,Chap001 The Economic and Institutional Setting for Financial Reporting
True/False
[QUESTION]
1. The role of financial accounting information is to facilitate economic transactions and to
foster efficient allocation of resources among businesses and individuals.
Answer: True
Learning Objective: 01-01
Difficulty: 1 Easy
AACSB: Reflective Thinking
AICPA: BB Resource Management
Blooms: Remember
Topic: Financial statements―As sources of information
[QUESTION]
2. Financial reports provide information that can reduce investors’ uncertainty about the
company’s opportunities and risks, thereby raising the company’s cost of capital.
Answer: False
Learning Objective: 01-02
Difficulty: 2 Medium
AACSB: Reflective Thinking
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Blooms: Understand
Topic: Financial statements―For decision-maker needs
[QUESTION]
3. 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.
Answer: True
Learning Objective: 01-04
Difficulty: 2 Medium
AACSB: Reflective Thinking
AICPA: FN Risk Analysis
AICPA: FN Measurement
Blooms: Remember
Topic: Fundamental concepts of financial reporting
[QUESTION]
5. 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.
Answer: True
Learning Objective: 01-03
Difficulty: 1 Easy
AACSB: Reflective Thinking
AICPA: BB Legal
Blooms: Remember
Topic: Financial statements―Disclosure costs and benefits
[QUESTION]
6. 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.
Answer: False
Feedback: The SEC retains enforcement authority over financial reporting in the U.S.
Learning Objective: 01-04
Difficulty: 1 Easy
AACSB: Reflective Thinking
AICPA: BB Legal
Blooms: Remember
Topic: Standard-setting―US GAAP
[QUESTION]
8. Accounting standard-setting in the U.S. is a technical process and thus little affected by
political considerations.
Answer: False
Learning Objective: 01-04
Difficulty: 1 Easy
AACSB: Reflective Thinking
AICPA: BB Legal
Blooms: Remember
Topic: Standard-setting―US GAAP
[QUESTION]
9. The IASB and FASB have worked together to develop a single set of high-quality,
understandable, enforceable and globally accepted international financial reporting standards.
Answer: True
Learning Objective: 01-06
Difficulty: 1 Easy
AACSB: Diversity
AICPA: BB Global
AICPA: FN Measurement
Blooms: Remember
Topic: Standards differences—US GAAP and IFRS
[QUESTION]
10. Foreign companies registered with the SEC that use IFRS no longer have to reconcile their
financial statements to U.S. GAAP.
Answer: False
Feedback: Form F20 reconciles back to GAAP the earnings and shareholder’s equity
Learning Objective: 01-06
Difficulty: 2 Medium
AACSB: Diversity
AICPA: BB Legal
AICPA: FN Measurement
Blooms: Understand
Topic: Standards differences—US GAAP and IFRS
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