88% (14 out of 16 correct)

Responses to questions are indicated by the

symbol.

1. An effective capital allocation process

A. promotes productivity.
B. encourages innovation.
C. provides an efficient market for buying and selling securities.
D. All of these choices are correct.

Correct! An effective capital allocation process does all of these items.

2. The objective of general purpose financial reporting adopts an entity perspective, which
means that
A. financial reporting should be focused an assessing the company's stewardship.
B. financial reporting should be focused solely on the needs of the owners.
C. companies are viewed as separate and distinct from their owners.
D. None of these answer choices are correct.

Incorrect. The entity perspective views companies as separate and distinct from their
owners.

3. Which of the following would result if there was not set of generally accepted and
universally practiced accounting standards?
A. It would be almost impossible to prepare statements that could be compared.
B. Each company would have to develop its own standards.
C. Readers of financial statements would have to familiarize themselves with every
company's peculiar accounting and reporting practices.
D. All of these answer choices are correct.

Correct! If there was not set of generally accepted and universally practiced accounting
standards it would be almost impossible to prepare statements that could be compared,
each company would have to develop its own standards, and readers of financial
statements would have to familiarize themselves with every company's peculiar
accounting and reporting practices.

4. The passage new FASB guidance in the form of an Accounting Standards Update
requires the support of four of the seven Board members.
A. True
B. False

Correct! The passage new FASB guidance in the form of an Accounting Standards
Update requires the support of four of the seven Board members.

5. The AICPA's Practice Bulletins provide the Accounting Standards Executive

Committee's views on narrow financial reporting issues that have not been addressed by
the FASB.
A. True
B. False

Correct! Practice Bulletins focus on narrow financial reporting issues that have not been
addressed by the FASB

6. Which group selects members of the FASB?

A. FAF.
B. SEC.
C. AICPA.
D. FASAC.

Correct! The Financial Accounting Foundation (FAF) is the group that selects members
of the FASB.

7. Which of the following is not a significant difference between the FASB and its
predecessor, the APB?
A. Greater autonomy.
B. Larger membership.

C. Increased independence.
D. Broader representation.

Correct! Board membership decreased from 18 to 7 members.

8. The organization whose purpose is to reach consensus on how to account for new and
unusual financial transactions that have potential for creating differing financial reporting
practices is the:
A. FASB.
B. FASAC.
C. EITF.
D. AICPA.

Correct! The Emerging Issues Task Force has this responsibility.

9. All of the following are true regarding the FASB Codification except:
A. the goal of the Codification was to provide one place where all authoritative
literature about financial statement preparation could be found.
B. the purpose of the Codification is to create new GAAP.
C. the Codification was created to simplify user access.
D. the Codification changes the way GAAP is documented, presented, and updated.

Correct! The Codification's purpose is to integrate and synthesize existing GAAPnot to

create new GAAP.

10. The Codification creates one level of GAAP which is considered authoritative.
A. True
B. False

Correct! The Codification creates one level of GAAP which is considered authoritative.

11. GAAP is established strictly through the application of careful logic and empirical
findings.
A. True
B. False

Correct! GAAP is as much a product of political action as it is of careful logic or

empirical findings.

12. Foreign companies that trade shares in U.S. markets are required to issue statements
that comply with U.S. GAAP.
A. True
B. False

Incorrect. U.S. companies that list overseas are still permitted to use GAAP, and foreign
companies listed on U.S. exchanges are permitted to use IFRS.

13. Financial reports generally focus on soft assets such as Apple's brand image or WalMart's supply chain management system.
A. True
B. False

Correct! Financial reports focus on hard assets such as inventory and plant assets.

14. Adherence to GAAP and technical competence are not enough when encountering
ethical decisions.
A. True
B. False

Correct! Simple adherence to GAAP or following the rules of the profession cannot
always provide the answers to ethical dilemmas. Technical competence is not enough
when encountering ethical decisions.

15. The mission of the International Accounting Standards Board is to

A. issue enforceable standards which regulate the financial accounting and reporting
of multinational corporations.
B. develop a uniform currency in which the financial transactions of companies
through-out the world would be measured.
C. develop a single set of high-quality and understandable IFRS for general-purpose
financial statements.
D. arbitrate accounting disputes between auditors and international companies.

Correct! The mission of the IASB is to develop, in the public interest, a single set of
high-quality and understandable IFRS for general-purpose financial statements.

16. All of the following are true regarding IFRS except:

A. IFRS includes standards referred to as International Auditing Standards (IAS).
B. The adoption of IFRS by U.S. Companies would make it easier to compare them
with foreign companies.
C. IFRS is more principle-based than U.S. GAAP.
D. IFRS are developed by the IASB.

Correct! All of the options are true except that IFRS includes standard referred to as
International Financial Reporting Standards, rather than International Auditing
Standards.

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