ACG 4101 EXAM 2 CHAPTER 5 7 FIU STUDY
GUIDE PRACTICE QUESTIONS AND
COMPLETE SOLUTIONS GRADED A+
⩥ Which if the following is not a potential advantage of accrual
accounting over cash basis accounting?
a. spreads out the influence of one-time events that affect multiple
reporting periods
b. highlights the performance for a period of time
c. captures underlying economic activity more timely
d. better matching of revenues and expenses..
Answer: b
⩥ Purpose of GAAP.
Answer: Set both broad and specific guidelines that companies can use
for measuring and reporting in their financial statements. Enhance
comparability of information among companies.
⩥ Hierarchy of standard-setting authority (x4 levels).
Answer: 1. Congress, 2. SEC, 3. Private Sector, 4. FASB (1973-present)
,- SEC has final authority on accounting standards but has delegated task
of setting accounting standards to the private sector.
⩥ The Financial Accounting Standards Board (FASB)
a. is a devision of SEC
b. is a private body that helps set accounting standards in the US
c. is responsible for setting auditing standards that all auditors must
follow
d. consists entirely of members of the American Institute of Certified
Public Accountants.
Answer: b
⩥ What are the roles of an auditor?.
Answer: Make sure that GAAP standards are followed. Provide a
professional, independent opinion of whether a company's financial
statements fairly present company's financial position, its results of its
operations, and its cash flow in compliance w/GAAP.
⩥ Sarbanes-Oxley Act
- Oversight board
- Corporate executive accountability
- nonaudit services
- retention of work papers
,- auditor rotation
- conflicts of interest
- hiring of auditors
- internal controls.
Answer: - Oversight board: the Public Company Accounting Oversight
Board set standards of auditing, quality control, ethics, etc. that relate to
the prep of auditing reports. SEC has oversight and enforcing authority.
- Corporate executive accountability: corporate executives must
personally certify financial statements and company disclosures
- Nonaudit services: Makes it unlawful for auditors of public companies
to perform a variety of nonaudit services (i.e. bookkeeping, internal
audit outsourcing, appraisal, tax services etc.).
- Retention of work papers: auditors of public companies must retain all
audit or review work papers for 7 years or face the threat of a prison
term.
- Auditor rotation: Lead audit partners are required to rotate every 5
years.
- Conflicts of interest: audit firms are not allowed to audit public
companies whose chief executives worked for the audit firm and
participated in that company's audit during the preceding year.
- Hiring of auditor: audit firms are hired by the audit committee of the
board of directors of that company, not company management.
- Internal control: section 404 requires that company management
document and asses the effectiveness of all internal control processes
that could affect financial reporting. Requires company auditors express
, an opinion of whether the company has maintained effective internal
control over financial reporting.
⩥ Which of the following is not a provision of the public company
accounting reform and investor protection act of 2002 (Sarbanes Oxley)?
a. required that all auditors assess the effectiveness of all internal control
processes
b. increased corporate executive responsibility for financial statements
c. limited nonaudit services that can be performed by auditors for audit
clients
d. changed the entity responsible for setting auditing standards.
Answer: a. b/c not all internal control processes. Only the ones
responsible for financial reporting.
⩥ Conceptual framework - Accounting Constitution - Purpose?.
Answer: Provides an underlying foundation for US accounting standards
(lead to consistent standards that guide the standards of events to be
accounted for, measurement of those events, and means of summarizing
and communicating them to interested parties). Provides structure and
direction to reporting but does not directly prescribe GAAP.
The FASB disseminates this framework in their Statements of Financial
Accounting Concepts.
⩥ Conceptual Framework Map
GUIDE PRACTICE QUESTIONS AND
COMPLETE SOLUTIONS GRADED A+
⩥ Which if the following is not a potential advantage of accrual
accounting over cash basis accounting?
a. spreads out the influence of one-time events that affect multiple
reporting periods
b. highlights the performance for a period of time
c. captures underlying economic activity more timely
d. better matching of revenues and expenses..
Answer: b
⩥ Purpose of GAAP.
Answer: Set both broad and specific guidelines that companies can use
for measuring and reporting in their financial statements. Enhance
comparability of information among companies.
⩥ Hierarchy of standard-setting authority (x4 levels).
Answer: 1. Congress, 2. SEC, 3. Private Sector, 4. FASB (1973-present)
,- SEC has final authority on accounting standards but has delegated task
of setting accounting standards to the private sector.
⩥ The Financial Accounting Standards Board (FASB)
a. is a devision of SEC
b. is a private body that helps set accounting standards in the US
c. is responsible for setting auditing standards that all auditors must
follow
d. consists entirely of members of the American Institute of Certified
Public Accountants.
Answer: b
⩥ What are the roles of an auditor?.
Answer: Make sure that GAAP standards are followed. Provide a
professional, independent opinion of whether a company's financial
statements fairly present company's financial position, its results of its
operations, and its cash flow in compliance w/GAAP.
⩥ Sarbanes-Oxley Act
- Oversight board
- Corporate executive accountability
- nonaudit services
- retention of work papers
,- auditor rotation
- conflicts of interest
- hiring of auditors
- internal controls.
Answer: - Oversight board: the Public Company Accounting Oversight
Board set standards of auditing, quality control, ethics, etc. that relate to
the prep of auditing reports. SEC has oversight and enforcing authority.
- Corporate executive accountability: corporate executives must
personally certify financial statements and company disclosures
- Nonaudit services: Makes it unlawful for auditors of public companies
to perform a variety of nonaudit services (i.e. bookkeeping, internal
audit outsourcing, appraisal, tax services etc.).
- Retention of work papers: auditors of public companies must retain all
audit or review work papers for 7 years or face the threat of a prison
term.
- Auditor rotation: Lead audit partners are required to rotate every 5
years.
- Conflicts of interest: audit firms are not allowed to audit public
companies whose chief executives worked for the audit firm and
participated in that company's audit during the preceding year.
- Hiring of auditor: audit firms are hired by the audit committee of the
board of directors of that company, not company management.
- Internal control: section 404 requires that company management
document and asses the effectiveness of all internal control processes
that could affect financial reporting. Requires company auditors express
, an opinion of whether the company has maintained effective internal
control over financial reporting.
⩥ Which of the following is not a provision of the public company
accounting reform and investor protection act of 2002 (Sarbanes Oxley)?
a. required that all auditors assess the effectiveness of all internal control
processes
b. increased corporate executive responsibility for financial statements
c. limited nonaudit services that can be performed by auditors for audit
clients
d. changed the entity responsible for setting auditing standards.
Answer: a. b/c not all internal control processes. Only the ones
responsible for financial reporting.
⩥ Conceptual framework - Accounting Constitution - Purpose?.
Answer: Provides an underlying foundation for US accounting standards
(lead to consistent standards that guide the standards of events to be
accounted for, measurement of those events, and means of summarizing
and communicating them to interested parties). Provides structure and
direction to reporting but does not directly prescribe GAAP.
The FASB disseminates this framework in their Statements of Financial
Accounting Concepts.
⩥ Conceptual Framework Map
