Question 1

Which of the following was a controversial issue faced by the Accounting Principles Board (APB)?

Accepted Answer

All of these issues were controversial and debated by the Accounting Principles Board.

The investment tax credit was a controversial issue as it related to the treatment of tax benefits associated with investments in plant and equipment.

Income tax allocation was also controversial as it dealt with how to allocate income taxes between various financial statements such as the income statement, balance sheet, and statement of cash flows.

Business combinations and goodwill were another issue that caused controversy as it related to how to account for the acquisition of one company by another and how to value goodwill.

Question 2

Which of the following characteristics does not apply to accounting practices and procedures in the United States prior to 1930?

Accepted Answer

Prior to 1930, accounting practices and procedures were not applied uniformly among companies.

Question 3

Which state passed the law that first created the designation "Certified Public Accountant"?

Accepted Answer

New York passed the first law in 1896 to create the designation "Certified Public Accountant."

Question 4

What was the purpose of APB Statement 4, Basic Concepts and Accounting Principles Underlying Financial Statements of Business Enterprises?

Accepted Answer

APB Statement 4 aimed to provide a foundation for evaluating existing accounting practices, assist in solving accounting problems, guide the future development of financial accounting, and enhance understanding of the purposes of financial accounting.

Question 5

Which of the following factors led to significant changes in accounting practices?

Accepted Answer

The Great Depression of 1929 led to significant economic and financial reforms that impacted accounting practices. The election of Franklin D. Roosevelt and the enactment of the New Deal legislation in response to the Great Depression also played a major role in shaping accounting practices, as the government sought to regulate and reform the financial industry. Accounting standards and practices had to adjust accordingly to comply with these new regulations and requirements.

Question 6

In 1918, the American Institute of Accountants (AIA) worked with which of the following organizations to publish minimum standards for conducting a balance sheet audit?

Accepted Answer

In 1917, the Federal Trade Commission (FTC) requested the American Institute of Accountants (AIA) to develop a set of auditing standards. This collaboration led to the publication of the first minimum standards for conducting a balance sheet audit in 1918, marking a significant step in the development of auditing standards in the United States.

Question 7

The Litigation Reform Act of 1995 requires that an audit include procedures designed to guarantee that illegal acts that would materially affect financial statements will be detected.

Accepted Answer

The Litigation Reform Act of 1995 does not specifically require audits to include procedures designed to guarantee the detection of illegal acts that would materially affect financial statements. Instead, the act primarily addresses securities litigation reforms. Audit requirements are more directly governed by auditing standards and regulations, such as those from the Public Company Accounting Oversight Board (PCAOB) and the American Institute of Certified Public Accountants (AICPA), which do require auditors to consider the risk of material misstatement in financial statements due to fraud or error, including certain illegal acts.

Question 8

Which of the following are true regarding the Financial Accounting Standards Board (FASB)?

Accepted Answer

The Financial Accounting Standards Board (FASB) requires that there must be no conflict between its members' private interests and the public interest, ensuring the integrity and objectivity of its standards. The other statements are incorrect: the FASB has seven members, not ten, and members are not required to be Certified Public Accountants, though they often have extensive backgrounds in accounting or related fields.

Question 9

The AICPA has developed an electronic filing of financial data called EDGAR.

Accepted Answer

The AICPA has not developed EDGAR. The SEC developed EDGAR (Electronic Data Gathering, Analysis, and Retrieval) for public companies to file financial data electronically.

Question 10

Which of the following was an accomplishment of the American Association of Public Accountants?

Accepted Answer

The American Association of Public Accountants accomplished all of the listed options, including the passage of the law that established the CPA designation, the founding of The Journal of Accountancy, and the development of a list of terms and definitions.

Question 11

The International Accounting Standards Board's role in establishing standards has decreased significantly since 2002.

Accepted Answer

The IASB's role in establishing standards has actually increased since 2002. In fact, the IASB is the primary standard-setting body for accounting standards used in more than 140 countries around the world.

Question 12

In which of the following ways did the charge to the Financial Accounting Standards Board (FASB) differ from that given to the Accounting Principles Board (APB)?

Accepted Answer

The charge to the FASB differed from that given to the APB in that the FASB was specifically instructed to establish standards of financial accounting and reporting in the most efficient and complete manner possible. In contrast, the APB was given a broader mandate to develop and improve accounting principles in general, without a specific emphasis on efficiency or completeness.

Question 13

Which of the following is not true regarding Accounting Series Release No. 4?

Accepted Answer

Accounting Series Release No. 4 (ASR No. 4) did not establish an authoritative body for the development of accounting standards, instead it recognized the role of professional accounting organizations in setting standards. The other statements are true regarding ASR No. 4.

Question 14

A problem with the increased importance of the management consulting function in auditing firms is the possible erosion of the integrity of the auditing function.

Accepted Answer

The increased importance of management consulting function in auditing firms can lead to a conflict of interest and compromise the independence and objectivity of the audit function, thereby eroding its integrity.

Question 15

An annual report to stockholders prepared using FASB accounting standards generally has more disclosure of nonfinancial statement information than does the typical annual report filed with the SEC.

Accepted Answer

The typical annual report filed with the SEC, specifically Form 10-K, requires comprehensive disclosures including both financial statement information prepared according to FASB standards and extensive nonfinancial statement information, often more than what is included in the annual report to stockholders.

Question 16

The Committee on Accounting Procedures (CAP) was immediately succeeded by:

Accepted Answer

The immediate successor to the Committee on Accounting Procedures (CAP) was the Accounting Principles Board (APB). FASB was formed after the dissolution of APB, ARB was formed before CAP, and FAF is a governing body that oversees FASB and the Governmental Accounting Standards Board (GASB).

Question 17

FASB lost a significant amount of independence from the SEC due to Sarbanes-Oxley's passage.

Accepted Answer

Sarbanes-Oxley gave the SEC more oversight and control over FASB, reducing its independence.

Question 18

The importance of the auditing function relative to the management consulting function is declining in major auditing firms.

Accepted Answer

There has been a shift towards increasing the focus on management consulting services among major auditing firms, resulting in a relative decline in the importance of the auditing function.

Question 19

Criticism of the standard-setting process under the APB included:

Accepted Answer

Both options A and B are valid criticisms of the standard-setting process under the APB. The exposure for tentative opinions was limited to a small group of individuals and occurred too late in the process for meaningful feedback. Additionally, the process was subject to outside pressures from interest groups, which could have influenced the final standards.

Question 20

Which of the following is true regarding the Committee on Accounting Procedures (CAP)?

Accepted Answer

The Committee on Accounting Procedures (CAP) was established by the American Institute of Certified Public Accountants (AICPA) in 1939, and its main function was to issue pronouncements on accounting principles, which would guide the accounting profession. CAP adopted a policy of attacking specific problems and recommending preferred methods of accounting when possible, instead of developing a comprehensive statement of accounting principles. CAP did not eliminate the use of alternative accounting practices nor did it establish an underlying accounting theory.

Quiz 3: Development of Institutional Structure of Financial Accounting

Which of the following was a controversial issue faced by the Accounting Principles Board (APB) ?