History Flashcards
When and where did double-entry bookkeeping originate?
In and around Venice during the 1400s.
How did double-entry bookkeeping contribute to the economic, cultural, and scientific advances of the European Renaissance?
Double-entry bookkeeping facilitated the measurement of periodic profits, which enabled the formation of large commercial enterprises funded by multiple investors.
What factors motivated Congress to pass the Securities Acts of 1933 and 1934?
The stock market crash of 1929.
The Swedish Match scandal of 1932.
How did the Securities Acts of 1933 and 1934 affect the American accounting profession?
The 1933 Act required corporations to publish audited financial statements before selling securities to the public.
The 1934 Act required public companies to publish annual audited financial statements.
The 1934 Act also established the Securities Exchange Commission (SEC) to oversee financial reporting.
How is the membership of the FASB different from its predecessors, the CAP and APB?
The FASB has only 7 members.
FASB members are full-time employees with backgrounds in auditing, corporate accounting, investing, and academia.
What accounting reforms were proposed by Senator Lee Metcalf and Congressman John Moss during the mid-1970s?
Have the SEC write GAAP.
Require periodic audit firm rotation.
Establish a government oversight board to inspect and regulate auditors.
Separate the auditing and consulting divisions of public accounting firms.
What significant accounting reforms were adopted during the mid-1970s?
Creation of the FASB.
Mandatory audit partner rotation.
Peer review of public accounting firms.
Limitations on consulting services to audit clients.
What two significant accounting and auditing reforms arose from the Savings & Loan Crisis of the 1980s?
- Auditor’s reports on the client’s internal controls.
2. Movement away from historical cost accounting toward mark-to-market (fair value) accounting.
What factors led to the global financial crisis of 2007-2009?
Inflated home prices.
Highly-leveraged financial institutions.
Debt rating agencies being paid by the issuing companies, which incentivized favorable ratings.
Loan originators not being held responsible for loan defaults.
According to American bankers, how did mark-to-market (fair value) accounting contribute to the global financial crisis?
Unrealized losses caused by declining asset prices put banks in violation of minimum capital requirements, forcing them to sell assets. Asset sales eroded asset prices, which created a repeating downward spiral.
