CHAPTER 1
THE ENVIRONMENT AND CONCEPTUAL FRAMEWORK
OF FINANCIAL REPORTING
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Conceptual
1. Financial statements are the principal means through which a company communicates its
financial information to those outside it.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
2. Users of financial reports of a company use the information provided by these reports to
make capital allocation decisions.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
3. An effective process of capital allocation provides an efficient market for buying and selling
securities and obtaining and granting credit.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
4. Investors are interested in financial reporting because it provides information that is useful
for making decisions.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
5. Users of financial accounting statements have both coinciding and conflicting needs for
information of various types.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
6. Although the FASB has developed a conceptual framework, no Statements of Financial
Accounting Concepts have been issued to date.
Ans: F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
7. The passage of a new FASB Accounting Standards Update requires the support of five of
the seven board members.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
8. Statements of Financial Accounting Concepts set forth fundamental objectives and
concepts that are used by the FASB in developing future standards of financial accounting
and reporting.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
9. The FASB’s Codification creates a new set of GAAP.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
,1-2 Test Bank for Intermediate Accounting, Eighteenth Edition
10. The objective of financial reporting is to report the plans made by a company to improve the
productivity of its employees.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
11. A soundly developed conceptual framework enables the FASB to issue more useful and
consistent pronouncements over time.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
12. A conceptual framework is a coherent system of concepts that flow from an objective.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
13. The first level of the conceptual framework identifies the recognition, measurement, and
disclosure concepts used in establishing accounting standards.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
14. The objective of financial reporting serves as the foundation of the conceptual framework.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
15. Users of financial statements are assumed to need no knowledge of business and financial
accounting matters to understand the information contained in financial statements.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
16. Relevance and faithful representation are the two fundamental qualities that make
accounting information useful for decision-making.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
17. The idea of consistency does not mean that companies cannot switch from one accounting
method to another.
Ans: T, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
18. Timeliness and neutrality are two ingredients of relevance.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
19. Verifiability and predictive value are two ingredients of faithful representation.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
20. Revenues, gains, and distributions to owners all increase equity.
Ans: F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None
21. Comprehensive income includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None
22. Accounting standards are now less likely to require the reporting or disclosure of fair value
information.
, The Environment and Conceptual Framework of Financial Reporting 1-3
Ans: F, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
23. The second level of the conceptual framework provides the qualitative characteristics that
make accounting information useful and the elements of financial statements.
Ans: T, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
24. The historical cost principle would be of limited usefulness if not for the going concern
assumption.
Ans: T, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
25. The economic entity assumption means that economic activity can be identified with a
particular legal entity.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
26. The expense recognition principle states that debits must equal credits in each transaction.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None
27. Revenues are recognized in the accounting period in which the performance obligation is
satisfied.
Ans: T, LO: 3 Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None
28. Supplementary information may include details or amounts that present a different
perspective from that adopted in the financial statements.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
29. To justify requiring a particular measurement or disclosure, the benefits to be derived from it
must equal the costs associated with it.
Ans: F, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
30. In cost-benefit analysis, costs are generally more difficult to quantify than are benefits.
Ans: F, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
31. GAAP is a product of careful logic or empirical findings and is not influenced by political
action.
Ans: F, LO: 4 Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
32. The Public Company Accounting Oversight Board has oversight and enforcement authority
and establishes auditing and independence standards and rules.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
33. The expectations gap is due to the difference between what the public thinks accountants
should do and what accountants think they can do.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
, 1-4 Test Bank for Intermediate Accounting, Eighteenth Edition
34. Traditional financial reports do not provide any information about a company’s soft assets
(intangibles).
Ans: F, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
35. Ethical issues in financial accounting are governed by the AICPA.
Ans: F, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: Prof. Demeanor, IMA:
Reporting & Control: Financial Statement Preparation, IFRS: None
MULTIPLE CHOICE—Conceptual
36. General-purpose financial statements are the product of
a. financial accounting.
b. managerial accounting.
c. both financial and managerial accounting.
d. neither financial nor managerial accounting.
Ans: a, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
37. Which of the following is not an external user of financial reports?
a. Creditors
b. Government agencies
c. Unions
d. Management
Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
38. The financial statements most frequently provided include all of the following except the
a. balance sheet.
b. income statement.
c. statement of cash flows.
d. trial balance.
Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
39. All the following are ways in which accounting information is used by financial statement
users except to
a. buy, sell, hold equity, and debt instruments.
b. decide whether to invest in the company.
c. evaluate borrowing capacity to determine the extent of a loan to grant.
d. plan and control a company's operations.
Ans: d, LO: 1, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis , IFRS: None
40. How does accounting help the capital allocation process allocate investment capital?
a. By providing relevant and reliable information
b. By encouraging innovation
c. By promoting productivity
THE ENVIRONMENT AND CONCEPTUAL FRAMEWORK
OF FINANCIAL REPORTING
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Conceptual
1. Financial statements are the principal means through which a company communicates its
financial information to those outside it.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
2. Users of financial reports of a company use the information provided by these reports to
make capital allocation decisions.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
3. An effective process of capital allocation provides an efficient market for buying and selling
securities and obtaining and granting credit.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
4. Investors are interested in financial reporting because it provides information that is useful
for making decisions.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
5. Users of financial accounting statements have both coinciding and conflicting needs for
information of various types.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
6. Although the FASB has developed a conceptual framework, no Statements of Financial
Accounting Concepts have been issued to date.
Ans: F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
7. The passage of a new FASB Accounting Standards Update requires the support of five of
the seven board members.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
8. Statements of Financial Accounting Concepts set forth fundamental objectives and
concepts that are used by the FASB in developing future standards of financial accounting
and reporting.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
9. The FASB’s Codification creates a new set of GAAP.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
,1-2 Test Bank for Intermediate Accounting, Eighteenth Edition
10. The objective of financial reporting is to report the plans made by a company to improve the
productivity of its employees.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
11. A soundly developed conceptual framework enables the FASB to issue more useful and
consistent pronouncements over time.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
12. A conceptual framework is a coherent system of concepts that flow from an objective.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
13. The first level of the conceptual framework identifies the recognition, measurement, and
disclosure concepts used in establishing accounting standards.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
14. The objective of financial reporting serves as the foundation of the conceptual framework.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
15. Users of financial statements are assumed to need no knowledge of business and financial
accounting matters to understand the information contained in financial statements.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
16. Relevance and faithful representation are the two fundamental qualities that make
accounting information useful for decision-making.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
17. The idea of consistency does not mean that companies cannot switch from one accounting
method to another.
Ans: T, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
18. Timeliness and neutrality are two ingredients of relevance.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
19. Verifiability and predictive value are two ingredients of faithful representation.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
20. Revenues, gains, and distributions to owners all increase equity.
Ans: F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None
21. Comprehensive income includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None
22. Accounting standards are now less likely to require the reporting or disclosure of fair value
information.
, The Environment and Conceptual Framework of Financial Reporting 1-3
Ans: F, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
23. The second level of the conceptual framework provides the qualitative characteristics that
make accounting information useful and the elements of financial statements.
Ans: T, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
24. The historical cost principle would be of limited usefulness if not for the going concern
assumption.
Ans: T, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
25. The economic entity assumption means that economic activity can be identified with a
particular legal entity.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
26. The expense recognition principle states that debits must equal credits in each transaction.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None
27. Revenues are recognized in the accounting period in which the performance obligation is
satisfied.
Ans: T, LO: 3 Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None
28. Supplementary information may include details or amounts that present a different
perspective from that adopted in the financial statements.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
29. To justify requiring a particular measurement or disclosure, the benefits to be derived from it
must equal the costs associated with it.
Ans: F, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
30. In cost-benefit analysis, costs are generally more difficult to quantify than are benefits.
Ans: F, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis, IFRS: None
31. GAAP is a product of careful logic or empirical findings and is not influenced by political
action.
Ans: F, LO: 4 Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
32. The Public Company Accounting Oversight Board has oversight and enforcement authority
and establishes auditing and independence standards and rules.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
33. The expectations gap is due to the difference between what the public thinks accountants
should do and what accountants think they can do.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
, 1-4 Test Bank for Intermediate Accounting, Eighteenth Edition
34. Traditional financial reports do not provide any information about a company’s soft assets
(intangibles).
Ans: F, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
35. Ethical issues in financial accounting are governed by the AICPA.
Ans: F, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: Prof. Demeanor, IMA:
Reporting & Control: Financial Statement Preparation, IFRS: None
MULTIPLE CHOICE—Conceptual
36. General-purpose financial statements are the product of
a. financial accounting.
b. managerial accounting.
c. both financial and managerial accounting.
d. neither financial nor managerial accounting.
Ans: a, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
37. Which of the following is not an external user of financial reports?
a. Creditors
b. Government agencies
c. Unions
d. Management
Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
38. The financial statements most frequently provided include all of the following except the
a. balance sheet.
b. income statement.
c. statement of cash flows.
d. trial balance.
Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
39. All the following are ways in which accounting information is used by financial statement
users except to
a. buy, sell, hold equity, and debt instruments.
b. decide whether to invest in the company.
c. evaluate borrowing capacity to determine the extent of a loan to grant.
d. plan and control a company's operations.
Ans: d, LO: 1, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Analysis , IFRS: None
40. How does accounting help the capital allocation process allocate investment capital?
a. By providing relevant and reliable information
b. By encouraging innovation
c. By promoting productivity
