,Financial Reporting and Analysis, 7e (Revsine)
Chapter 1 The Economic and Institutional Setting for Financial Reporting
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
Difficulty: 1 Easy
Topic: Financial statements―As sources of information
Learning Objective: 01-01 Understand why financial statements are valuable sources of
information about companies.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Resource Management
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
Difficulty: 2 Medium
Topic: Financial statements―For decision-maker needs
Learning Objective: 01-02 Understand how financial reporting addresses the information
demands of current or potential stakeholders allocating resources and monitoring manager
activities.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Resource Management; FN Risk Analysis
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
Difficulty: 2 Medium
Topic: Fundamental concepts of financial reporting
Learning Objective: 01-04 Understand how accounting rules are established, and why
management can shape the financial information communicated to outsiders and still be within
those rules.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: FN Risk Analysis; FN Measurement
1
Copyright ©2018 McGraw-Hill
,4) Executive compensation contracts seldom contain annual bonus and longer term pay
components tied to financial statement results, but instead usually rely on stock options as a
means to reward managers in a manner that is less subject to manipulation by management.
Answer: FALSE
Difficulty: 2 Medium
Topic: Financial statements―For decision-maker needs
Learning Objective: 01-02 Understand how financial reporting addresses the information
demands of current or potential stakeholders allocating resources and monitoring manager
activities.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Resource Management; FN Risk Analysis; BB Critical Thinking
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
Difficulty: 1 Easy
Topic: Financial statements―Disclosure costs and benefits
Learning Objective: 01-03 Understand how the supply of financial information is influenced by
the costs of producing and disseminating it and by the benefits it provides.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
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
Explanation: The SEC retains enforcement authority over financial reporting in the U.S.
Difficulty: 1 Easy
Topic: Standard-setting―US GAAP
Learning Objective: 01-04 Understand how accounting rules are established, and why
management can shape the financial information communicated to outsiders and still be within
those rules.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
2
Copyright ©2018 McGraw-Hill
, 7) Management has considerable discretion over the particular accounting procedures used in the
financial statements and over the details contained in related note disclosures.
Answer: TRUE
Difficulty: 1 Easy
Topic: Financial statements―As sources of information; Management choices―Reporting
strategies
Learning Objective: 01-01 Understand why financial statements are valuable sources of
information about companies.; 01-04 Understand how accounting rules are established, and why
management can shape the financial information communicated to outsiders and still be within
those rules.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: FN Measurement
8) Accounting standard-setting in the U.S. is a technical process and thus little affected by
political considerations.
Answer: FALSE
Difficulty: 1 Easy
Topic: Standard-setting―US GAAP
Learning Objective: 01-04 Understand how accounting rules are established, and why
management can shape the financial information communicated to outsiders and still be within
those rules.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
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
Difficulty: 1 Easy
Topic: Standards differences—US GAAP and IFRS
Learning Objective: 01-06 Understand why International Financial Reporting Standards (IFRS)
influence the accounting practices of U.S. companies.
Bloom's: Remember
AACSB: Diversity
AICPA: FN Measurement; BB Global
3
Copyright ©2018 McGraw-Hill
Chapter 1 The Economic and Institutional Setting for Financial Reporting
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
Difficulty: 1 Easy
Topic: Financial statements―As sources of information
Learning Objective: 01-01 Understand why financial statements are valuable sources of
information about companies.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Resource Management
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
Difficulty: 2 Medium
Topic: Financial statements―For decision-maker needs
Learning Objective: 01-02 Understand how financial reporting addresses the information
demands of current or potential stakeholders allocating resources and monitoring manager
activities.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Resource Management; FN Risk Analysis
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
Difficulty: 2 Medium
Topic: Fundamental concepts of financial reporting
Learning Objective: 01-04 Understand how accounting rules are established, and why
management can shape the financial information communicated to outsiders and still be within
those rules.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: FN Risk Analysis; FN Measurement
1
Copyright ©2018 McGraw-Hill
,4) Executive compensation contracts seldom contain annual bonus and longer term pay
components tied to financial statement results, but instead usually rely on stock options as a
means to reward managers in a manner that is less subject to manipulation by management.
Answer: FALSE
Difficulty: 2 Medium
Topic: Financial statements―For decision-maker needs
Learning Objective: 01-02 Understand how financial reporting addresses the information
demands of current or potential stakeholders allocating resources and monitoring manager
activities.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Resource Management; FN Risk Analysis; BB Critical Thinking
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
Difficulty: 1 Easy
Topic: Financial statements―Disclosure costs and benefits
Learning Objective: 01-03 Understand how the supply of financial information is influenced by
the costs of producing and disseminating it and by the benefits it provides.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
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
Explanation: The SEC retains enforcement authority over financial reporting in the U.S.
Difficulty: 1 Easy
Topic: Standard-setting―US GAAP
Learning Objective: 01-04 Understand how accounting rules are established, and why
management can shape the financial information communicated to outsiders and still be within
those rules.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
2
Copyright ©2018 McGraw-Hill
, 7) Management has considerable discretion over the particular accounting procedures used in the
financial statements and over the details contained in related note disclosures.
Answer: TRUE
Difficulty: 1 Easy
Topic: Financial statements―As sources of information; Management choices―Reporting
strategies
Learning Objective: 01-01 Understand why financial statements are valuable sources of
information about companies.; 01-04 Understand how accounting rules are established, and why
management can shape the financial information communicated to outsiders and still be within
those rules.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: FN Measurement
8) Accounting standard-setting in the U.S. is a technical process and thus little affected by
political considerations.
Answer: FALSE
Difficulty: 1 Easy
Topic: Standard-setting―US GAAP
Learning Objective: 01-04 Understand how accounting rules are established, and why
management can shape the financial information communicated to outsiders and still be within
those rules.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
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
Difficulty: 1 Easy
Topic: Standards differences—US GAAP and IFRS
Learning Objective: 01-06 Understand why International Financial Reporting Standards (IFRS)
influence the accounting practices of U.S. companies.
Bloom's: Remember
AACSB: Diversity
AICPA: FN Measurement; BB Global
3
Copyright ©2018 McGraw-Hill
