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,Chap001 The Economic and Institutional Setting for Financial ReportingTrue/False
[QUESTION]
1. The role of financial accounting information is to facilitate economic transactions and to
foster efficient allocation of resources among businesses and individuals.
Answer: True
Learning Objective: 01-01
Difficulty: 1 Easy
AACSB: Reflective Thinking
AICPA: BB Resource Management
Blooms: Remember
Topic: Financial statements―As sources of information
[QUESTION]
2. Financial reports provide information that can reduce investors’ uncertainty about the
company’s opportunities and risks, thereby raising the company’s cost of capital.
Answer: False
Learning Objective: 01-02
Difficulty: 2 Medium
AACSB: Reflective Thinking
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Blooms: Understand
Topic: Financial statements―For decision-maker needs
[QUESTION]
3. Comparability across companies allows analysts to identify real economic similarities in and
differences between underlying economic events because those similarities or differences are not
obscured by accounting methods or disclosure practices.
Answer: True
Learning Objective: 01-04
Difficulty: 2 Medium
AACSB: Reflective Thinking
AICPA: FN Risk Analysis
AICPA: FN Measurement
Blooms: Remember
Topic: Fundamental concepts of financial reporting
[QUESTION]
4. Executive compensation contracts seldom contain annual bonus and longer term pay
components tied to financial statement results, but instead usually rely on stock options as a
means to reward managers in a manner that is less subject to manipulation by management.
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
,Answer: False
Learning Objective: 01-02
Difficulty: 2 Medium
AACSB: Reflective Thinking
AICPA: BB Resource Management
AICPA: BB Critical Thinking
AICPA: FN Risk Analysis
Blooms: Understand
Topic: Financial statements―For decision-maker needs
[QUESTION]
5. The public and private sector regulatory agencies establish and enforce financial reporting
requirements designed to ensure that companies meet certain minimum levels of financial
disclosure.
Answer: True
Learning Objective: 01-03
Difficulty: 1 Easy
AACSB: Reflective Thinking
AICPA: BB Legal
Blooms: Remember
Topic: Financial statements―Disclosure costs and benefits
[QUESTION]
6. Although the SEC has the ultimate legal authority to set accounting principles in the U.S., it
has looked to private-sector organizations (e.g., the FASB) to establish and enforce these
principles.
Answer: False
Feedback: The SEC retains enforcement authority over financial reporting in the U.S.
Learning Objective: 01-04
Difficulty: 1 Easy
AACSB: Reflective Thinking
AICPA: BB Legal
Blooms: Remember
Topic: Standard-setting―US GAAP
[QUESTION]
7. Management has considerable discretion over the particular accounting procedures used in the
financial statements and over the details contained in related note disclosures.
Answer: True
Learning Objective: 01-01
Learning Objective: 01-04
Difficulty: 1 Easy
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Remember
Topic: Financial statements―As sources of information
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
, Topic: Management choices―Reporting strategies
[QUESTION]
8. Accounting standard-setting in the U.S. is a technical process and thus little affected by
political considerations.
Answer: False
Learning Objective: 01-04
Difficulty: 1 Easy
AACSB: Reflective Thinking
AICPA: BB Legal
Blooms: Remember
Topic: Standard-setting―US GAAP
[QUESTION]
9. The IASB and FASB have worked together to develop a single set of high-quality,
understandable, enforceable and globally accepted international financial reporting standards.
Answer: True
Learning Objective: 01-06
Difficulty: 1 Easy
AACSB: Diversity
AICPA: BB Global
AICPA: FN Measurement
Blooms: Remember
Topic: Standards differences—US GAAP and IFRS
[QUESTION]
10. Foreign companies registered with the SEC that use IFRS no longer have to reconcile their
financial statements to U.S. GAAP.
Answer: False
Feedback: Form F20 reconciles back to GAAP the earnings and shareholder’s equity
Learning Objective: 01-06
Difficulty: 2 Medium
AACSB: Diversity
AICPA: BB Legal
AICPA: FN Measurement
Blooms: Understand
Topic: Standards differences—US GAAP and IFRS
[QUESTION]
11. U.S. GAAP has been criticized as being too “rules-based” thus allowing managers to invent
“loopholes” that conform to the letter of a standard but simultaneously violate its spirit.
Answer: True
Learning Objective: 01-05
Difficulty: 2 Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
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