Quiz 1 - Chapter 1 + 2 Flashcards
The role of financial accounting information is to facilitate economic transactions and to foster efficient allocation of resources among businesses and individuals.
True or False?
True
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.
True or False?
True
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.
True or False?
False
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.
True or False?
True
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.
True or False?
False
The SEC retains enforcement authority over financial reporting in the U.S.
Management has considerable discretion over the particular accounting procedures used in the financial statements and over the details contained in related note disclosures.
True or False?
True
Accounting standard-setting in the U.S. is a technical process and thus little affected by political considerations.
True or False?
False
The IASB and FASB have worked together to develop a single set of high-quality, understandable, enforceable and globally accepted international financial reporting standards.
True or False?
True
All financial statements:
provide a picture of the company at a moment in time.
describe changes that took place over a period of time.
help to evaluate what happened in the past.
contain the most up to date information about the company.
✓ help to evaluate what happened in the past.
Professional analysts need information on a company’s future earnings and cash flow to evaluate audit vulnerabilities, to assess debt repayment prospects and to:
certify good values in the stock market.
indemnify creditors against losses.
certify that no fraud exists in the company.
value its equity securities.
✓ value its equity securities.
Which of the following statements is not correct regarding a company’s financial statements?
They may present a picture of the company at a moment in time.
They may describe changes that took place over a period of time .
They reflect economic events that affect the company.
They are comparable to the statements of other companies as all publicly held companies follow the very precise science of accounting.
✓ They are comparable to the statements of other companies as all publicly held companies follow the very precise science of accounting.
Which of the following are correct with respect to information contained in financial statements?
Information asymmetry occurs when management has access to more and better information than is presented in the financial statements.
Financial statements cannot solve the issue of information asymmetry.
Financial statements eliminate the issue of and any concern over information asymmetry.
Financial statements help solve the issue of information asymmetry which is when management has access to more and better information than do people outside the company.
✓ Financial statements help solve the issue of information asymmetry which is when management has access to more and better information than do people outside the company.
Relevant financial information:
is free from bias and error.
is measured in a similar manner among different companies.
can be independently verified.
is capable of making a difference in a decision.
✓ is capable of making a difference in a decision.
To achieve faithful representation, the financial information must be:
consistent, unbiased, and relevant.
relevant, comparable, and timely.
relevant, consistent, and timely.
complete, neutral, and free from material error.
✓ complete, neutral, and free from material error.
Employees demand financial information for all of the following except:
Monitoring profit sharing and stock ownership plans.
Monitoring current payroll tax liabilities.
Monitoring the health of company pension plans.
Monitoring union contracts that link negotiated wage increases to company financial performance.
✓ Monitoring current payroll tax liabilities.
