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CHAPTER 1

FINANCIAL ACCOUNTING AND
ACCOUNTING STANDARDS
IFRS questions are available at the end of this chapter.

TRUE-FALSE—Conceptual
Answer
F
T
T
T
F
F
F
F
T
T
F
F
T
T
F
T
F
T
T
F

No.
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Description
Definition of financial accounting.
Purpose of financial statements.
Definition of financial accounting.
Capital allocation process.
Financial reports.
Fair value information.
Objectives of financial reporting.
Accrual accounting.
Generally accepted accounting principles.
Users of financial statements.
Committee on Accounting Procedure.
Passage of FASB standards.
Financial Accounting Concepts.
Creation of Accounting Principles Board.
Definition of financial accounting.
Code of Professional Conduct.
Accounting standards.
International standards.
Expectations gap.
Ethical issues.

MULTIPLE CHOICE—Conceptual
Answer
a
d
d
a
d
b
b
a
d
d
c
c
c
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c

No.

Description

21.
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P
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Financial accounting.
Users of financial reports.
Identify the major financial statements.
Financial reporting entity.
Differences between financial and managerial accounting.
Financial reporting communication.
Managerial accounting.
Capital allocation process.
Efficient use of resources.
Capital allocation process.
Financial statement information.
Accounting profession challenge.
Financial reporting objective.
Financial reporting objective.
Objectives of financial reporting.

Test Bank for Intermediate Accounting, Thirteenth Edition

1-2

MULTIPLE CHOICE—Conceptual
Answer
b
c
c
b
a
c
d
d
b
b
a
c
d
b
b
a
c
c
d
d
d
a
b
b
b
c
d
b
b
c
d
c
d
d
d
d
d
d
b
c
c
a
c

(cont.)

No.

Description

36.
37.
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67.
P
68.
P
69.
70.
71.
72.
73.
74.
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76.
77.
78.

Accrual accounting.
Objectives of financial reporting.
Meaning of “generally accepted.”
Common set of standards and procedures.
Limitation of general purpose financial statements.
Securities and Exchange Commission and accounting standard setting.
Due process in FASB standard setting.
Organizations responsible for setting accounting standards.
Reason for Accounting Principles Board creation
Organization issuing Accounting Research Bulletins.
Characteristic of GAAP.
Characteristics of GAAP.
FASB accounting standards.
FASB standard passage.
Purpose of Emerging Issues Task Force.
AICPA role in standard setting.
Role of SEC.
Powers of the SEC.
SEC enforcement.
Creation of FASB.
Appointment of FASB members.
Purpose of the Financial Accounting Foundation.
Characteristics of FASB.
FASB and "due process" system.
Publications of FASB.
Purpose of FASB Technical Bulletins.
Purpose of Emerging Issues Task Force.
Role of the AICPA.
Pronouncement issued by the APB.
Standard setting organizations.
Identification of standard setting organizations.
Statements of financial accounting concepts.
FASB members.
FASB statement process.
Nature of GAAP.
Body which promulgates GAAP.
Publications which are not GAAP.
Publications which are not GAAP.
Code for Professional Conduct Rule 203.
Purpose of FASB staff position.
Components of GAAP.
Political environment of standard setting.
International Accounting Standards Board.

P

Identify the major policy-setting bodies and their role in the standard-setting process. FASB. Note: these questions also appear in the Problem-Solving Survival Guide. 5. Development of accounting principles. Describe the impact of user groups on the rule-making process. CHAPTER LEARNING OBJECTIVES 1. 83. Reason accounting standards differ across countries. 7. Evolution of a statement of financial accounting standards. Identify the objectives of financial reporting. Standard setting process pressure. Describe some of the challenges facing accounting. Explain the need for accounting standards.Financial Accounting and Accounting Standards MULTIPLE CHOICE—Conceptual Answer d a c b d a P 1-3 (cont. 2. Publications and organizations. Description 79. Ethical concern of accountants. 4. 8. Explain the meaning of generally accepted accounting principles (GAAP) and the role of the codification for GAAP. . Identify the major financial statements and other means of financial reporting. Danger of politics in standard setting Definition of "expectation gap". Understand issues related to ethics and financial accounting. 82. 84. 9. EXERCISES Item Description E1-85 E1-86 E1-87 E1-88 E1-89 Objectives of financial reporting. Advantage of countries adopting same accounting standards. 6. 81. Explain how accounting assists in the efficient use of scarce resources. 80.) No. 3.

MC Learning Objective 2 MC 29. TF TF 21. Learning Objective 9 MC MC Item Type 86. TF 84. MC MC 60. TF TF 70. TF 28. 53. MC 40. MC Learning Objective 8 MC 79.1-4 Test Bank for Intermediate Accounting. 88. 73. 62. MC 65. 12. MC 66. TF TF 33. MC Learning Objective 7 MC 74. TF 31. 18. MC 27. MC Learning Objective 4 P MC 37. 11. MC MC 35. MC MC 59. TF 6. MC Note: TF = True-False MC = Multiple Choice E = Exercise 77. 13. MC MC MC MC MC MC 49. MC 62. 14. TF TF TF TF MC MC 43. MC Learning Objective 3 MC 32. 22. MC 64. MC MC 26. MC MC 85. TF MC 20. 47. E 67. E P Item 89. 15. P 86. 36. MC Learning Objective 6 MC 55. 44. 16. MC MC 72. 78. MC MC 56. P 69. MC 63. Type Item Type Item Type Learning Objective 1 P MC 25. 3. Type E . MC 81. 71. 50. 68. 2. MC MC 23. MC 76. 17. 51. 45. TF 10 TF 38. 24. MC 80. 9. 46. MC MC 57. 5. 52. 54. 87. MC 30. MC MC 75. 42. Thirteenth Edition SUMMARY OF LEARNING OBJECTIVES BY QUESTIONS Item Type Item Type Item 1. E Learning Objective 5 MC 39. TF TF 19. MC MC 58. 8. TF 4. 41. MC MC MC E E E 83. 34. MC 82. 7. 48. MC 61.

5. and control an organization's operations. Financial Accounting Concepts set forth fundamental objectives and concepts that are used in developing future standards of financial accounting and reporting. An effective process of capital allocation promotes productivity and provides an efficient market for buying and selling securities and obtaining and granting credit. While objectives for financial reporting exist on an informal basis. 2. and communicating financial information needed by management to plan. 11. 6. Some generally accepted accounting principles have simply been accepted as appropriate because of their universal application rather than due to the action of an authoritative accounting rule-making body. 13. 14. . 7. 12. 9. measuring. The Securities and Exchange Commission appointed the Committee on Accounting Procedure. Financial accounting is the process of identifying. The passage of a new FASB Standards Statement requires the support of five of the seven board members. analyzing. 15. FASB Technical Bulletins are more authoritative than FASB Standards and Interpretations. Accounting standards are now less likely to require the recording or disclosure of fair value information due to its inherent subjectivity. Financial statements are the principal means through which financial information is communicated to those outside an enterprise. no formal objectives have been adopted.Financial Accounting and Accounting Standards 1-5 TRUE-FALSE—Conceptual 1. One weakness of accrual accounting is that it does not provide a good indication of the enterprise's present and continuing ability to generate favorable cash flows. Financial reports in the early 21st century did not provide any information about a company’s soft assets. 4. The AICPA created the Accounting Principles Board in 1959. evaluate. Users of the financial information provided by a company use that information to make capital allocation decisions. Users of financial accounting statements have both coinciding and conflicting needs for information of various types. 10. 3. 16. 8. The AICPA’s Code of Professional Conduct requires that members prepare financial statements in accordance with generally accepted accounting principles.

F F T T F Item 16. business industries. d. 13. individual business enterprises. b. 18. Ans. b. 3. c. Ans. 2. d. statement of retained earnings. 10. . The expectations gap is caused by what the public thinks accountants should be doing and what accountants think they can do. F F F T T Item 11. c. managerial accounting. 17. 8. Ans. Ans. GAAP and the International Financial Reporting Standards are acceptable for international use. and an economy as a whole. government agencies. d. income statement. F T T T F Item 6. General-purpose financial statements are the product of a. industries. Accounting standards are a product of careful logic or empirical findings and are not influenced by political action. 4. neither financial nor managerial accounting. d. Thirteenth Edition 17. 22. 20. 18. 14. Users of financial reports include all of the following except a. 12. financial accounting. 23. Currently. b. True-False Answers—Conceptual Item 1. an economy as a whole and to members of society as consumers. statement of cash flows. c. b. 20. 15. individual business enterprises. 19.1-6 Test Bank for Intermediate Accounting. The information provided by financial reporting pertains to a.S. 19. 9. The financial statements most frequently provided include all of the following except the a. 24. creditors. 5. rather than to individual enterprises or industries. unions. rather than to members of society as consumers. rather than to individual enterprises or an economy as a whole or to members of society as consumers. Ethical issues in financial accounting are governed by the AICPA. T F T T F MULTIPLE CHOICE—Conceptual 21. 7. balance sheet. rather than to industries or an economy as a whole or to members of society as consumers. All of these are users. both U. c. both financial and managerial accounting.

c. Which of the following represents a form of communication through financial reporting but not through financial statements? a. c. encourages innovation. An effective capital allocation process a. free enterprise. All the above. markets. b. d. competition. d. Financial statements in the early 2000s provide information related to a. c. d. c. b. a and b above. d. How does accounting help the capital allocation process attract investment capital? a. c. b. Promotes productivity. 27. c. b. The process of identifying. d. 28. Encourages innovation. 32. Notes to financial statements. b. c. relevant information.Financial Accounting and Accounting Standards P 1-7 25. provides an efficient market for buying and selling securities. All the following are differences between financial and managerial accounting in how accounting information is used except to a. nonfinancial measurements. Whether a business is successful and thrives is determined by a. all of these. analyzing. Timeliness. 30. auditing. Which of the following is not a major challenge facing the accounting profession? a. Nonfinancial measurements. plan and control company's operations. 31. Accounting for hard assets. all of these. financial accounting. none of these. 29. 26. d. decide whether to invest in the company. c. forward-looking data. tax accounting. b. and control an organization’s operations is called a. . Provides timely. b. promotes productivity. d. evaluate. Forward-looking information. and communicating financial information needed by management to plan. Income statement. b. President's letter. evaluate borrowing capacity to determine the extent of a loan to grant. d. managerial accounting. measuring. Balance sheet. hard assets (inventory and plant assets).

34. d. c. 35. c. b. information about the liquidation values of the resources held by the enterprise. d. c. Provide information about enterprise resources. Provide information that is useful in assessing cash flow prospects. c. information that will attract new investors. d. information that is useful in assessing cash flow prospects. 38. objectives of financial reporting. Provide information that clearly portrays the economic resources of an enterprise. What is a major objective of financial reporting? a. and uncertainty of perspective cash receipts. c. d.1-8 Test Bank for Intermediate Accounting. both a and b. claims to those resources. Provide information that is comprehensible only by sophisticated investors. cash flows are considered less important. statements of financial accounting concepts. neither a nor b. timing. b. c. 37. Provide information that clearly portray nonfinancial transactions. Provide information that is useful to the Internal Revenue Service in determining the amount of federal income taxes payable. . What is a major objective of financial reporting? a. information about the investors in the business entity. generally accepted accounting principles. A common set of accounting standards and procedures are called a. b. Accounting principles are "generally accepted" only when a. Provide information that is useful in investment and credit decisions. Provide information that is useful in assessing the amounts and timing of revenue. b. c. b. an authoritative accounting rule-making body has established it in an official pronouncement. b. Provide information on the liquidation value of an enterprise. Which of the following statements is not an objective of financial reporting? a. 36. d. Thirteenth Edition 33. d. Provide information that excludes claims to the resources. financial accounting standards. b. it recognizes revenues when cash is received and expenses when cash is paid. Provide information that is useful to assess the amounts. none of the above. 39. Accrual accounting is used because a. it has been accepted as appropriate because of its universal application. and changes to them. it provides a better indication of ability to generate cash flows than the cash basis. d. One objective of financial reporting is to provide a. Provide information that is useful to management in making decisions.

common set of standards and principles. d. d. All of the above.S. All of the above. Financial Accounting Standards Board. 44. d. b. Interested parties can make their views known. practices that become accepted for at least a year by all industry members. b. 46. c. b. FASB operates in full view of the public. The previous standard setting organization did not provide a structured set of accounting principles. 43. The SEC disbanded the previous standard setting organization. Which organization was responsible for issuing Accounting Research Bulletins? a. c. General purpose financial statements are comparable. None of the above. Committee on Accounting Procedure. What is due process in the context of standard setting at the FASB? a. b. The SEC reviews financial statements for compliance. Committee on Accounting Procedure. Which of the following is a general limitation of "general purpose financial statements"? a. c. acceptance requires an affirmative vote of Certified Public Accountants. Why did the AICPA create the Accounting Principles Board? a. General purpose financial statements are assumed to present fairly the company's financial operations. Accounting Principles Board. c. b. What is the relationship between the Securities and Exchange Commission and accounting standard setting in the United States? a. The SEC coordinates with the AICPA in establishing accounting standards. d. c.Financial Accounting and Accounting Standards 1-9 40. A characteristic of generally accepted accounting principles include the following a. 41. The SEC has a mandate to establish accounting standards for enterprises under its jurisdiction. d. The SEC requires all companies listed on an exchange to submit their financial statements to the SEC. accounting standards? a. b. d. c. 45. Which of the following organizations has been responsible for setting U. Public hearings are held on proposed accounting standards. No such organization existed in the past. The SEC. standards and principles are based federal statutes. b. General purpose financial statements may not be the most informative for a specific enterprise. c. None of the above. . AICPA. d. 42. Accounting Principles Board.

Provide a consensus on how to account for new and unusual financial transactions. The role of the Securities and Exchange Commission in the formulation of accounting principles can be best described as a. d. d. SEC. d. CAP c. c. FASB b. Which organization is responsible for issuing Emerging Issues Task Force Statements? a. . five Board members. c. each principle is approved by the SEC.1 . Thirteenth Edition 47. authoritative accounting the rule-making body established a principle of reporting. SEC 52. d. c. b. Provide interpretive guidance. all Board members. c. three Board members. The body that has the power to prescribe the accounting practices and standards to be employed by companies that fall under its jurisdiction is the a. sometimes primary and sometimes secondary. 53. consistently secondary. Provide timely guidance on select issues. b. four Board members. Characteristics of generally accepted accounting principles include all of the following except a. d.10 Test Bank for Intermediate Accounting. b. Provide interpretation of existing standards. c. FASB board members must be CPAs. What is the purpose of Emerging Issues Task Force? a. AICPA. b. practice has become universally accepted over time. consistently primary. b. FASB board members are well-paid. d. non-existent. APB d. 51. Smaller membership. b. The passage of a new FASB Standards Statement requires the support of a. c. 50. 48. 49. Due process. Why was it believed that accounting standards that were issued by the Financial Accounting Standards Board would carry more weight? a. APB. standards are considered useful by the profession. FASB.

oversees the operations of the FASB. serve full time. Which of the following is not a publication of the FASB? a. is the arm of the Securities and Exchange Commission responsible for setting financial accounting standards. c. Accounting Research Bulletins c. American Institute of Certified Public Accountants. is a. Accounting Principles Board.Financial Accounting and Accounting Standards 1 . b. The major distinction between the Financial Accounting Standards Board (FASB) and its predecessor. Interpretations d. 58. the Accounting Principles Board (APB). 59. the FASB issues exposure drafts of proposed standards. Technical Bulletins . APB c. 56. 57. The Financial Accounting Standards Board (FASB) was proposed by the a. The Financial Accounting Foundation a. has issued a series of pronouncements entitled Statements on Auditing Standards. d. The Financial Accounting Standards Board a. Statements of Financial Accounting Concepts b. d. Special Study Group on establishment of Accounting Principles (Wheat Committee). c. is an efficient system for collecting dues from members. d. works with the Financial Accounting Standards Advisory Council to provide information to interested parties on financial reporting issues. all members of the FASB are fully remunerated. The Financial Accounting Standards Board employs a "due process" system which a. AICPA. 60. c. provides information to interested parties on financial reporting issues. b. all members of the FASB possess extensive experience in financial reporting. d. b.11 54. Study Group on the Objectives of Financial Statements. b. d. c. c. requires that all accountants must receive a copy of financial standards. a majority of the members of the FASB are CPAs drawn from public practice. FASB. SEC. b. was the forerunner of the current Accounting Principles Board. and are independent of any companies or institutions. identifies the accounting issues that are the most important. d. b. is appointed by the Financial Accounting Foundation. Companies that are listed on a stock exchange are required to submit their financial statements to the a. oversees the operations of the AICPA. enables interested parties to express their views on issues under consideration. 55.

b. c. Which of the following pronouncements were issued by the Accounting Principles Board? a. b.12 P Test Bank for Intermediate Accounting. Which of the following organizations has not been instrumental in the development of financial accounting standards in the United States? a. d. develop a conceptual framework as a frame of reference for the solution of future problems. An organization that has not published accounting standards is the a. d. Thirteenth Edition 61. IASB d. 67. 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. The purpose of the Emerging Issues Task Force is to a. 62. d. form a conceptual framework for solving existing and emerging problems. c. 64. Statements of Financial Accounting Concepts 65. developing auditing standards. issue statements which reflect a consensus on how to account for new and unusual financial transactions that need to be resolved quickly. c. Financial Accounting Standards Board. American Institute of Certified Public Accountants. providing professional education programs. modify or extend the existing FASB Standards Statement. were recently discontinued by the FASB because they dealt with specialized topics having little impact on financial reporting in general. c. 63. all of the above. c. FASB c. lobby the FASB on issues that affect a particular industry. FASB Technical Bulletins a. b. b. do research on issues that relate to long-term accounting problems. Securities and Exchange Commission. b. SEC 66. AICPA b. Statements of Position d. The American Institute of Certified Public Accountants (AICPA) continues to be involved in all of the following except a. establish GAAP. The purpose of Statements of Financial Accounting Concepts is to a. developing and enforcing professional ethics. are similar to FASB Interpretations in that they establish enforceable standards under the AICPA's Code of Professional Ethics. d. Accounting Research Bulletins b. All of these have published accounting standards. are issued monthly by the FASB to deal with current topics. determine the need for FASB involvement in an emerging issue.1 . Opinions c. .

1. include detailed practices and procedures as well as broad guidelines of general application. 71. d. d. b. APB Opinions d. b. The most significant current source of generally accepted accounting principles is the a. advertising to obtained clients. 2. 1. 3. Accounting research studies issued by the AICPA 74. 1. c. The following published documents are part of the "due process" system used by the FASB in the evolution of a typical FASB Statement of Financial Accounting Standards: 1. Which of the following publications does not qualify as a statement of generally accepted accounting principles? a. Generally accepted accounting principles a. c. d. d. required to hold a CPA certificate. change over time as the nature of the business environment changes. financial statements should be based on generally accepted accounting principles. 3. Accounting interpretations issued by the FASB c. Members of the Financial Accounting Standards Board are a. All of these are part of generally accepted accounting principles. auditing financial statements. 1. 2. c. 70. part-time employees. FASB. AICPA. . 2. Rule 203 of the Code of Professional Conduct address: a. b. 3. 3. Statement of Financial Accounting Standards 3. APB Opinions d. ethical requirements. all of these. Which of the following is not a part of generally accepted accounting principles? a. FASB Interpretations b. Exposure Draft 2. b. P 69. b. Statements of financial standards issued by the FASB b. c. c. 73. independent of any other organization. 2. 72. Preliminary Views The chronological order in which these items are released is as follows: a.Financial Accounting and Accounting Standards 1 . CAP Accounting Research Bulletins c. d.13 P 68. APB. SEC. employed by the American Institute of Certified Public Accountants (AICPA). are influenced by pronouncements of the SEC and IRS.

Articles published in CPA journals. is based solely on research and empirical findings. Provide a consensus on how to account for new and unusual financial transactions. Individuals may influence the standards. What is not a source of pressure that may influence the accounting standard setting process? a. arbitrate accounting disputes between auditors and international companies. Provide timely guidance on select issues. d. 76. promote uniform accounting standards among countries of the world. b. c. Provide interpretive guidance.14 Test Bank for Intermediate Accounting. Provide interpretation of existing standards. c. FASB Implementation Guides. b. 79. Widely recognized industry practices. c. AICPA Accounting Interpretations. d. User groups become active. b. The purpose of the International Accounting Standards Board is to 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. Financial accounting standard-setting in the United States a. b. None of the above. d. is a legalistic process based on rules promulgated by governmental agencies. Lobbyist. is democratic in the sense that a majority of accountants must agree with a standard before it becomes enforceable. c. 80. Congress. c. d. develop a uniform currency in which the financial transactions of companies throughout the world would be measured. Which of the following is not considered a component of generally accepted accounting principles? a. The FASB delegates its authority to elected officials.1 . Thirteenth Edition 75. . d. b. Accounting standards that are not truly generally accepted. c. What is a possible danger if politics plays too big a role in accounting standard setting? a. d. CPA firms. 77. 78. b. What is the purpose of a FASB Staff Position? a. issue enforceable standards which regulate the financial accounting and reporting of multinational corporations.

b. Governments. Ans. 44. 70. 35. c d b b c d c d d d Item 71. 65. 25. What is "expectation gap"? a. 34. 38. 45. a c c d d d a b b b Item 61.Financial Accounting and Accounting Standards 1 . 22. Ans. 33. Industry practices. b. The difference between what the public thinks the accountant is not doing and what the accountant knows they don't do. Ans. 82. 63. 37. d d d b c c a c d a Item 81. 42. 53. 78. 77. 73. b. 60. Past Practice. 32. Which of the following is an ethical concern of accountants? a. b. 68. 55. 58. 47. 43. 66. 83. 36. 28. c c c d c b c c b a Item 41. c. Earnings manipulation. 74. What would be an advantage of having all countries adopt and follow the same accounting standards? a. Culture. 46. Lower preparation costs. 48. 84. 82. c. d. The difference between what the accountant is doing and what the Courts say the accountant should be doing. 62. Ans. 39. 76. c b d a . The difference between what the public thinks the accountant is doing and what Congress says the accountant is doing. 56. 67. Ans. 64. 59. Multiple Choice Answers—Conceptual Item 21. 40. 69. b and c 84. Ans. 27. d. 83. None of the above. 75. Consistency. 79. 80. Conservative accounting. 29. d. 24. 72. 26. 30. 57. 52.15 81. d. Comparability. 54. 49. 23. a d d a d b b a d d Item 31. Ans. c. The difference between what the public thinks the accountant is doing and what the accountant thinks they can do. 50. What is not a reason that accounting standards may differ across countries? a. c d d b b a c d b b Item 51. Language. c.

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) to provide input to the FASB. To meet these needs. and the effects of transactions. In addition. Instructions Evaluate each of the independent statements and identify the areas of fallacious reasoning in each. timing. Thirteenth Edition EXERCISES Ex. (b) to help users in assessing the amounts. Complete your discussion of each statement before proceeding to the next statement. events. the claims to those resources. accountants prepare different sets of financial statements for different users. the AcSEC issues Statements of Position stating its position on the FASB statement. (c) clearly portraying the economic resources of an enterprise. Explain why the reasoning is incorrect. . not just the public accounting profession. unrelated statements regarding the formulation of generally accepted accounting principles. Each statement contains some incorrect or debatable statement(s). and to satisfy the financial reporting responsibility of management. 1-86—Development of accounting principles. What are the objectives of financial reporting by business enterprises? Solution 1-85 The objectives of financial reporting are to provide information: (a) that is useful to present and potential investors and creditors and other users in making rational investment. Statement I The users of financial accounting statements have coinciding and conflicting needs for statements of various types. after each FASB Statement is issued.1 . credit.16 Test Bank for Intermediate Accounting. Statement II The FASB should be responsive to the needs and viewpoints of the entire economic community. and similar decisions. and circumstances that change its resources and obligations. Presented below are three independent. 1-85—Objectives of financial reporting. Ex. and uncertainty of prospective cash flows.

to meet these needs. Publications _____ 1. Solution 1-86(continued) Statement III The Accounting Standards Executive Committee (AcSEC) was established within the American Institute of Certified Public Accountants. not the Securities and Exchange Commission. Opinions (1962-1973) _____ 6. sets proper priorities. Statements of Financial Accounting Standards _____ 8. The FASB will have the best chance of survival if it deals with problems promptly. it is not clear whether the FASB will succeed. Accounting Research Bulletins (1953-1959) _____ 2. but in general the accounting profession has relied on general purpose financial statements prepared in conformance with generally accepted accounting principles. Significant accounting publications are listed below (1-9). It may be argued that accountants often do prepare special statements for particular purposes.Financial Accounting and Accounting Standards 1 .17 Solution 1-86 Statement I It is true that users of financial accounting statements have coinciding and conflicting needs for statements of various types. The AcSEC does issue Statements of Position. However. takes whatever action it thinks is right and in the public interest. but issues them before the FASB sets standards on the issue. rather than a number of different types of financial statements. Technical Bulletins _____ 7. and handles pressures responsibly without overreacting to them. Journal of Accountancy _____ 4. Statements of Position (SOPs) . Sources or sponsors of accounting publications are identified next by alphabetical character (a-f). Match the publications with their sources. accountants generally prepare a single set of general-purpose financial statements. 1-87—Publications and organizations. Statement II It is true that the FASB should be responsive to the needs of the entire economic community. Emerging Issues Task Force Statements _____ 5. to respond to pronouncements of the FASB. Statements on Auditing Standards _____ 3. Statements of Financial Accounting Concepts _____ 9. not just the public accounting profession. However. Ex.

f 7. e 6. full-time members. Solution 1-88 1. Ex. or institutions. The APB was a senior committee of the AICPA. APB members retained their private positions with firms. 1-88—FASB. Currently. Smaller membership. d 2. two basic premises of the FASB are (1) The FASB should be responsive to the needs and viewpoints of the entire economic community. The Financial Accounting Standards Board was established because many groups interested in financial reporting believed that the Accounting Principles Board was not effective. 3. 2. The APB members were unpaid and part-time. In establishing financial accounting standards. a 3. appointed for renewable five-year terms. replacing the relatively large 18-member APB. Thirteenth Edition Sources/Sponsors a. Accounting Standards Executive Committee c. Full-time. whereas the FASB is not part of any single professional organization. f 5. 5. 4. The AICPA d.18 Test Bank for Intermediate Accounting. f 9. FASB members are well-paid. what are the steps taken in the evolution of an FASB Statement of Financial Accounting Standards? . companies. c 4.1 . f 8. To ensure achievement of these goals. The FASB is composed of five members. Committee on Accounting Procedure e. it is not necessary to be a CPA to be a member of the FASB. FASB members must sever all such ties. not just the accounting profession. b Ex. Financial Accounting Standards Board Solution 1-87 1. Broader representation. Greater autonomy. the APB. It is appointed by and answerable only to the Financial Accounting Foundation. 1-89—Evolution of a statement of financial accounting standards. (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. remunerated membership. Increased independence. All APB members were required to be CPAs and members of the AICPA. Discuss the apparent advantages that the FASB should have over its earlier counterpart. Auditing Standards Board b. Accounting Principles Board f.

. The final standard is then issued. e. The Board evaluates the responses and changes the exposure draft. A public hearing on the proposed standard is held.19 Solution 1-89 The steps in the evolution of an FASB Statement of Financial Accounting Standards are: a. Research and analysis are conducted and preliminary views of pros and cons are issued. if necessary. c. b.Financial Accounting and Accounting Standards 1 . d. The Board evaluates the research and public response and issues an exposure draft. Topics are identified and placed on the Board's agenda.

International Accounting Standards are no longer considered part of iGAAP because they have been replaced by International Financial Reporting Standards. 4. False Multiple Choice: 1. Answers to True/False questions: 1.S. International Financial Reporting Standards and International Accounting Standards only.20 Test Bank for Intermediate Accounting. GAAP only. The rules-based standards of iGAAP are more detailed than the simpler. True 2. International Financial Reporting Standards. The standard-setting structure used by the International Accounting Standards Board is very similar to that used by the Financial Accounting Standards Board.S. True 4. iGAAP includes both International Financial Reporting Standards and International Accounting Standards. False 3. 6. 5. International Financial Reporting Standards. principles-based standards of U. . False 5. True 6. International Financial Reporting Standards only. International Financial Reporting Standards preceded International Accounting Standards 3. b. GAAP. International Accounting Standards and U. The International Accounting Standards Board issues International Financial Reporting Standards. Thirteenth Edition IFRS QUESTIONS True/False: 1.1 . 2. c. d. Authoritative standards for iGAAP include: a. International Accounting Standards and any GAAP standard recognized by an organized stock exchange.

3. U. It is not surprising that there is a growing demand for one set of high quality international standards.S. . financial statements from companies outside the United States are often prepared using different principles than U. Because iGAAP tends to be simpler and less stringent in its accounting and disclosure requirements. 2. GAAP. iGAAP is considered to be "principles-based" and less detailed than U. GAAP is considered to be "principles-based" and more detailed than iGAAP.S. Principles-based rules are considered to be based on accounting principles to result in financial statements that are presented. it is generally considered more principles-based than U. b 2. U. Why would it be advantageous for U.S. GAAP d. Standards Comparison Committee d. c 3. GAAP is considered to be "rules-based" and less detailed than iGAAP. Rules-based standards are generally quite detailed. GAAP. Standing Interpretations Committee b. c. Beyond the additional costs these companies incur.Financial Accounting and Accounting Standards 1 . Which of these statements regarding the iGAAP and U. b. GAAP is correct? a. GAAP? Explain. GAAP tends to be more complex.21 2. Both U. international companies have to develop financial information in different ways. GAAP and iGAAP are considered to be "rules-based".S.S. Relevant and reliable financial information is a necessity for viable capital markets. 2. GAAP and International GAAP to be the same? 1. but U. What is the difference between principles-based and rules-based accounting rules? Is iGAAP more principles-based than U.S.S. c Short Answer: 1. Unfortunately. As a result. Trustees Answers to Multiple Choice: 1.S. The IASB's standard-setting structure includes all of the following except a. and in many instances follow a “check-box” mentality that some contend may shield auditors and companies from legal liability.S.S. Standards Advisory Council c. users of financial statements are often forced to understand at least two sets of GAAP.