Question 1

Which of the following is not a provision of the Public Company Accounting Reform and Investor Protection Act of 2002 (Sarbanes-Oxley)? The Act:
A)Changed the entity responsible for setting auditing standards.
B)Increased corporate executive responsibility for financial statements.
C)Limited nonaudit services that can be performed by auditors for audit clients.
D)Changed the entity responsible for setting accounting standards.

Accepted Answer

The Public Company Accounting Reform and Investor Protection Act of 2002 (Sarbanes-Oxley) did not change the entity responsible for setting accounting standards. This responsibility continues to be held by the Financial Accounting Standards Board (FASB). Option A, B, and C are provisions of the Act.

Question 2

Phase A of the new conceptual framework focuses on:
A)Objective and qualitative characteristics.
B)Presentation and disclosure.
C)Recognition and measurement.
D)Elements of financial statements.

Accepted Answer

Phase A of the new conceptual framework focuses on the objective of financial reporting and the qualitative characteristics of useful financial information.

Question 3

Which of the following has the statutory authority to set accounting standards in the United States?
A)FASB.
B)IRS.
C)SEC.
D)AICPA.

Accepted Answer

The SEC (Securities and Exchange Commission) has the statutory authority to set accounting standards in the United States through its oversight of the FASB (Financial Accounting Standards Board). The AICPA (American Institute of Certified Public Accountants) is a professional organization for accountants, while the IRS (Internal Revenue Service) is the federal agency responsible for collecting taxes.

Question 4

The most likely important flaw leading to the demise of the APB was the perceived lack of:
A)Confidence.
B)Competence.
C)Independence.
D)Importance.

Accepted Answer

The perceived lack of independence was the most apparent flaw that led to the demise of the APB. The board was criticized for being too closely aligned with the accounting industry, which undermined its ability to regulate and hold the industry accountable. This lack of independence eroded public confidence in the board and ultimately contributed to its disbandment.

Question 5

Pronouncements issued by the Committee on Accounting Procedures:
A)Dealt with specific accounting and reporting problems.
B)Were based on exposure drafts and public comment letters.
C)Originated from congressional studies and SEC directives.
D)Were the outcome of research studies and a theoretical framework.

Accepted Answer

The Committee on Accounting Procedures issued pronouncements that dealt specifically with accounting and reporting problems. They were not based on exposure drafts or public comment letters, did not originate from congressional studies or SEC directives, and were not always the outcome of research studies and a theoretical framework.

Question 6

The possibility that the capital markets' focus on periodic profits may tempt a company's management to bend or even break accounting rules to inflate reported net income is an example of:
A)An ethical dilemma.
B)An accounting theory issue.
C)A technical accounting issue.
D)None of the above is correct.

Accepted Answer

This scenario presents a conflict between a company's obligation to report accurate financial information and its desire to meet or exceed market expectations for profits. This ethical dilemma may lead management to compromise on accounting principles in order to manipulate reported earnings.

Question 7

Accounting standard setting has been characterized as:
A)A political process.
B)Using the scientific method.
C)Pure deductive reasoning.
D)Pure inductive reasoning.

Accepted Answer

Accounting standard setting involves many different stakeholders with varied interests, and decisions are often influenced by political and economic factors rather than pure scientific or deductive reasoning.

Question 8

Which of the following is not a provision of the Public Company Accounting Reform and Investor Protection Act of 2002?
A)Corporate executive accountability.
B)Auditor rotation.
C)Retention of work papers.
D)All of the above are provisions of the Act.

Accepted Answer

The answer of Which of the following is not a...

Question 9

One of the elements that many believe distinguishes a profession from other occupations is the acceptance of responsibility by its members for the interests of those it serves, which is often articulated in:
A)Its conceptual framework.
B)Its code of ethics.
C)Federal laws.
D)State laws.

Accepted Answer

A profession's code of ethics articulates the responsibility its members have towards those they serve. The code is a set of guidelines that govern the behavior of the members of the profession and sets standards for their conduct. The code of ethics outlines the values and principles that underpin the profession's work and helps to establish trust between the public and the profession. Federal and state laws govern certain aspects of a profession, but they do not necessarily capture the specific ethical and professional responsibilities of its members.

Question 10

CPAs are licensed by:
A)The AICPA.
B)The SEC.
C)The federal government.
D)State governments.

Accepted Answer

CPAs are licensed by state governments. Each state has its own requirements and licensing process for CPAs. However, the AICPA (American Institute of Certified Public Accountants) does play a role in the CPA profession by setting ethical and professional standards for its members and offering professional development resources. The SEC (Securities and Exchange Commission) is a federal agency that regulates the securities industry and financial markets, but it does not directly license CPAs.

Question 11

The most political issue in the FASB's most recent deliberations and amendments to GAAP on business combinations was:
A)The negative effects on subsequent earnings of amortizing goodwill if firms were required to use the purchase method of accounting for the combination.
B)The negative effects on subsequent earnings of amortizing goodwill if firms were required to use the pooling method of accounting for the combination.
C)The unrealistic balance sheet assets that would be created if firms were required to use the purchase method of accounting for the combination.
D)The unrealistic balance sheet assets that would be created if firms were required to use the pooling method of accounting for the combination.

Accepted Answer

The most political issue in FASB's most recent deliberations and amendments to GAAP on business combinations was the negative effects on subsequent earnings of amortizing goodwill if firms were required to use the purchase method of accounting for the combination. This issue was heavily debated and was eventually resolved by allowing firms to use the "goodwill impairment test" to determine if and when goodwill should be written off, rather than mandating the amortization of goodwill.

Question 12

The primary professional organization for those accountants working in the industry is the:
A)AAA.
B)AICPA.
C)IIA.
D)IMA.

Accepted Answer

The Institute of Management Accountants (IMA) is the primary association for professionals working in the field of management accounting, which includes accountants working in industry. The American Accounting Association (AAA) focuses more on accounting academics and researchers, while the American Institute of Certified Public Accountants (AICPA) is geared towards CPAs and public accounting. The Institute of Internal Auditors (IIA) focuses on internal audit professionals. Therefore, the best choice for accountants working in industry is the IMA.

Question 13

When a registrant company submits its annual filing to the SEC, it uses:
A)Form 10-A.
B)Form 10-K.
C)Form 10-Q.
D)Form S-1.

Accepted Answer

A registrant company uses Form 10-K to submit its annual filing to the SEC. Form 10-A is not a standard SEC form and does not exist. Form 10-Q is used for quarterly reports, and Form S-1 is used for initial registration statements for companies planning to issue securities to the public.

Question 14

Independent auditors express an opinion on the:
A)Fairness of financial statements.
B)Accuracy of financial statements.
C)Soundness of a company's future.
D)Quality of a company's management.

Accepted Answer

Independent auditors are responsible for evaluating the fairness of a company's financial statements in accordance with generally accepted accounting principles (GAAP). They assess whether the financial statements represent the company's financial position, operating results, and cash flows fairly and accurately. Therefore, option A is the correct answer. Options B, C, and D are not the primary responsibilities of independent auditors.

Question 15

The International Accounting Standards Board:
A)Was the predecessor to the IASC.
B)Can overrule the FASB when their policies disagree.
C)Promotes the use of high-quality, understandable global accounting standards.
D)Has its headquarters in Geneva.

Accepted Answer

The International Accounting Standards Board (IASB) is responsible for developing and promoting the use of high-quality, understandable global accounting standards. It is not a predecessor to the IASC, nor can it overrule the Financial Accounting Standards Board (FASB). The IASB is headquartered in London, not Geneva.

Question 16

The most recent example of the political process at work in standard setting is the heated debate that occurred on the issue of:
A)Pension plan accounting.
B)Accounting for postretirement benefits other than pensions.
C)Accounting for business combinations.
D)Accounting for stock-based compensation.

Accepted Answer

The answer of The most recent example of the political...

Question 17

The FASB's standard-setting process includes, in the correct order:
A)Exposure draft, research, discussion paper, Accounting Standards Update.
B)Research, exposure draft, discussion paper, Accounting Standards Update.
C)Research, discussion paper, exposure draft, Accounting Standards Update.
D)Discussion paper, research, exposure draft, Accounting Standards Update.

Accepted Answer

The FASB's standard-setting process begins with research, followed by the development of a discussion paper, then an exposure draft, and finally the issuance of an Accounting Standards Update. This process is intended to ensure that the FASB receives input from stakeholders and has carefully considered all perspectives before finalizing a new accounting standard.

Question 18

"Condorsement":
A)Is a term used by the IASB to refer to the conditional endorsement process used by the EU with respect to IFRS.
B)Describes a combination of convergence and endorsement that the SEC suggested the United States might use in the future to incorporate IFRS into U.S.GAAP.
C)Was coined by a representative of the AICPA to describe the lengthy convergence process.
D)Has nothing to do with the convergence process.

Accepted Answer

"Condorsement" was coined by the SEC to describe a possible future scenario of combining convergence and endorsement to incorporate IFRS into U.S. GAAP.

Question 19

In the Norwalk Agreement, the FASB and IASB pledged to:
A)Combine their organizations to form the BUSYB.
B)Make progress on specific MOU projects.
C)Achieve convergence by the year 2015.
D)Remove existing differences between their standards.

Accepted Answer

The answer of In the Norwalk Agreement, the FASB and...

Question 20

The primary historical reason for the FASB reversing its positions when political pressures occur is:
A)The cost of gathering data was prohibitive.
B)The difficulties in measurement were too great.
C)They have no authority in such situations.
D)The SEC did not support the FASB position.

Accepted Answer

The historical reason for the FASB reversing its positions when political pressures occur is that the SEC did not support the FASB position, leading to a lack of authority in such situations.

Quiz 1: Environment and Theoretical Structure of Financial Accounting

Which of the following is not a provision of the Public Company Accounting Reform and Investor Protection Act of 2002 (Sarbanes-Oxley) ? The Act:

Phase A of the new conceptual framework focuses on:

Which of the following has the statutory authority to set accounting standards in the United States?

The most likely important flaw leading to the demise of the APB was the perceived lack of:

Pronouncements issued by the Committee on Accounting Procedures:

The possibility that the capital markets' focus on periodic profits may tempt a company's management to bend or even break accounting rules to inflate reported net income is an example of:

Accounting standard setting has been characterized as:

Which of the following is not a provision of the Public Company Accounting Reform and Investor Protection Act of 2002?

One of the elements that many believe distinguishes a profession from other occupations is the acceptance of responsibility by its members for the interests of those it serves, which is often articulated in:

CPAs are licensed by:

The most political issue in the FASB's most recent deliberations and amendments to GAAP on business combinations was:

The primary professional organization for those accountants working in the industry is the:

When a registrant company submits its annual filing to the SEC, it uses:

Independent auditors express an opinion on the:

The International Accounting Standards Board:

The most recent example of the political process at work in standard setting is the heated debate that occurred on the issue of:

The FASB's standard-setting process includes, in the correct order:

"Condorsement":

In the Norwalk Agreement, the FASB and IASB pledged to:

The primary historical reason for the FASB reversing its positions when political pressures occur is: