Unit 2 - Theoretical Framework Flashcards
Which role does the Securities and Exchange Commission (SEC) play in the formulation of accounting standards?
a. it shares equal authority with other standard setters.
b. it avoids setting standards so accountants remain autonomous.
c. it provides guidance to other standard setters.
d. it creates private company accounting standards.
c. it provides guidance to other standard setters.
The SEC oversees and enforces accounting standards established by FASB which formulates and implements accounting standards.
What is the role of the Financial Accounting Standards Board (FASB) task forces in standards setting?
a. performing research and analysis to support decision-making by the board.
b. reporting financial violations to the Securities and Exchange Commission (SEC).
c. communicating new standards to the public.
d. recommending prospective members to the board.
a. performing research and analysis to support decision-making by the board.
What is the primary mission of the Financial Accounting Standards Board (FASB)?
a. to be the forerunner of the current Accounting Principles Board (APB).
b. to function as a branch of the Securities and Exchange Commission (SEC) responsible for setting financial accounting standards.
c. to issue a series of pronouncements entitled Auditing Standards Updates.
d. to provide a transparent process for creating useful accounting standards
d. to provide a transparent process for creating useful accounting standards
The FASB’s mission is to establish and improve standards of financial accounting and reporting for the guidance and education of the public.
Why were the accounting standards issued by the Financial Accounting Standards Board (FASB) expected to be more
influential than previously issued standards?
a. the FASB operates in full view of the public.
b. the FASB consists of members that work pro bono.
c. the FASB is composed of board members from large companies.
d. the FASB requires board members to possess advanced degrees
a. the FASB operates in full view of the public.
The expectations of success and support for the new FASB relied on two basic premises: (1) The FASB should be responsive to the needs and viewpoints of the entire economic community, not just the public accounting profession. (2) It should operate in full view of the public through a “due process” system that gives interested persons ample opportunity to make their views known.
How are FASB and GAAP related when it comes to user groups?
a. the FASB usually pressures user groups to change GAAP.
b. user groups often pressure the FASB to influence GAAP.
c. GAAP usually pressures the FASB to change user groups.
d. user groups often pressure GAAP to influence the FASB.
b. user groups often pressure the FASB to influence GAAP.
There are several groups (managers, investors, accountants, preparers, creditors, lenders, financial statement users, governmental agencies, financial analysts, industry groups, and auditors, internal and external users) that influence the standard setting process. The standard setting process is a political process that is affected by the impact of several
lobbying groups. The government, through the SEC, influences accounting standards. The SEC has the authority to issue accounting standards but has assigned this responsibility to the private sector. Nonetheless, the SEC can exert pressure on the FASB to issue accounting standards and veto the standards promulgated by the FASB. Auditing firms, the corporate sector, creditors, financial analysts, the financial community, accounting organizations, industry groups, and investors can influence the FASB by written comments about Exposure Drafts and participation in public meetings and
public roundtables regarding a proposed financial reporting standard.
Which statement correctly compares a conceptual framework to a rules-based framework?
a. conceptual frameworks focus on the objective of financial reporting versus technical compliance to existing accounting rules.
b. conceptual frameworks are less responsive to emerging accounting or industry-specific issues.
c. rules-based frameworks typically result in financial statements that are more comparable and reliable.
d. rules-based frameworks lead to more reliable financial statements because rules are uniformly applied.
a. conceptual frameworks focus on the objective of financial reporting versus technical compliance to existing
accounting rules.
The conceptual framework sets forth the theory, concepts, and principles that underlie financial reporting standards. A conceptual framework is designed to ensure that a set of accounting standards is coherent and uniform. Thus, standard setters refer to the framework when developing and revising accounting standards. In this way, the individual standards
are consistent and supported by the framework.
The conceptual framework includes the objective for financial reporting and the qualitative characteristics associated with high quality financial information. It also provides the elements of the financial reporting system and specifies the recognition and measurement criteria to be used in practice. A conceptual framework can be defined as a set of objectives that lead to the creation of a consistent set of rules and standards. The conceptual framework is influenced by a rules-based approach. The standards promulgated by FASB have been rule-based.
In the conceptual framework for financial reporting, what provides “the why”– the purpose of accounting?
a. recognition, measurement, and disclosure concepts such as assumptions, principles, and constraints.
b. qualitative characteristics of accounting information.
c. elements of financial statements.
d. objective of financial reporting.
d. objective of financial reporting.
In the conceptual framework for financial reporting, what provides “the how” - of accounting?
a. recognition, measurement, and disclosure concepts such as assumptions, principles, and constraints.
b. qualitative characteristics of accounting information.
c. elements of financial statements.
d. objective of financial reporting.
a. recognition, measurement, and disclosure concepts such as assumptions, principles, and constraints.
The underlying theme of the conceptual framework is
a. decision usefulness.
b. understandability.
c. reliability.
d. comparability
a. decision usefulness.
Which term is used to describe the residual interest in the assets of an entity after subtracting the entity’s liabilities?
a. comprehensive income
b. equity
c. revenues
d. investments by owners
b. equity
Which basic element of financial statements will be affected by the issuance of a cash dividend?
a. receivables
b. common stock
c. equity
d. expenses
c. equity
The change in net assets during a period from transactions and other events and circumstances from non-owner
sources is called
a. net income.
b. gains.
c. comprehensive income.
d. revenues.
c. comprehensive income
An increase in net assets arising from peripheral or incidental transactions is called a(n)
a. asset.
b. revenue.
c. gain.
d. investment by owners.
c. gain.
Which of the following elements of financial statements describes amounts of resources less claims against those
resources at a moment in time?
a. investments by owners.
b. revenues.
c. equity.
d. comprehensive income.
c. equity.
Fundamental qualitative characteristics of accounting information are
a. relevance and comparability.
b. comparability and consistency.
c. faithful representation and relevance.
d. neutrality and consistency.
faithful representation and relevance.
Enhancing qualitative characteristics of accounting information include
a. relevance and comparability.
b. comparability and timeliness.
c. understandability and relevance.
d. neutrality and consistency.
b. comparability and timeliness.
