time. Relevance refers to information that is capable of making a difference in a decision. Reliability refers to information that is free from error and bias. Subjectivity refers to judgments or opinions that may vary between individuals or groups.

Question 7

Concerns over the quality of financial reporting have led, and continue to lead, to government initiatives in the United States.For example, the _____, among other things, established the Public Company Accounting Oversight Board (PCAOB), which is responsible for monitoring the quality of audits of SEC registrants.This Act requires the PCAOB to register firms conducting independent audits of SEC registrants; establish or adopt acceptable auditing, quality control, and independence standards; and provide for periodic inspections of the registered auditors.
A)Securities and Exchange Act of 1933
B)Securities and Exchange Act of 1934
C)Investment Advisors Act of 1940
D)Sarbanes-Oxley Act of 2002
E)Investment Company Act of 1940

Accepted Answer

The Sarbanes-Oxley Act of 2002 established the Public Company Accounting Oversight Board (PCAOB) to monitor the quality of audits of SEC registrants. It requires the PCAOB to register firms conducting independent audits of SEC registrants, establish or adopt acceptable auditing, quality control, and independence standards, and provide for periodic inspections of the registered auditors.

Question 8

Which of the following is true?
A)A firm without sufficient cash will not survive.
B)A firm operating profitably will always survive.
C)Examining the cash receipts and disbursements during each month can identify the reasons for any deterioration of the cash balance.
D)a and c
E)all of the above

Accepted Answer

Option A is true because without sufficient cash, a firm will not be able to pay its bills and ultimately fail.

Option B is false because even a profitable firm can fail if it does not have enough cash to finance its operations.

Option C is true because analyzing cash receipts and disbursements can help identify the reasons for a cash shortfall and take corrective action.

Therefore, options A and C are correct, and the answer is D.

Question 9

To reduce the lag on collection of accounts receivable, a company might
A)offer a discount if customers pay quickly.
B)charge interest if customers delay payment.
C)use the accounts receivable as a basis for external financing.
D)sell only for cash.
E)all of the above

Accepted Answer

Each option is a strategy to reduce the lag on collection of accounts receivable: A) incentivizes early payment, B) penalizes late payment, C) improves cash flow through financing, and D) eliminates receivables lag by requiring immediate payment.

Question 10

The purpose of the conceptual framework developed by the Financial Accounting Standards Board (FASB) is to guide?
A)alternative rule making decisions
B)enforcement decisions
C)academic research and study
D)Congressional decision-makers
E)standard setting decisions

Accepted Answer

The conceptual framework developed by the FASB is meant to guide standard setting decisions in order to ensure consistency, relevance, and comparability in financial reporting. It provides a set of concepts and principles that serve as a foundation for the development of accounting standards.

Question 11

Who provides an opinion that reflects their professional conclusions regarding the financial statements and for most publicly traded firms in the U.S.also provides a separate opinion on the effectiveness of the firm's internal controls over financial reporting?
A)management
B)controller
C)financial vice-president
D)independent auditor
E)general counsel

Accepted Answer

An independent auditor provides an opinion reflecting their professional conclusions regarding the financial statements, as well as a separate opinion on the effectiveness of the firm's internal controls over financial reporting for most publicly traded firms in the U.S. Management, the controller, financial vice-president, and general counsel may have input into the preparation of financial statements, but they do not provide the required independent opinion.

Question 12

_____ captures the qualitative notion that financial reports need not include items that are so small as to be meaningless to users of the reports.
A)Maximization
B)Realization
C)Recognition
D)Materiality
E)Minimization

Accepted Answer

Materiality is the concept in accounting that refers to the relative importance or significance of an item or transaction to the financial statements. Items that are immaterial or insignificant can be omitted from financial reports because they are not likely to impact a user's decision-making process. The principle of materiality recognizes that financial reports should only include information that is relevant and useful to users.

Question 13

Regulatory bodies generally require firms whose securities trade publicly (for example, common shares) to obtain an audit of their financial reports by _____.
A)the audit committee
B)the vice-president for finance
C)an internal auditor.
D)an independent external auditor.
E)the controller

Accepted Answer

Regulatory bodies generally require firms to obtain an audit of their financial reports by an independent external auditor to ensure objectivity and impartiality in the audit process. The other options such as the audit committee, the vice-president for finance, or an internal auditor are not independent and may have conflicts of interest or lack the necessary expertise to perform a comprehensive audit. The controller may play a role in preparing the financial reports but is not responsible for auditing them.

Question 14

In 2007 the U.S.SEC adopted new rules that permit _____ that list and trade their securities in the United States to apply IFRS in their financial reports filed with the SEC without any reconciliation to U.S.GAAP.
A)U.S.SEC registrants
B)non-U.S.SEC registrants
C)EU SEC registrants
D)Chinese SEC registrants
E)all of the above

Accepted Answer

The new rules adopted by the U.S.SEC in 2007 permit non-U.S. SEC registrants that list and trade their securities in the United States to apply IFRS in their financial reports filed with the SEC without any reconciliation to U.S. GAAP. Therefore, Choice B is the correct option.

Question 15

To increase cash flow, a manufacturer might:
A)delay paying its suppliers.
B)borrow from a bank using the inventory as collateral.
C)institute a just-in-time inventory system.
D)all of the above
E)none of the above

Accepted Answer

Delaying payments to suppliers can help increase cash flow in the short term, as can borrowing from a bank using inventory as collateral. Instituting a just-in-time inventory system can also improve cash flow by reducing inventory holding costs and freeing up capital. Therefore, all of the above options can be effective strategies for increasing cash flow.

Question 16

_____ items are depicted in words and numbers on the face of the financial statements, with amounts included in the totals.
A)Recognized
B)Realized
C)Actualized
D)Objective
E)Relevant

Accepted Answer

The word "recognized" refers to items that have met certain criteria for inclusion on the financial statements, such as meeting the definition of an asset, liability, revenue, or expense. These items are depicted in words and numbers on the face of the financial statements with amounts included in the totals.

Question 17

FASB board members make standard-setting decisions guided by a conceptual framework that addresses the qualitative characteristics of accounting information. Which of the qualitative characteristics of accounting information holds that the information should represent what it is supposed to represent, in the sense that the information should correspond to the phenomenon being reported, and it should be verifiable and free from bias?
A)Relevance
B)Reliability
C)Comparability.
D)Subjective
E)all of the above

Accepted Answer

The qualitative characteristic described in the question is reliability, which emphasizes that the information should be verifiable, free from bias, and faithfully represent the phenomenon being reported. Choice A (relevance) is also a qualitative characteristic but emphasizes the importance of information being pertinent and useful to decision-making. Choice C (comparability) refers to the ability to compare information across different entities and time periods. Choice D (subjective) is not a qualitative characteristic but rather a term used to describe information that is based on personal opinions or viewpoints. Therefore, the answer is B.

Question 18

As of 2011, the _____ is an independent accounting standard-setting entity with 15 voting members from a number of countries.
A)Public Companies Accounting Oversight Board (PCAOB)
B)International Accounting Standards Board (IASB)
C)American Institute of Certified Public Accountants (AICPA)
D)World Institute of Certified Public Accountants (WICPA)
E)International Institute of Certified Public Accountants (IICPA)

Accepted Answer

The International Accounting Standards Board (IASB) became an independent accounting standard-setting entity in 2001 and has 15 voting members from various countries. The Public Companies Accounting Oversight Board (PCAOB) is a regulatory body overseeing the auditing profession in the United States. The American Institute of Certified Public Accountants (AICPA) is a professional organization for accountants in the United States. The World Institute and International Institute of Certified Public Accountants are not recognized organizations.

Question 19

The _____ is the private-sector financial accounting standard setter in the U.S., but has no enforcement powers.
A)Financial Accounting Standards Board (FASB)
B)Government Accountability Office (GAO)
C)International Accounting Standards Board (IASB)
D)Public Company Accounting Oversight Board (PCAOB)
E)Accounting Standards Board

Accepted Answer

The Financial Accounting Standards Board (FASB) is the private-sector financial accounting standard setter in the U.S. However, it has no enforcement powers. The Government Accountability Office (GAO) is a government agency that conducts audits and evaluations of government programs. The International Accounting Standards Board (IASB) is an independent international organization that sets accounting standards for global use. The Public Company Accounting Oversight Board (PCAOB) is a nonprofit organization that oversees audits of public companies to ensure they are accurate and independent. The Accounting Standards Board is a former standard-setting organization in the UK.

Question 20

An audit by an independent external auditor usually does not involve which of the following?
A)an assessment of the capability of a firm's accounting system to accumulate, measure, and synthesize transactional data properly.
B)an assessment of the operational effectiveness of the accounting system
C)a determination of whether the financial report complies with the requirements of the applicable authoritative guidance
D)an assessment of the operational economy, efficiency, and effectiveness of the company's operations
E)an assessment of the effectiveness of a firm's internal control system for financial reporting.

Accepted Answer

An audit by an independent external auditor typically does not involve an assessment of the operational economy, efficiency, and effectiveness of the company's operations. The focus is on determining whether the financial report complies with the applicable authoritative guidance and providing assurance on the accuracy and completeness of financial statements. Evaluating the effectiveness of internal controls for financial reporting is also typically part of the audit process. However, the operational effectiveness of the accounting system may be assessed as part of the audit to ensure accurate and reliable financial reporting.

Quiz 1: Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

_____ is a private-sector financial accounting standard setter that promulgates accounting standards that are required or permitted to be used in over 100 countries, but has no enforcement powers.

_____ must be used by U.S.Securities and Exchange Commission (SEC) registrants.

The managers of a business prepare financial statements to present meaningful information about that business's activities to external users. Who are the external users?

_____ refers to converting a noncash item to cash, for example, collecting an account receivable.

Which of the following is true?

To reduce the lag on collection of accounts receivable, a company might

The purpose of the conceptual framework developed by the Financial Accounting Standards Board (FASB) is to guide?

Who provides an opinion that reflects their professional conclusions regarding the financial statements and for most publicly traded firms in the U.S.also provides a separate opinion on the effectiveness of the firm's internal controls over financial reporting?

_____ captures the qualitative notion that financial reports need not include items that are so small as to be meaningless to users of the reports.

Regulatory bodies generally require firms whose securities trade publicly (for example, common shares) to obtain an audit of their financial reports by _____.

In 2007 the U.S.SEC adopted new rules that permit _____ that list and trade their securities in the United States to apply IFRS in their financial reports filed with the SEC without any reconciliation to U.S.GAAP.

To increase cash flow, a manufacturer might:

_____ items are depicted in words and numbers on the face of the financial statements, with amounts included in the totals.

As of 2011, the _____ is an independent accounting standard-setting entity with 15 voting members from a number of countries.

The _____ is the private-sector financial accounting standard setter in the U.S., but has no enforcement powers.

An audit by an independent external auditor usually does not involve which of the following?