, Chapter 01
Environment and Theoretical Structure of Financial Accounting
True / False Questions
1. The primary function of financial accounting is to provide relevant financial
information to parties external to business enterprises.
True False
2. Accrual accounting attempts to measure revenues and expenses that occurred
during accounting periods so they equal net operating cash flow.
True False
3. The FASB is currently the public-sector organization responsible for setting
accounting standards in the United States.
True False
4. The FASB's due process invites various interested parties to indicate their opinions
about whether financial accounting standards should be changed.
True False
5. Accounting for stock-based compensation is an area in which the FASB has received
little political interference.
True False
6. The Public Reform and Investor Protection Act of 2002 (Sarbanes-Oxley) changed the
entity responsible for setting auditing standards in the United States.
True False
7. A rules-based approach to standard-setting stresses professional judgment as
opposed to following a list of rules.
True False
8. Under federal securities laws, the SEC has the authority to set accounting standards
in the United States.
True False
1-1
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
,9. The primary responsibility for properly applying GAAP when communicating with
investors and creditors through financial statements lies with a firm's auditors.
True False
10. Auditors play an important role in the resource allocation process by adding
credibility to financial statements.
True False
11. The purpose of the conceptual framework is to provide a structure and framework for
a consistent set of GAAP.
True False
12. In the United States the conceptual framework indicates GAAP when a more specific
accounting standard does not apply.
True False
13. Materiality can be affected by the dollar amount of an item, the nature of the item, or
both.
True False
14. According to the FASB's Statements of Financial Accounting Concepts, conservatism
is a desired qualitative characteristic of accounting information.
True False
15. Equity is a residual amount representing the owner's interest in the assets of the
business.
True False
16. Revenues are inflows or other enhancements of assets or settlements of liabilities
from activities that constitute the entity's ongoing operations.
True False
17. Gains or losses result, respectively, from the disposition of business assets for
greater than, or less than, their book values.
True False
18. Comprehensive income is another term for net income.
True False
19. The FASB's conceptual framework lists relevance and timeliness as the two
fundamental qualitative characteristics of decision useful information.
True False
1-2
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
, 20. The monetary unit assumption requires that items in financial statements be
measured in a particular monetary unit.
True False
21. The periodicity assumption requires that present value calculations take into account
the number of compounding periods in each year.
True False
22. Determining fair value by calculating the present value of future cash flows is a level
1 type of input.
True False
23. The FASB's framework for measuring fair value doesn't change the situations in
which fair value is used under current GAAP.
True False
24. The revenue/expense approach emphasizes determining the appropriate amounts of
revenue and expense in each reporting period.
True False
25. The asset/liability approach emphasizes matching to determine what assets and
liabilities should be reflected on the balance sheet.
True False
26. In IFRS, the conceptual framework indicates appropriate accounting when a more
specific accounting standard does not apply.
True False
27. The funding of the standard-setting bodies that promulgate IFRS is as independent as
that underlying U.S. GAAP.
True False
Multiple Choice Questions
1-3
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Environment and Theoretical Structure of Financial Accounting
True / False Questions
1. The primary function of financial accounting is to provide relevant financial
information to parties external to business enterprises.
True False
2. Accrual accounting attempts to measure revenues and expenses that occurred
during accounting periods so they equal net operating cash flow.
True False
3. The FASB is currently the public-sector organization responsible for setting
accounting standards in the United States.
True False
4. The FASB's due process invites various interested parties to indicate their opinions
about whether financial accounting standards should be changed.
True False
5. Accounting for stock-based compensation is an area in which the FASB has received
little political interference.
True False
6. The Public Reform and Investor Protection Act of 2002 (Sarbanes-Oxley) changed the
entity responsible for setting auditing standards in the United States.
True False
7. A rules-based approach to standard-setting stresses professional judgment as
opposed to following a list of rules.
True False
8. Under federal securities laws, the SEC has the authority to set accounting standards
in the United States.
True False
1-1
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
,9. The primary responsibility for properly applying GAAP when communicating with
investors and creditors through financial statements lies with a firm's auditors.
True False
10. Auditors play an important role in the resource allocation process by adding
credibility to financial statements.
True False
11. The purpose of the conceptual framework is to provide a structure and framework for
a consistent set of GAAP.
True False
12. In the United States the conceptual framework indicates GAAP when a more specific
accounting standard does not apply.
True False
13. Materiality can be affected by the dollar amount of an item, the nature of the item, or
both.
True False
14. According to the FASB's Statements of Financial Accounting Concepts, conservatism
is a desired qualitative characteristic of accounting information.
True False
15. Equity is a residual amount representing the owner's interest in the assets of the
business.
True False
16. Revenues are inflows or other enhancements of assets or settlements of liabilities
from activities that constitute the entity's ongoing operations.
True False
17. Gains or losses result, respectively, from the disposition of business assets for
greater than, or less than, their book values.
True False
18. Comprehensive income is another term for net income.
True False
19. The FASB's conceptual framework lists relevance and timeliness as the two
fundamental qualitative characteristics of decision useful information.
True False
1-2
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
, 20. The monetary unit assumption requires that items in financial statements be
measured in a particular monetary unit.
True False
21. The periodicity assumption requires that present value calculations take into account
the number of compounding periods in each year.
True False
22. Determining fair value by calculating the present value of future cash flows is a level
1 type of input.
True False
23. The FASB's framework for measuring fair value doesn't change the situations in
which fair value is used under current GAAP.
True False
24. The revenue/expense approach emphasizes determining the appropriate amounts of
revenue and expense in each reporting period.
True False
25. The asset/liability approach emphasizes matching to determine what assets and
liabilities should be reflected on the balance sheet.
True False
26. In IFRS, the conceptual framework indicates appropriate accounting when a more
specific accounting standard does not apply.
True False
27. The funding of the standard-setting bodies that promulgate IFRS is as independent as
that underlying U.S. GAAP.
True False
Multiple Choice Questions
1-3
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
