Chapter 1: Financial Accounting and Accounting Standards Flashcards
After studying this chapter, you should be able to: • Understand the financial reporting environment. • Identify the major policy-setting bodies and their role in the standard-setting process. • Explain the meaning of generally accepted accounting principles (GAAP) and the role of the Codification for GAAP. • Describe major challenges in the financial reporting enviroment
(T/F): The U.S. is doing the best in the world in terms of accounting. It would be impossible for us to do better.
FALSE. While the U.S. financial system is certainly robust and transparent, I think we can all agree improvement is possible - in fact, needed.
(MC): Which of the following companies has found itself caught up in Accounting scandals?
A) AIG.
B) WorldCom.
C) Lehman Brothers.
D) All of the above.
D. All three of these have been subject to Accounting scandals. This proves the need to improve our Accounting system.
(MC) The 2008 Financial Crisis led to a ______ in investor confidence.
A. Increase
B. Decrease
B. Investor confidence took a plummet after the 2008 Financial Crisis. While it has since rebounded slightly, it still hasn’t reached pre-crisis levels.
(T/F): All investors could use short, summarized, plain english financial reports.
FALSE. Maybe you would, but not everyone thinks like this! While some have this opinion, there are many investor professionals who would want MORE details - I know, right?
(T/F): Some companies may find it difficult to comply with present-day GAAP standards.
TRUE! Especially for smaller, non-public companies. For them, when preparing financial reports, it is difficult to ensure compliance with the voluminous and complex requirements contained in U.S. GAAP and SEC reporting rules.
(T/F): With all the technology that we have in today’s world, financial reports are often done automatically, and sent to the public extremely fast.
FALSE. There is still manual work being done, and with that, comes potential delays. No robots yet!
(MC): Which of the following is important to helping investors making informed decisions?
A) Financial Information
B) Non-Financial Information
C) Both A and B.
D) None of the above.
C. Financial AND non-financial information are both important to investors!
(T/F): The FASB and IASB are working on a convergent project to make Accounting standards more understandable and less complex.
TRUE! I don’t know how long it will take though - and frankly, I don’t care.
_______ _______ is the process that culminates in the preparation of financial reports on the enterprise for use by both internal and external parties.
A. Financial Accounting
B. Managerial Accounting
C. Cost Accounting
D. Tax Accounting
A. Financial Accounting.
But wasn’t I just told it was for outsiders? Nope. This book is more specific.
______ ______ is the process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, control, and evaluate a company’s operations
A. Financial Accounting
B. Managerial Accounting
C. Cost Accounting
D. Tax Accounting
B. Managerial Accounting.
Emphasis on PLANing and CONTROLing as in making COMPANY decisions.
Which of the following is NOT a part of financial statements?
A. Income Statement B. Balance Sheet C. Statement of Cash Flows D. Stockholders Equity E. Disclosures F. All of these ARE part of financial statements.
F.
Yes, even disclosures!!
(T/F) Financial statements provide a company’s history quantified in nonmonetary terms.
FALSE.
Monetary - the whole thing is filled with dolla signs!
(T/F): Financial Statements aren’t the only way a company can provide it’s financial information.
TRUE! News releases, corporate annual reports, and management’s forecasts are just some of the other ways they can do this!
(T/F) The fact that resources are limited puts a substancial burden on the Accounting profession.
TRUE! This is why accountants are needed! To help companies thrive by using their resources efficiently.
What term matches this definition (two words)?
The process of determining how and at what cost money is allocated among competing interests.
Capital Allocation.
(T/F): Unreliable and irrelevant information can lead to good capital allocation.
FALSE. It would lead to BAD capital allocation!
(T/F): Trust in the Accounting numbers is directly attributed to wheter investors will stay with a company.
TRUE!
The objective of general-purpose ____ ____ is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in decisions about providing resources to the entity.
Financial Reporting
______ _____ _____ ____ provides financial reporting information to a wide variety of users.
General Purpose Financial Statements
Which of the following is Financial Reporting NOT helpful to?
A. Investors B. Creditors C. Lenders D. Non-Investors E. These are ALL people who benefit.
E.
While Financial Reporting helps a whole range of people, its primary focus is for _____ and ____.
Investors and Creditors
Which of the following have an immediate and critical need for Financial Reporting?
A. Investors
B. Creditors
C. Both A and B
D. Noninvestors
C.
Which of the following are NOT considered a primary focus on Financial Reporting?
A. Management
B. Regulators
C. Non-Investors
D. All of the above.
D.
Investors and creditors look at a company’s ability to generate net _____ inflow and to understand management’s ability to protect and enhance the ____ of the company, which will be used to generate future ____ inflow.
cash, assets, cash
What is the entity perspective?
Companies are viewed as separate and distinct from their owners (present shareholders) using this perspective.
What is the proprietary perspective?
A perspective that financial reporting should be focused only on the needs of shareholders.
(T/F): A proprietary perspective is preferred among Financial Reporting.
FALSE. Entity perspective is best!
