ACG 4101 EXAM 1 ACTUAL EXAM QUESTIONS
AND ANSWERS 2026 | Study Guide | 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.. CORRECT ANSWER: b
• Purpose of GAAP. CORRECT 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). CORRECT 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. CORRECT ANSWER: b
• What are the roles of an auditor?. CORRECT 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. CORRECT 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. CORRECT ANSWER:
a. b/c not all internal control processes. Only the ones responsible for financial
reporting.
• Conceptual framework - Accounting Constitution - Purpose?. CORRECT 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
- Objective
- Qualitative Characteristics
- Constraints
- Elements
- Recognition & Measurement Concepts
= Financial Statements. CORRECT ANSWER: - Objective: provide financial statements
that are useful to capital providers.
, • Qualitative Characteristics & Constraint. CORRECT ANSWER: Primary Qualities:
Relevance & Faithful Representation
Ingredients of Primary:
Relevance - Predictive Value (predict future operations), Confirmatory Value (helps
investors confirm or change prior assessments regarding company's operations), and
Materiality (if that information is omitted, could affect user's decisions)
Faithful Representation - Completeness (includes all information for faithful
representation and economic phenomenon it purports to represent), Neutrality (free
from bias), and Free from Error (no errors or omissions)
Secondary Qualities: Comparability (Consistency; helps users see similarities &
differences b/w events and conditions), Verifiability (can be verified by other
independent measures and would reach same consensus), Timeliness (info. available
early enough for decision process), and Understandability (users can comprehend info.
w/in the context of decision being made)
Constraint: cost effectiveness = benefits of providing information must outweigh the
cost.
• Which of the following is not a component of faithful representation as defined in the
FASB's conceptual framwork?
a. free from error
b. neutrality
c. understandability
d. completeness. CORRECT ANSWER: c.
• Charging off the cost of a wastebasket with an estimated useful life of 10 years an an
expense of the period when purchases is an example of ...
a. consistency characteristic
b. expense recognition principle
c. materiality characteristic
d. historical cost principle. CORRECT ANSWER: c. and not b b/c b would be if you were
recognizing depreciation (in question... expensing in the period puchased)
• Four different competent accountants agree on the amount and method of reporting an
economic event. The concept demonstrated is:
a. reliability
b. comparability
c. verifiability
d. completeness. CORRECT ANSWER: c b/c different people are coming up with the
same consensus.
AND ANSWERS 2026 | Study Guide | 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.. CORRECT ANSWER: b
• Purpose of GAAP. CORRECT 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). CORRECT 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. CORRECT ANSWER: b
• What are the roles of an auditor?. CORRECT 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. CORRECT 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. CORRECT ANSWER:
a. b/c not all internal control processes. Only the ones responsible for financial
reporting.
• Conceptual framework - Accounting Constitution - Purpose?. CORRECT 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
- Objective
- Qualitative Characteristics
- Constraints
- Elements
- Recognition & Measurement Concepts
= Financial Statements. CORRECT ANSWER: - Objective: provide financial statements
that are useful to capital providers.
, • Qualitative Characteristics & Constraint. CORRECT ANSWER: Primary Qualities:
Relevance & Faithful Representation
Ingredients of Primary:
Relevance - Predictive Value (predict future operations), Confirmatory Value (helps
investors confirm or change prior assessments regarding company's operations), and
Materiality (if that information is omitted, could affect user's decisions)
Faithful Representation - Completeness (includes all information for faithful
representation and economic phenomenon it purports to represent), Neutrality (free
from bias), and Free from Error (no errors or omissions)
Secondary Qualities: Comparability (Consistency; helps users see similarities &
differences b/w events and conditions), Verifiability (can be verified by other
independent measures and would reach same consensus), Timeliness (info. available
early enough for decision process), and Understandability (users can comprehend info.
w/in the context of decision being made)
Constraint: cost effectiveness = benefits of providing information must outweigh the
cost.
• Which of the following is not a component of faithful representation as defined in the
FASB's conceptual framwork?
a. free from error
b. neutrality
c. understandability
d. completeness. CORRECT ANSWER: c.
• Charging off the cost of a wastebasket with an estimated useful life of 10 years an an
expense of the period when purchases is an example of ...
a. consistency characteristic
b. expense recognition principle
c. materiality characteristic
d. historical cost principle. CORRECT ANSWER: c. and not b b/c b would be if you were
recognizing depreciation (in question... expensing in the period puchased)
• Four different competent accountants agree on the amount and method of reporting an
economic event. The concept demonstrated is:
a. reliability
b. comparability
c. verifiability
d. completeness. CORRECT ANSWER: c b/c different people are coming up with the
same consensus.
