CHAPTER 1
FINANCIAL ACCOUNTING AND
ACCOUNTING STANDARDS
IFRS questions are available at te en! o" tis #a$ter%
TRUE&FALSE'Con#e$tual
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Des#ri$tion
Definition of financial accounting.
Purpose of financial statements.
Definition of financial accounting.
Capital allocation process.
Objective of financial reporting.
Decision!"sefulness approac#.
"sers of financial statements.
Committee on &ccounting Proce'ure.
Passage of ne) F&*+ statement.
*tatements of Financial &ccounting Concepts.
Creation of &ccounting Principles +oar'.
F&*+ Co'ification.
Co'e of Professional Con'uct.
-&&P an' political action.
Public Compan &ccounting Oversig#t +oar'.
/0pectations gap.
Financial reports.
Fair value information.
nternational Financial eporting *tan'ar's.
/t#ical issues.
)ULTIPLE CHOICE'Con#e$tual
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Financial accounting.
"sers of financial reports.
'entif t#e major financial statements.
Financial reporting entit.
Differences bet)een financial an' managerial accounting.
Financial reporting communication.
anagerial accounting.
Capital allocation process.
/fficient use of resources.
Capital allocation process.
Financial statement information.
&ccounting profession c#allenge.
Financial reporting objective.
Financial statements primar users.
Test *an+ "or Inter,e!iate A##ountin-. Fi"teent E!ition
1&/
c
35.
nvestors 'ecision maing.
)ULTIPLE CHOICE'Con#e$tual
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6cont.7
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&ccrual accounting.
/ntit perspective.
eaning of 8generall accepte'.9
Common set of stan'ar's an' proce'ures.
:imitation of general purpose financial statements.
*ecurities an' /0c#ange Commission an' accounting stan'ar' setting.
Due process in F&*+ stan'ar' setting.
Organi;ations responsible for setting accounting stan'ar's.
eason for &ccounting Principles +oar' creation
Organi;ation issuing &ccounting esearc# +ulletins.
C#aracteristic of -&&P.
C#aracteristics of -&&P.
F&*+ accounting stan'ar's.
F&*+ stan'ar' passage.
Purpose of /merging ssues Tas Force.
&CP& role in stan'ar' setting.
ole of */C.
Po)ers of t#e */C.
*/C enforcement.
Creation of F&*+.
&ppointment of F&*+ members.
Purpose of t#e Financial &ccounting Foun'ation.
C#aracteristics of F&*+.
F&*+ an' <'ue process< sstem.
Publications of F&*+.
Purpose of F&*+ Tec#nical +ulletins.
Purpose of /merging ssues Tas Force.
ole of t#e &CP&.
Pronouncement issue' b t#e &P+.
*tan'ar' setting organi;ations.
'entification of stan'ar' setting organi;ations.
*tatements of financial accounting concepts.
F&*+ members.
F&*+ statement process.
=ature of -&&P.
+o' )#ic# promulgates -&&P.
Publications )#ic# are not -&&P.
Publications )#ic# are not -&&P.
Co'e for Professional Con'uct ule 2,3.
Purpose of F&*+ staff position.
Components of -&&P.
Political environment of stan'ar' setting.
nternational &ccounting *tan'ar's +oar'.
Financial &ccounting an' &ccounting *tan'ar's
)ULTIPLE CHOICE'Con#e$tual
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*tan'ar' setting process pressure.
Danger of politics in stan'ar' setting
Definition of <e0pectation gap<.
eason accounting stan'ar's 'iffer across countries.
&'vantage of countries a'opting same accounting stan'ar's.
/t#ical concern of accountants.
=ote> t#ese ?uestions also appear in t#e Problem!*olving *urvival -ui'e.
E0ERCISES
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Des#ri$tion
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Objectives of financial reporting.
Development of accounting principles.
Publications an' organi;ations.
F&*+.
/volution of a statement of financial accounting stan'ar's.
CHAPTER LEARNING O*ECTI2ES
1. 'entif t#e major financial statements an' ot#er means of financial reporting.
2. /0plain #o) accounting assists in t#e efficient use of scarce resources.
3. 'entif t#e objective of financial reporting.
4. /0plain t#e nee' for accounting stan'ar's.
5. 'entif t#e major polic!setting bo'ies an' t#eir role in t#e stan'ar'!setting process.
. /0plain t#e meaning of generall accepte' accounting principles 6-&&P7 an' t#e role of t#e
Co'ification for -&&P.
$. Describe t#e impact of user groups on t#e rule!maing process.
%. Describe some of t#e c#allenges facing financial reporting.
(. "n'erstan' issues relate' to et#ics an' financial accounting.
1,. Compare t#e proce'ures relate' to financial accounting an' accounting stan'ar's un'er
-&&P an' F*.
1&7
Test *an+ "or Inter,e!iate A##ountin-. Fi"teent E!ition
SU))AR4 OF LEARNING O*ECTI2ES *4 5UESTIONS
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C @ ultiple C#oice
/ @ /0ercise
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Financial &ccounting an' &ccounting *tan'ar's
1&8
TRUE&FALSE'Con#e$tual
1. Financial accounting is t#e process of i'entifingA measuringA anal;ingA an' communicating
financial information nee'e' b management to planA evaluateA an' control a compans
operations.
2. Financial statements are t#e principal means t#roug# )#ic# a compan communicates its
financial information to t#ose outsi'e it.
3. "sers of financial reports of a compan use t#e information provi'e' b t#ese reports to
mae t#eir capital allocation 'ecisions.
4. &n effective process of capital allocation promotes pro'uctivit an' provi'es an efficient
maret for buing an' selling securities an' obtaining an' granting cre'it.
5. T#e objective of financial reporting is to report t#e plans ma'e b a compan to improve t#e
pro'uctivit of its emploees.
. nvestors are intereste' in financial reporting because it provi'es information t#at is useful
for maing 'ecisions.
$. "sers of financial accounting statements #ave bot# coinci'ing an' conflicting nee's for
information of various tpes.
%. T#e *ecurities an' /0c#ange Commission appointe' t#e Committee on &ccounting
Proce'ure.
(. T#e passage of a ne) F&*+ &ccounting *tan'ar's "p'ate re?uires t#e support of five of
t#e seven boar' members.
1,. *tatements of Financial &ccounting Concepts set fort# fun'amental objectives an'
concepts t#at are use' b t#e F&*+ in 'eveloping future stan'ar's of financial accounting
an' reporting.
11. T#e &CP& create' t#e &ccounting Principles +oar' in 1(5(.
12. T#e F&*+s Co'ification creates a ne) set of -&&P.
13. T#e &CP&s Co'e of Professional Con'uct re?uires t#at members prepare financial
statements in accor'ance )it# generall accepte' accounting principles.
14. -&&P is a pro'uct of careful logic or empirical fin'ings an' is not influence' b political
action.
15. T#e Public Compan &ccounting Oversig#t +oar' #as oversig#t an' enforcement aut#orit
an' establis#es au'iting an' in'epen'ence stan'ar's an' rules.
1. T#e e0pectations gap is 'ue to t#e 'ifference bet)een )#at t#e public t#ins accountants
s#oul' 'o an' )#at accountants t#in t#e can 'o.
1&9
Test *an+ "or Inter,e!iate A##ountin-. Fi"teent E!ition
1$. Financial reports in t#e earl 21st centur 'i' not provi'e an information about a
compans soft assets 6intangibles7.
1%. &ccounting stan'ar's are no) less liel to re?uire t#e recor'ing or 'isclosure of fair value
information.
1(. ".*. companies t#at list overseas are re?uire' to use nternational Financial eporting
*tan'ar'sA issue' b t#e nternational &ccounting *tan'ar's +oar'.
2,. /t#ical issues in financial accounting are governe' b t#e &CP&.
True&False Ans(ers'Con#e$tual
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4.
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)ULTIPLE CHOICE'Con#e$tual
21.
-eneral!purpose financial statements are t#e pro'uct of
a. financial accounting.
b. managerial accounting.
c. bot# financial an' managerial accounting.
'. neit#er financial nor managerial accounting.
22.
B#ic# of t#e follo)ing is not a user of financial reports
a. Cre'itors.
b. -overnment agencies.
c. "nions.
'. &ll of t#ese are users.
23.
T#e financial statements most fre?uentl provi'e' inclu'e all of t#e follo)ing e?#e$t t#e
a. balance s#eet.
b. income statement.
c. statement of cas# flo)s.
'. statement of retaine' earnings.
24.
T#e information provi'e' b financial reporting pertains to
a. in'ivi'ual business enterprisesA rat#er t#an to in'ustries or an econom as a )#ole or
to members of societ as consumers.
b. business in'ustriesA rat#er t#an to in'ivi'ual enterprises or an econom as a )#ole or
to members of societ as consumers.
c. in'ivi'ual business enterprisesA in'ustriesA an' an econom as a )#oleA rat#er t#an to
members of societ as consumers.
'. an econom as a )#ole an' to members of societ as consumersA rat#er t#an to
in'ivi'ual enterprises or in'ustries.
Financial &ccounting an' &ccounting *tan'ar's
P
1&:
25.
&ll t#e follo)ing are 'ifferences bet)een financial an' managerial accounting in #o)
accounting information is use' e?#e$t to
a. plan an' control compans operations.
b. 'eci'e )#et#er to invest in t#e compan.
c. evaluate borro)ing capacit to 'etermine t#e e0tent of a loan to grant.
'. &ll t#e ans)er c#oices are correct.
2.
B#ic# of t#e follo)ing represents a form of communication t#roug# financial reporting but
not t#roug# financial statements
a. +alance s#eet.
b. Presi'ents letter.
c. ncome statement.
'. =otes to financial statements.
2$.
T#e process of i'entifingA measuringA anal;ingA an' communicating financial information
nee'e' b management to planA evaluateA an' control an organi;ations operations is
calle'
a. financial accounting.
b. managerial accounting.
c. ta0 accounting.
'. au'iting.
2%.
Eo) 'oes accounting #elp t#e capital allocation process attract investment capital
a. + provi'ing timelA relevant information.
b. + encouraging innovation.
c. + promoting pro'uctivit.
'. + provi'ing timelA relevant information an' b encouraging innovation.
2(.
B#ic# of t#e follo)ing #elps in 'etermining )#et#er a business t#rives
a. arets.
b. Free enterprise.
c. Competition.
'. &ll of t#ese ans)er c#oices are correct.
3,.
B#ic# of t#e follo)ing is relate' to an effective capital allocation
a. Promoting pro'uctivit.
b. /ncouraging innovation.
c. Provi'ing an efficient maret for buing an' selling securities.
'. &ll of t#ese ans)er c#oices are correct.
31.
Financial statements in t#e earl 2,,,s provi'e information relate' to
a. nonfinancial measurements.
b. for)ar'!looing 'ata.
c. #ar' assets 6inventor an' plant assets7.
'. =one of t#ese ans)er c#oices are correct.
32.
B#ic# of t#e follo)ing is not a major c#allenge facing t#e accounting profession
a. =onfinancial measurements.
b. Timeliness.
c. &ccounting for #ar' assets.
'. For)ar'!looing information.
1&;
Test *an+ "or Inter,e!iate A##ountin-. Fi"teent E!ition
33.
B#at is t#e objective of financial reporting
a. Provi'e information t#at is useful to management in maing 'ecisions.
b. Provi'e information t#at clearl portras nonfinancial transactions.
c. Provi'e information about t#e reporting entit t#at is useful to present an' potential
e?uit investorsA len'ersA an' ot#er cre'itors.
'. Provi'e information t#at e0clu'es claims to t#e resources.
34.
Primar users for general!purpose financial statements inclu'e
a. cre'itors.
b. emploees.
c. investors.
'. bot# cre'itors an' investors.
35.
B#ic# of t#e follo)ing )ill be of interest to investors in 'ecision!maing
a. &ssessing t#e compans abilit to generate net cas# inflo)s.
b. &ssessing managements abilit to protect an' en#ance t#e capital provi'ers
investments.
c. +ot# assessing t#e compans abilit to generate net cas# inflo)s an' assessing
managements abilit to protect an' en#ance t#e capital provi'ers investments.
'. &ssessing t#e compans abilit to collect 'ebts.
3.
&ccrual accounting is use' because
a. cas# flo)s are consi'ere' less important.
b. it provi'es a better in'ication of a compans abilit to generate cas# flo)s t#an t#e
cas# basis.
c. it recogni;es revenues )#en cas# is receive' an' e0penses )#en cas# is pai'.
'. =one of t#e ans)er c#oices are correct.
3$.
B#ic# perspective is a'opte' as a part of t#e objective of general!purpose financial
reporting
a. & 'ecision!usefulness perspective.
b. & proprietar perspective.
c. &n entit perspective.
'. & financial reporting perspective.
3%.
B#ic# of t#e follo)ing is a re?uirement for an accounting principle to be calle' <generall
accepte'<
a. &n aut#oritative accounting rule!maing bo' #as establis#e' it in an official
pronouncement.
b. T#e principle #as been accepte' as appropriate because of its universal application.
c. &n aut#oritative accounting rule!maing bo' #as establis#e' it an' it #as been
accepte' because of its universal application.
'. =one of t#e ans)er c#oices are correct.
3(.
& common set of accounting stan'ar's an' proce'ures are calle'
a. financial accounting stan'ar's.
b. generall accepte' accounting principles.
c. objectives of financial reporting.
'. statements of financial accounting concepts.
Financial &ccounting an' &ccounting *tan'ar's
1&<
4,.
B#ic# of t#e follo)ing is a general limitation of <general purpose financial statements<
a. -eneral purpose financial statements ma not be t#e most informative for a specific
enterprise.
b. -eneral purpose financial statements are not comparable.
c. -eneral purpose financial statements 'o not fairl present a compans financial
operations.
'. =one of t#e ans)er c#oices are correct.
41.
B#at is t#e relations#ip bet)een t#e *ecurities an' /0c#ange Commission an'
accounting stan'ar' setting in t#e "nite' *tates
a. T#e */C re?uires all companies liste' on an e0c#ange to submit t#eir financial
statements to t#e */C.
b. T#e */C coor'inates )it# t#e &CP& in establis#ing accounting stan'ar's.
c. T#e */C #as a man'ate to establis# accounting stan'ar's for enterprises un'er its
juris'iction.
'. T#e */C revie)s financial statements for compliance.
42.
B#at is 'ue process in t#e conte0t of stan'ar' setting at t#e F&*+
a. T#e F&*+ operates in full vie) of t#e public.
b. Public #earings are #el' on propose' accounting stan'ar's.
c. ntereste' parties can mae t#eir vie)s no)n.
'. &ll of t#e ans)er c#oices are correct.
43.
B#ic# of t#e follo)ing organi;ations #as been responsible for setting ".*. accounting
stan'ar's
a. T#e &ccounting Principles +oar'.
b. T#e Committee on &ccounting Proce'ure.
c. T#e Financial &ccounting *tan'ar's +oar'.
'. &ll of t#e ans)er c#oices are correct.
44.
B# 'i' t#e &CP& create t#e &ccounting Principles +oar'
a. T#e */C 'isban'e' t#e previous stan'ar' setting organi;ation.
b. T#e previous stan'ar' setting organi;ation 'i' not provi'e a structure' set of
accounting principles.
c. =o suc# organi;ation e0iste' in t#e past.
'. =one of t#e ans)er c#oices are correct.
45.
B#ic# organi;ation )as responsible for issuing &ccounting esearc# +ulletins
a. T#e &ccounting Principles +oar'.
b. T#e Committee on &ccounting Proce'ure.
c. T#e */C.
'. T#e F&*+.
4.
& c#aracteristic of generall accepte' accounting principles inclu'e>
a. a common set of stan'ar's an' principles.
b. stan'ar's an' principles are base' a fe'eral statutes.
c. acceptance re?uires an affirmative vote of Certifie' Public &ccountants.
'. practices t#at become accepte' for at least a ear b all in'ustr members.
1 & 1=
Test *an+ "or Inter,e!iate A##ountin-. Fi"teent E!ition
4$.
C#aracteristics of generall accepte' accounting principles inclu'e all of t#e follo)ing
e?#e$t
a. aut#oritative accounting t#at t#e rule!maing bo' #as establis#e' as a principle of
reporting.
b. stan'ar's are consi'ere' useful b t#e profession.
c. eac# principle is approve' b t#e */C.
'. practice #as become universall accepte' over time.
4%.
B# )as it believe' t#at accounting stan'ar's t#at )ere issue' b t#e Financial
&ccounting *tan'ar's +oar' )oul' carr more )eig#t
a. *maller members#ip.
b. T#e F&*+ boar' members )ere )ell!pai'.
c. T#e F&*+ boar' members )ere CP&s.
'. Due process.
4(.
T#e passage of a ne) F&*+ &ccounting *tan'ar's "p'ate re?uires t#e support of
a. seven +oar' members.
b. t#ree +oar' members.
c. four +oar' members.
'. five +oar' members.
5,.
B#at is t#e purpose of /merging ssues Tas Force
a. Provi'e interpretation of e0isting stan'ar's.
b. Provi'e a consensus on #o) to account for ne) an' unusual financial transactions.
c. Provi'e interpretive gui'ance.
'. Provi'e timel gui'ance on select issues.
51.
B#ic# organi;ation is responsible for issuing /merging ssues Tas Force *tatements
a. T#e F&*+
b. T#e C&P
c. T#e &P+
'. T#e */C
52.
T#e role of t#e *ecurities an' /0c#ange Commission in t#e formulation of accounting
principles can be best 'escribe' as
a. consistentl primar.
b. consistentl secon'ar.
c. sometimes primar an' sometimes secon'ar.
'. non!e0istent.
53.
T#e bo' t#at #as t#e po)er to prescribe t#e accounting practices an' stan'ar's to be
emploe' b companies t#at fall un'er its juris'iction is t#e
a. F&*+.
b. &CP&.
c. */C.
'. &P+.
Financial &ccounting an' &ccounting *tan'ar's
1 & 11
54.
Companies t#at are liste' on a stoc e0c#ange are re?uire' to submit t#eir financial
statements to t#e
a. &CP&.
b. &P+
c. F&*+.
'. */C.
55.
T#e Financial &ccounting *tan'ar's +oar' 6F&*+7 )as propose' b t#e
a. &merican nstitute of Certifie' Public &ccountants.
b. &ccounting Principles +oar'.
c. *tu' -roup on t#e Objectives of Financial *tatements.
'. *tu' -roup on establis#ment of &ccounting Principles 6B#eat Committee7.
5.
B#ic# of t#e follo)ing is true of t#e Financial &ccounting *tan'ar's +oar'
a. t #as issue' a series of pronouncements entitle' &u'iting *tan'ar's "p'ates.
b. t )as t#e forerunner of t#e current &ccounting Principles +oar'.
c. t is t#e arm of t#e *ecurities an' /0c#ange Commission responsible for setting
financial accounting stan'ar's.
'. T#e members of t#e F&*+ are appointe' b t#e Financial &ccounting Foun'ation.
5$.
T#e Financial &ccounting Foun'ation
a. oversees t#e operations of t#e F&*+.
b. oversees t#e operations of t#e &CP&.
c. provi'es information to intereste' parties on financial reporting issues.
'. )ors )it# t#e Financial &ccounting *tan'ar's &'visor Council to provi'e informa!
tion to intereste' parties on financial reporting issues.
5%.
T#e major 'istinction bet)een t#e Financial &ccounting *tan'ar's +oar' 6F&*+7 an' its
pre'ecessorA t#e &ccounting Principles +oar' 6&P+7A is
a. t#e F&*+ issues e0posure 'rafts of propose' stan'ar's.
b. all members of t#e F&*+ are full remunerate'A serve full timeA an' are in'epen'ent
of an companies or institutions.
c. all members of t#e F&*+ possess e0tensive e0perience in financial reporting.
'. a majorit of t#e members of t#e F&*+ are CP&s 'ra)n from public practice.
5(.
T#e Financial &ccounting *tan'ar's +oar' emplos a <'ue process< sstem )#ic#
a. is an efficient sstem for collecting 'ues from members.
b. enables intereste' parties to e0press t#eir vie)s on issues un'er consi'eration.
c. i'entifies t#e accounting issues t#at are t#e most important.
'. re?uires t#at all accountants must receive a cop of financial stan'ar's.
,.
B#ic# of t#e follo)ing is not a publication of t#e F&*+
a. *tatements of Financial &ccounting Concepts
b. &ccounting esearc# +ulletins
c. nterpretations
'. Tec#nical +ulletins
1 & 1/
P
Test *an+ "or Inter,e!iate A##ountin-. Fi"teent E!ition
1.
F&*+ Tec#nical +ulletins
a. are similar to F&*+ nterpretations in t#at t#e establis# enforceable stan'ar's un'er
t#e &CP&s Co'e of Professional /t#ics.
b. are issue' mont#l b t#e F&*+ to 'eal )it# current topics.
c. are not e0pecte' to #ave a significant impact on financial reporting in general an'
provi'e gui'ance )#en it 'oes not conflict )it# an broa' fun'amental accounting
principle.
'. )ere recentl 'iscontinue' b t#e F&*+ because t#e 'ealt )it# speciali;e' topics
#aving little impact on financial reporting in general.
2.
T#e purpose of t#e /merging ssues Tas Force is to
a. 'evelop a conceptual frame)or as a frame of reference for t#e solution of future
problems.
b. lobb t#e F&*+ on issues t#at affect a particular in'ustr.
c. 'o researc# on issues t#at relate to long!term accounting problems.
'. issue statements )#ic# reflect a consensus on #o) to account for ne) an' unusual
financial transactions t#at nee' to be resolve' ?uicl.
3.
T#e &merican nstitute of Certifie' Public &ccountants 6&CP&7 continues to be involve' in
all of t#e follo)ing e?#e$t
a. 'eveloping an' enforcing professional et#ics.
b. 'eveloping au'iting stan'ar's for public companies.
c. provi'ing professional e'ucation programs.
'. &ll of t#e ans)er c#oices are correct.
4.
B#ic# of t#e follo)ing pronouncements )ere issue' b t#e &ccounting Principles +oar'
a. &ccounting esearc# +ulletins
b. &P+ Opinions
c. &P+ *tatements of Position
'. *tatements of Financial &ccounting Concepts
5.
B#ic# of t#e follo)ing organi;ations #as not been instrumental in t#e 'evelopment of
financial accounting stan'ar's in t#e "nite' *tates
a. &CP&
b. F&*+
c. &*+
'. */C
.
B#ic# of t#e follo)ing organi;ations #as not publis#e' accounting stan'ar's
a. &merican nstitute of Certifie' Public &ccountants.
b. *ecurities an' /0c#ange Commission.
c. Financial &ccounting *tan'ar's +oar'.
'. &ll of t#ese #ave publis#e' accounting stan'ar's.
$.
T#e purpose of *tatements of Financial &ccounting Concepts is to
a. establis# -&&P.
b. mo'if or e0ten' an e0isting F&*+ &ccounting *tan'ar's "p'ate.
c. form a conceptual frame)or for solving e0isting an' emerging problems.
'. 'etermine t#e nee' for F&*+ involvement in an emerging issue.
Financial &ccounting an' &ccounting *tan'ar's
1 & 13
P
%.
embers of t#e Financial &ccounting *tan'ar's +oar' are
a. emploe' b t#e &merican nstitute of Certifie' Public &ccountants 6&CP&7.
b. part!time emploees.
c. re?uire' to #ol' a CP& certificate.
'. in'epen'ent of an ot#er organi;ation.
P
(.
T#e follo)ing are part of t#e <'ue process< sstem use' b t#e F&*+ in t#e evolution of a
tpical F&*+ &ccounting *tan'ar's "p'ate>
1. /0posure Draft
2. F&*+ &ccounting *tan'ar's "p'ate
3. Preliminar ie)s
T#e c#ronological or'er in )#ic# t#ese items are release' is as follo)s>
a. 1A 2A 3.
b. 1A 3A 2.
c. 2A 3A 1.
'. 3A 1A 2.
$,.
B#ic# of t#e follo)ing is true of generall accepte' accounting principles
a. -&&P inclu'es 'etaile' practices an' proce'ures as )ell as broa' gui'elines of
general application.
b. -&&P is influence' b pronouncements of t#e */C an' *.
c. -&&P c#anges over time as t#e nature of t#e business environment c#anges.
'. &ll of t#ese ans)er c#oices are correct.
$1.
T#e most significant current source of generall accepte' accounting principles is t#e
a. &CP&.
b. */C.
c. &P+.
'. F&*+.
$2.
B#ic# of t#e follo)ing is not a part of generall accepte' accounting principles
a. T#e F&*+ nterpretations
b. T#e C&P &ccounting esearc# +ulletins
c. T#e &P+ Opinions
'. &ll of t#ese are part of generall accepte' accounting principles.
$3.
B#ic# of t#e follo)ing publications 'oes not ?ualif as a statement of generall accepte'
accounting principles
a. *tatements of financial stan'ar's issue' b t#e F&*+
b. &ccounting interpretations issue' b t#e F&*+
c. &P+ Opinions
'. &ccounting researc# stu'ies issue' b t#e &CP&
$4.
ule 2,3 of t#e Co'e of Professional Con'uct a''resses>
a. et#ical re?uirements.
b. financial statements being base' on generall accepte' accounting principles.
c. a'vertising to obtain clients.
'. au'iting financial statements.
1 & 17
Test *an+ "or Inter,e!iate A##ountin-. Fi"teent E!ition
$5.
B#at is t#e purpose of a F&*+ *taff Position
a. Provi'e interpretation of e0isting stan'ar's.
b. Provi'e a consensus on #o) to account for ne) an' unusual financial transactions.
c. Provi'e interpretive gui'ance.
'. Provi'e timel gui'ance on select issues.
$.
B#ic# of t#e follo)ing is not consi'ere' a component of generall accepte' accounting
principles
a. F&*+ mplementation -ui'es.
b. Bi'el recogni;e' in'ustr practices.
c. &rticles publis#e' in CP& journals.
'. &CP& &ccounting nterpretations.
$$.
Financial accounting stan'ar'!setting in t#e "nite' *tates
a. can be 'escribe' as a social process )#ic# reflects political actions of various
intereste' user groups as )ell as a pro'uct of researc# an' logic.
b. is base' solel on researc# an' empirical fin'ings.
c. is a legalistic process base' on rules promulgate' b governmental agencies.
'. is 'emocratic in t#e sense t#at a majorit of accountants must agree )it# a stan'ar'
before it becomes enforceable.
$%.
T#e purpose of t#e nternational &ccounting *tan'ar's +oar' is to
a. issue enforceable stan'ar's )#ic# regulate t#e financial accounting an' reporting of
multinational corporations.
b. 'evelop a uniform currenc in )#ic# t#e financial transactions of companies t#roug#!
out t#e )orl' )oul' be measure'.
c. promote uniform accounting stan'ar's among countries of t#e )orl'.
'. arbitrate accounting 'isputes bet)een au'itors an' international companies.
$(.
B#ic# of t#e follo)ing is a source of pressure t#at ma influence t#e accounting stan'ar'
setting process
a. Congress.
b. :obbist.
c. CP& firms.
'. &ll of t#ese ans)ers are correct.
%,.
B#at is a possible 'anger if politics plas too big a role in accounting stan'ar' setting
a. &ccounting stan'ar's t#at are not trul generall accepte'.
b. n'ivi'uals ma influence t#e stan'ar's.
c. "ser groups become active.
'. T#e F&*+ 'elegates its aut#orit to electe' officials.
Financial &ccounting an' &ccounting *tan'ar's
1 & 18
%1.
B#at is t#e <e0pectations gap<
a. T#e 'ifference bet)een )#at t#e public t#ins t#e accountant s#oul' not 'o an' )#at
t#e accountant no)s t#e s#oul' 'o.
b. T#e 'ifference bet)een )#at t#e public t#ins t#e accountant is 'oing an' )#at
Congress sas t#e accountant is 'oing.
c. T#e 'ifference bet)een )#at t#e public t#ins t#e accountant s#oul' 'o an' )#at t#e
accountant t#ins t#e can 'o.
'. T#e 'ifference bet)een )#at t#e accountant is 'oing an' )#at t#e Courts sa t#e
accountant s#oul' be 'oing.
%2.
B#at is not a reason t#at accounting stan'ar's ma 'iffer across countries
a. -overnments.
b. :anguage.
c. Culture.
'. Past practice.
%3.
B#at )oul' be an a'vantage of #aving all countries a'opt an' follo) t#e same
accounting stan'ar's
a. &greement.
b. Comparabilit.
c. :o)er preparation costs.
'. Comparabilit an' lo)er preparation costs.
%4.
B#ic# of t#e follo)ing is an et#ical concern of accountants
a. /arnings manipulation.
b. Conservative accounting.
c. n'ustr practices.
'. =one of t#ese ans)ers are correct.
)ulti$le Coi#e Ans(ers' Con#e$tual
Ite,
21.
22.
23.
24.
25.
2.
2$.
2%.
2(.
3,.
Ans%
a
'
'
a
'
b
b
a
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'
Ite,
31.
32.
33.
34.
35.
3.
3$.
3%.
3(.
4,.
Ans%
c
c
c
'
c
b
c
c
b
a
Ite,
41.
42.
43.
44.
45.
4.
4$.
4%.
4(.
5,.
Ans%
c
'
'
b
b
a
c
'
c
b
Ite,
51.
52.
53.
54.
55.
5.
5$.
5%.
5(.
,.
Ans%
a
c
c
'
'
'
a
b
b
b
Ite,
1.
2.
3.
4.
5.
.
$.
%.
(.
$,.
Ans%
c
'
b
b
c
'
c
'
'
'
Ite,
$1.
$2.
$3.
$4.
$5.
$.
$$.
$%.
$(.
%,.
Ans%
Ite,
Ans%
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'
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b
c
c
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c
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%1.
%2.
%3.
%4.
c
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a
1 & 19
Test *an+ "or Inter,e!iate A##ountin-. Fi"teent E!ition
E0ERCISES
E?% 1&;8GObjective of financial reporting.
B#at is t#e objective of financial reporting Eo) 'o general!purpose financial statements #elp
meet t#is objective.
Solution 1&;8
T#e objective of financial reporting is to provi'e financial information about t#e reporting entit
t#at is useful to present an' potential e?uit investorsA len'ersA an' ot#er cre'itors in 'ecisions
about provi'ing resources to t#e entit.
-eneral!purpose financial statements provi'e financial reporting information to a )i'e variet of
users. T#e #elp s#are#ol'ersA cre'itorsA emploeesA an' regulators to better un'erstan' a
compans financial position an' relate' performance.
E?% 1&;9GDevelopment of accounting principles.
Presente' belo) are t#ree in'epen'entA unrelate' statements regar'ing t#e formulation of
generall accepte' accounting principles. /ac# statement contains some incorrect or 'ebatable
statement6s7.
*tatement 
T#e users of financial accounting statements #ave coinci'ing an' conflicting nee's for
statements of various tpes. To meet t#ese nee'sA an' to satisf t#e financial reporting
responsibilit of managementA accountants prepare 'ifferent sets of financial statements for
'ifferent users.
*tatement 
T#e F&*+ s#oul' be responsive to t#e nee's an' vie)points of t#e entire economic communitA
not just t#e public accounting profession. T#e F&*+ t#erefore )ill succee' because it )ill 'eal
effectivel )it# all intereste' groups.
*tatement 
T#e *ecurities an' /0c#ange Commission is ver concerne' about financial reporting an' #as
formulate' a committee calle' t#e &ccounting *tan'ar's /0ecutive Committee 6&c*/C7. T#is )ill
provi'e input to t#e F&*+. n a''itionA after eac# F&*+ *tatement is issue'A t#e &c*/C issues
*tatements of Position stating its position on t#e F&*+ statement.
Instru#tions
/valuate eac# of t#e in'epen'ent statements an' i'entif t#e areas of fallacious reasoning in
eac#. /0plain )# t#e reasoning is incorrect. Complete our 'iscussion of eac# statement before
procee'ing to t#e ne0t statement.
Financial &ccounting an' &ccounting *tan'ar's
1 & 1:
Solution 1&;9
*tatement 
t is true t#at users of financial accounting statements #ave coinci'ing an' conflicting nee's for
statements of various tpes. Eo)everA to meet t#ese nee'sA accountants generall prepare a
single set of general!purpose financial statementsA rat#er t#an a number of 'ifferent tpes of
financial statements. t ma be argue' t#at accountants often 'o prepare special statements for
particular purposesA but in general t#e accounting profession #as relie' on general purpose
financial statements prepare' in conformance )it# generall accepte' accounting principles.
*tatement 
t is true t#at t#e F&*+ s#oul' be responsive to t#e nee's of t#e entire economic communitA not
just t#e public accounting profession. Eo)everA it is not clear )#et#er t#e F&*+ )ill succee'. T#e
F&*+ )ill #ave t#e best c#ance of survival if it 'eals )it# problems promptlA sets proper
prioritiesA taes )#atever action it t#ins is rig#t an' in t#e public interestA an' #an'les pressures
responsibl )it#out overreacting to t#em.
*tatement 
T#e &ccounting *tan'ar's /0ecutive Committee 6&c*/C7 )as establis#e' )it#in t#e &merican
nstitute of Certifie' Public &ccountantsA not t#e *ecurities an' /0c#ange CommissionA to
respon' to pronouncements of t#e F&*+. T#e &c*/C 'oes issue *tatements of PositionA but
issues t#em before t#e F&*+ sets stan'ar's on t#e issue.
E?% 1&;:GPublications an' organi;ations.
*ignificant accounting publications are liste' belo) 61!%7. *ources or sponsors of accounting
publications are i'entifie' ne0t b alp#abetical c#aracter 6a!e7. atc# t#e publications )it# t#eir
sources.
Publications
HHHHH 1. &ccounting esearc# +ulletins 61(53!1(5(7
HHHHH 2. &ccounting *tan'ar's "p'ates
HHHHH 3. *tatements of Position 6*OPs7
HHHHH 4. *tatements of Financial &ccounting Concepts
HHHHH 5. Opinions 61(2!1($37
*ourcesI*ponsors
a. Financial &ccounting *tan'ar's +oar'
b. &ccounting *tan'ar's /0ecutive Committee
c. T#e &CP&
'. Committee on &ccounting Proce'ure
e. &ccounting Principles +oar'
1 & 1;
Test *an+ "or Inter,e!iate A##ountin-. Fi"teent E!ition
Solution 1&;:
1. '
2. a
3. b
4. a
5. e
E?% 1&;;GF&*+.
T#e Financial &ccounting *tan'ar's +oar' )as establis#e' because man groups intereste' in
financial reporting believe' t#at t#e &ccounting Principles +oar' )as not effective. Discuss t#e
apparent a'vantages t#at t#e F&*+ s#oul' #ave over its earlier counterpartA t#e &P+.
Solution 1&;;
1. *maller members#ip. T#e F&*+ is compose' of seven membersA replacing t#e relativel
large 1%!member &P+.
2. Full!timeA remunerate' members#ip. F&*+ members are )ell!pai'A full!time membersA
appointe' for rene)able five!ear terms. T#e &P+ members )ere unpai' an' part!time.
3. -reater autonom. T#e &P+ )as a senior committee of t#e &CP&A )#ereas t#e F&*+ is not
part of an single professional organi;ation. t is appointe' b an' ans)erable onl to t#e
Financial &ccounting Foun'ation.
4. ncrease' in'epen'ence. T#e &P+ members retaine' t#eir private positions )it# firmsA
companiesA or institutions. T#e F&*+ members must sever all suc# ties.
5. +roa'er representation. &ll &P+ members )ere re?uire' to be CP&s an' members of t#e
&CP&. CurrentlA it is not necessar to be a CP& to be a member of t#e F&*+.
E?% 1&;<G/volution of a statement of financial accounting stan'ar's.
n establis#ing financial accounting stan'ar'sA t)o basic premises of t#e F&*+ are 617 T#e F&*+
s#oul' be responsive to t#e nee's an' vie)points of t#e entire economic communitA not just t#e
accounting profession. 627 t s#oul' operate in full vie) of t#e public t#roug# a <'ue process<
sstem t#at gives intereste' persons ample opportunit to mae t#eir vie)s no)n. To ensure
ac#ievement of t#ese goalsA )#at are t#e steps taen in t#e evolution of an F&*+ *tatement of
Financial &ccounting *tan'ar's
Solution 1&;<
T#e steps in t#e evolution of an F&*+ &ccounting *tan'ar's "p'ates are>
a. Topics are i'entifie' an' place' on t#e +oar's agen'a.
b. esearc# an' analsis are con'ucte' an' preliminar vie)s of pros an' cons are issue'.
c. & public #earing on t#e propose' stan'ar' is #el'.
'. T#e +oar' evaluates t#e researc# an' public response an' issues an e0posure 'raft.
e. T#e +oar' evaluates t#e responses an' c#anges t#e e0posure 'raftA if necessar. T#e final
stan'ar' is t#en issue'.
Financial &ccounting an' &ccounting *tan'ar's
1 & 1<
IFRS 5UESTIONS
True@False
1. F* inclu'es bot# nternational Financial eporting *tan'ar's an' nternational &ccounting
*tan'ar's.
2. nternational Financial eporting *tan'ar's prece'e' nternational &ccounting *tan'ar's
3. T#e stan'ar'!setting structure use' b t#e nternational &ccounting *tan'ar's +oar' is ver
similar to t#at use' b t#e Financial &ccounting *tan'ar's +oar'.
4. T#e rules!base' stan'ar's of F* are more 'etaile' t#an t#e simplerA principles!base'
stan'ar's of ".*. -&&P.
5. T#e nternational &ccounting *tan'ar's +oar' #as seven members.
. T#e internal control stan'ar's applicable to *arbanesJO0le 6*OK7 appl onl to large public
companies liste' on ".*. e0c#anges.
Ans(ers to True@False questions
1. True
2. False
3. True
4. False
5. False
. True
)ulti$le Coi#e
$. &ut#oritative stan'ar's for F* inclu'e>
a. nternational Financial eporting *tan'ar's onl.
b. nternational Financial eporting *tan'ar's an' nternational &ccounting *tan'ar's onl.
c. nternational Financial eporting *tan'ar'sA nternational &ccounting *tan'ar's an' ".*.
-&&P onl.
'. nternational Financial eporting *tan'ar'sA nternational &ccounting *tan'ar's an' an
-&&P stan'ar' recogni;e' b an organi;e' stoc e0c#ange.
%. B#ic# of t#ese statements regar'ing t#e F* an' ".*. -&&P is correct
a. ".*. -&&P is consi'ere' to be <principles!base'<.
b. ".*. -&&P is consi'ere' to be less 'etaile' t#an F*.
c. F* is consi'ere' to be <principles!base'< an' less 'etaile' t#an ".*. -&&P
'. +ot# ".*. -&&P an' F* are consi'ere' to be <rules!base'<A but ".*. -&&P ten's to be
more comple0.
(. T#e &*+s stan'ar'!setting structure inclu'es all of t#e follo)ing e?#e$t
a. t#e *tan'ing nterpretations Committee
b. t#e *tan'ar's &'visor Council
c. t#e *tan'ar's Comparison Committee
'. t#e Trustees
1 & /=
Test *an+ "or Inter,e!iate A##ountin-. Fi"teent E!ition
1,. B#ic# of t#e follo)ing organi;ations #ave committe' to 'evelop #ig#!?ualitA compatible
accounting stan'ar's t#at coul' be use' for 'omestic an' cross!bor'er financial reporting
a. T#e Financial &ccounting *tan'ar's +oar' 6F&*+7 an' t#e nternational Organi;ation of
*ecurities Commission 6O*CO7
b. T#e Financial &ccounting *tan'ar's +oar' 6F&*+7 an' t#e nternational &ccounting
*tan'ar's +oar' 6&*+7
c. T#e nternational &ccounting *tan'ar's +oar' 6&*+7 an' nternational Organi;ation of
*ecurities Commission 6O*CO7
'. T#e nternational &ccounting *tan'ar's +oar' 6&*+7 an' t#e *tan'ar's &'visor Council
6*&C7
11. B#ic# of t#e follo)ing organi;ations is not among t#e four international stan'ar'!setting
organi;ations
a. T#e nternational &ccounting *tan'ar's Committee Foun'ation 6&*CF7
b. T#e *tan'ar's &'visor Council 6*&C7
c. T#e nternational Financial eporting nterpretations Committee 6FC7
'. T#e Financial /0ecutives nstitute 6F/7
12. B#ic# of t#e follo)ing organi;ations selects members for t#e &*+
a. T#e &ccounting *tan'ar's Committee Foun'ation
b. T#e *tan'ar's &'visor Council
c. T#e nternational Financial eporting nterpretations Committee
'. T#e nternational &ccounting *tan'ar's Committee Foun'ation
13. T#e &*+ consists of HHHHHHHHH part!time members.
a. seven
b. t)o
c. t#ree
'. five
14. T#e purpose of t#e nternational &ccounting *tan'ar's +oar' is to>
a. regulate stoc prices at t#e international level.
b. 'evelop a uniform currenc in )#ic# t#e financial transactions occur.
c. 'evelop a single set of #ig#!?ualit financial reporting stan'ar's.
'. arbitrate accounting 'isputes bet)een au'itors an' international companies.
Ans(ers
$. b
%. c
(. c
1,. b
to )ulti$le Coi#e
11. '
12. '
13. b
14. c
Sort Ans(er
15. B# )oul' it be a'vantageous for ".*. -&&P an' nternational -&&P to be t#e same
elevant an' reliable financial information is a necessit for viable capital marets.
"nfortunatelA financial statements from companies outsi'e t#e "nite' *tates are often
prepare' using 'ifferent principles t#an ".*. -&&P. &s a resultA international companies #ave
to 'evelop financial information in 'ifferent )as. +eon' t#e a''itional costs t#ese
companies incurA users of financial statements are often force' to un'erstan' at least t)o
sets of -&&P. t is not surprising t#at t#ere is a gro)ing 'eman' for one set of #ig# ?ualit
international stan'ar's.
Financial &ccounting an' &ccounting *tan'ar's
1 & /1
1. B#at is t#e 'ifference bet)een principles!base' an' rules!base' accounting rules s F*
more principles!base' t#an ".*. -&&P /0plain.
Principles!base' rules are consi'ere' to be base' on accounting principles to result in
financial statements t#at are presente'. ules!base' stan'ar's are generall ?uite 'etaile'A
an' in man instances follo) a 8c#ec!bo09 mentalit t#at some conten' ma s#iel' au'itors
an' companies from legal liabilit. +ecause F* ten's to be simpler an' less stringent in its
accounting an' 'isclosure re?uirementsA it is generall consi'ere' more principles!base'
t#an ".*. -&&P.