chapter 01 intermediate accounting

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Test Bank

to accompany

Fundamentals of IntermediateAccounting

prepared by

Janice Loftus

The University of Sydney


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Test Bank to accompany Fundamentals of Intermediate Accounting

John Wiley & Sons Australia Ltd !""#

CHAPTER1

Financial Accounting and Accounting Standards

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Chapter 1: Financial Accounting and Accounting Standards

Multi(le C4oice5 Conce(tual

$% Users of financial reports include all of the follo4ing e2cept

a% creditors%

b% government agencies%

c% unions%d% none of the above i%e% all of these are users%

!% The financial statements most fre5uently provided are the

a% balance sheet income statement and statement of changes in e5uity%

b% balance sheet and income statement%

c% balance sheet income statement cash flo4 statement and statement of change in e5uity%

d% balance sheet income statement and cash flo4 statement %

(% Financial statements report on

a% economic entities rather than on industries or members of society as consumers%

b% industries rather than on economic entities or members of society as consumers%

c% economic entities and industries rather than on members of society as consumers%d% economic entities members of society as consumers and industries%

)% Whether a business is successful and thrives is determined by

a% mar6ets%

b% free enterprise%

c% competition%

d% all of these%

*% Which of the follo4ing is not an outcome of an effective capital allocation process7

a% An efficient li5uid mar6et for obtaining and granting credit%

b% 8igh levels of transparency in financial reporting%

c% A li5uid mar6et for buying and selling securities%d% ,ncouragement of innovation%

+% Financial statements in the early !"""s have been criticised because they

a% provide too many non9financial measurements%

b% do not provide enough information about hard assets :inventory and plant assets;%

c% do not provide enough for4ard9loo6ing data%

d% all of the above%

-% Which of the follo4ing statements is notan obs resources claims to those resources and changes to

them%

c% =rovide information that is useful in investment and credit decisions%

d% =rovide information that is useful in assessing cash flo4 prospects%

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#% A common set of accounting standards and procedures is called

a% financial accounting standards%

b% generally accepted accounting principles%

c% obs national capital mar6et regulators%

c% and international organisation of accounting standard setters%

d% an international organisation of stoc6 e2changes%

$(% In $..* IS' and the IAS' agreeda% to develop a core set of stoc6 e2change listing rules for global adoption%

b% to develop a common set of accounting concepts statements%

c% to develop a common set of corporate governance guidelines for global adoption%

d% to develop a core set of accounting standards for listed entities%

$)% Australian la4 re5uires compliance 4ith Australian ,5uivalents of International Financial

?eporting Standards by

a% public companies large private companies and government sector entities%

b% public companies and large private companies only%

c% public companies and government sector entities only%

d% public companies and other listed entities only%

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$*% =rofessional accounting bodies in each country typically

a% issue accounting standards and enforce professional ethics%

b% enforce professional ethics and participate in developing domestic BAA=%

c% enforce professional ethics but are independent of the development of domestic BAA=%

d% remain independent of development of domestic BAA= and professional ethics%

$+% A basic premise of the IAS@>s in establishing standards is that

a% privacy and confidentiality must be maintained for all discussions of accounting issues%

b% it should operate in full vie4 of the public%

c% it should operate in full vie4 of the IAS' Foundation%

d% a combination of :a; and :b; depending on the sensitivity of the issue as determined by the

IAS'%

$-% Which of the follo4ing is nota step in the due process of the IAS@7

a% An e2posure draft must be approved by at least # votes of the IAS@%

b% An e2posure draft must be made public%

c% A discussion document must be issued prior to the release of an e2posure draft%

d% All comments received on a discussion document and e2posure draft must be considered by the

IAS@%

$#% embers of the International Accounting Standards @oard are appointed by and ans4erable to

a% IS'%

b% its founders 4hich are a group of professional accounting bodies%

c% the International Accounting Standards 'ommittee Foundation%

d% a representative body of national standard setters%

$.% In developing accounting standards the IAS@ relies upon

a% IAS@ staff only%

b% IAS@ staff and tas6forces formed for various pro


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!(% Australia>s adoption of International Financial ?eporting Standards

a% involved verbatim adoption of all standards%

b% 4as verbatim but partial because it only applies to a reduced set selected by the AAS@%

c% involved modification to some of the 4ording and applied to a reduced set of standards

selected by the AAS@%

d% involved modification to some of the 4ording but included all IAS@ standards%

!)% Accounting Interpretations are

a% developed by IF?I' and approved by a ma


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!.% Accounting standard setting

a% is described as a political process in Australia because the members of the AAS@ are appointed

by the F?' 4hich in turn is appointed by the federal Treasurer%

b% is described as a political process because interested parties attempt to influence and persuade

those 4ho formulate the standards by lobbying%

c% is described as a political process because it involves voting%

d% is based entirely on research and empirical findings%

("% Which of the follo4ing statements isfalse7

a% 'hallenges of competition and emphasis on short9term results may give rise to ethical conflicts

and pressure%

b% ,thical considerations are more li6ely to arise in the e2ercise of professional


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E:ercises

E:8 1817'hallenges facing financial accounting

,2plain each of the follo4ing challenges facing financial accounting0

soft assets timeliness

Solution 181

Financial reports focus on hard assets such a property plant and e5uipment but provide insufficient

information about an entity>s soft assets such as 6no49ho4 and mar6et dominance 4hich may be more

important in driving corporate value%

?eports are provided half9yearly or in 5uarterly in some cases but there is no real9time financial statement

information available%

E:8 18,Cb


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Solution 18.

:a; IF?S E :$; most detailed guidance on specific issues

:b; Intepretations E :(; implementation guidance

:c; International Accounting Standards not replaced by more recent IF?S E :$; most detailed

guidance on specific issues

:d; Framework for the Preparation and Presentation of Financial StatementsE :!; conceptual

guidance

E:8 18/CThe /eed to Develop Accounting Standards

The users of financial accounting statements ha!e coinciding and conflicting needs for statements of

!arious types To meet these needs" and to satisfy the financial reporting responsi#ility of management"accountants prepare different sets of financial statements for different users

,valuate this statement e2plaining 4hy the reasoning is correct or incorrect%

Solution 18/

It is true that users of financial accounting statements have coinciding and conflicting needs for statements

of various types% 8o4ever to meet these needs accountants generally prepare a single set of general9

purpose financial statements rather than a number of different types of financial statements% It may be

argued that accountants often do prepare special statements for particular purposes but in general the

accounting profession has relied on general purpose financial statements prepared in conformity 4ith

generally accepted accounting principles to cater for the common information needs of a variety of users%

E:8 180CIAS@

The IASB should #e responsi!e to the needs and !iewpoints of the entire economic community" not $ust the

pu#lic accounting profession The IASB therefore will succeed #ecause it will deal effecti!ely with all

interested groups

,valuate the statement identifying any fallacious reasoning%

Solution 180

The statement is logically fla4ed% While a basic premise of the IAS@ is that it should be responsive to the

needs of the entire economic community the intention of responsiveness to the economic community is

insufficient to ensure its success% The IAS@ 4ill ho4ever have a better chance of survival if it deals 4ith

problems promptly sets proper priorities ta6es 4hatever action it thin6s is right and in the public interest

and handles pressures responsibly 4ithout overreacting to them%

E:8 18CStandard Setting in a =olitical ,nvironment

The financial community and preparers :management; are identified as t4o groups that may apply pressure

on accounting standard setting% =rovide a reason 4hy each group 4ould be concerned about the content of

accounting standards%

Solution 18

The financial community is interested in accounting standards because they determine ho4 items are

reported and the level of transparency and comparability of financial statements%

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=reparers :managers; may face numerous concerns about the content of financial standards because they

affect 6ey performance measures used in various decision conte2ts including assessing the performance of

the entity determining management bonuses and assessing 4hether an entity is in breach of debt covenants%

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chapter 01 intermediate accounting

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