CHAPTER 1
FINANCIAL ACCOUNTING AND
ACCOUNTING STANDARDS
CHAPTER LEARNING OBJECTIVES
1. Identify the major financial statements and other means of financial reporting.
2. Explain how accounting assists in the efficient use of scarce resources.
3. Explain the need for high-quality standards.
4. Identify the objectives of financial reporting.
5. Identify the major policy-setting bodies and their role in the standard-setting process.
6. Explain the meaning of IFRS.
7. Describe the challenges facing financial reporting.
*8. Identity the major U.S. policy-setting bodies and their role in the standard-setting process.
* This material can be found in the Appendix to the chapter
, TRUE-FALSE—Conceptual
1. Financial accounting is the process of identifying, measuring, analyzing, and communicating
financial information needed by management to plan, evaluate, and control an organiza-tion's
operations.
2. Financial statements are the principal means through which financial information is
communicated to those outside an enterprise.
3. The major financial statements used under International Financial Reporting Standards (IFRS)
include the statement of changes in financial position and the statement of stockholders’ equity.
4. In order to provide information that is useful in decision making and capital allocation, the
International Financial Reporting Standards (IFRS) requires all companies to use a common
currency.
5. Users of the financial information provided by a company use that information to make capital
allocation decisions.
6. An effective process of capital allocation promotes productivity and provides an efficient
market for buying and selling securities and obtaining and granting credit.
7. Over 115 countries require or permit use of International Financial Reporting Standards
(IFRS).
8. While objectives for financial reporting exist on an informal basis, no formal objectives have
been adopted.
9. One weakness of accrual accounting is that it does not provide a good indication of the
enterprise's present and continuing ability to generate favorable cash flows.
,10. The passage of a new FASB Standards Statement requires the support of five of the seven board
members.
11. International Financial Reporting Standards preceded International Accounting Standards.
12. The standard-setting structure used by the International Accounting Standards Board is very
similar to that used by the Financial Accounting Standards Board.
13. The rules-based standards of IASB are more detailed than the simpler, principles-based
standards of U.S. GAAP.
14. The International Accounting Standards Board issues International Financial Reporting
Standards.
15. International Accounting Standards are no longer considered applicable because they have
been replaced by International Financial Reporting Standards.
16. The standards issued by various standard-setting organizations around the world include
standards that are profit-oriented and investor-focused.
17. The two major standard-setting organizations in the world are the International Accounting
Standards Board (IASB) and International Organization of Securities Commission (IOSCO).
18. IFRS is considered more comprehensive than U.S. GAAP and the standards contain more
implementation guidance than U.S. GAAP.
19. The International Organization of Securities Commissions (IOSCO) sets accounting standards for
those countries which have not yet adopted IFRS.
20. The International Accounting Standards Board (IASB) follows specific steps in developing
International Financial Reporting Standards (IFRS); the first step in the process is holding a
public hearing.
, 21. A unanimous vote by all Board members is needed to issue a new International Financial
Reporting Standard (IFRS).
22. The International Accounting Standards Board (IASB) has 14 members and each member of the
IASB must come from a different country.
23. Interpretations issued by IFRIC are more authoritative than IASB Standards and
Interpretations.
24. The International Accounting Standards Board (IASB) is a regulatory agency with enforcement
powers for its International Financial Reporting Standards (IFRS).
25. International financial reporting interpretations (issued by the International Accounting
Standards Board) are considered authoritative and must be followed.
26. Financial reports in the early 21st century did not provide any information about a company’s
soft assets.
27. Accounting standards are now less likely to require the recording or disclosure of fair value
information due to its inherent subjectivity.
28. IFRS are a product of careful logic or empirical findings and are not influenced by political
action.
29. The expectations gap is caused by what the public thinks accountants should be doing and what
accountants think they can do.
30. Ethical issues in financial accounting are governed by the AICPA.
31. Politics and political pressure in establishing IFRS is a negative force.
FINANCIAL ACCOUNTING AND
ACCOUNTING STANDARDS
CHAPTER LEARNING OBJECTIVES
1. Identify the major financial statements and other means of financial reporting.
2. Explain how accounting assists in the efficient use of scarce resources.
3. Explain the need for high-quality standards.
4. Identify the objectives of financial reporting.
5. Identify the major policy-setting bodies and their role in the standard-setting process.
6. Explain the meaning of IFRS.
7. Describe the challenges facing financial reporting.
*8. Identity the major U.S. policy-setting bodies and their role in the standard-setting process.
* This material can be found in the Appendix to the chapter
, TRUE-FALSE—Conceptual
1. Financial accounting is the process of identifying, measuring, analyzing, and communicating
financial information needed by management to plan, evaluate, and control an organiza-tion's
operations.
2. Financial statements are the principal means through which financial information is
communicated to those outside an enterprise.
3. The major financial statements used under International Financial Reporting Standards (IFRS)
include the statement of changes in financial position and the statement of stockholders’ equity.
4. In order to provide information that is useful in decision making and capital allocation, the
International Financial Reporting Standards (IFRS) requires all companies to use a common
currency.
5. Users of the financial information provided by a company use that information to make capital
allocation decisions.
6. An effective process of capital allocation promotes productivity and provides an efficient
market for buying and selling securities and obtaining and granting credit.
7. Over 115 countries require or permit use of International Financial Reporting Standards
(IFRS).
8. While objectives for financial reporting exist on an informal basis, no formal objectives have
been adopted.
9. One weakness of accrual accounting is that it does not provide a good indication of the
enterprise's present and continuing ability to generate favorable cash flows.
,10. The passage of a new FASB Standards Statement requires the support of five of the seven board
members.
11. International Financial Reporting Standards preceded International Accounting Standards.
12. The standard-setting structure used by the International Accounting Standards Board is very
similar to that used by the Financial Accounting Standards Board.
13. The rules-based standards of IASB are more detailed than the simpler, principles-based
standards of U.S. GAAP.
14. The International Accounting Standards Board issues International Financial Reporting
Standards.
15. International Accounting Standards are no longer considered applicable because they have
been replaced by International Financial Reporting Standards.
16. The standards issued by various standard-setting organizations around the world include
standards that are profit-oriented and investor-focused.
17. The two major standard-setting organizations in the world are the International Accounting
Standards Board (IASB) and International Organization of Securities Commission (IOSCO).
18. IFRS is considered more comprehensive than U.S. GAAP and the standards contain more
implementation guidance than U.S. GAAP.
19. The International Organization of Securities Commissions (IOSCO) sets accounting standards for
those countries which have not yet adopted IFRS.
20. The International Accounting Standards Board (IASB) follows specific steps in developing
International Financial Reporting Standards (IFRS); the first step in the process is holding a
public hearing.
, 21. A unanimous vote by all Board members is needed to issue a new International Financial
Reporting Standard (IFRS).
22. The International Accounting Standards Board (IASB) has 14 members and each member of the
IASB must come from a different country.
23. Interpretations issued by IFRIC are more authoritative than IASB Standards and
Interpretations.
24. The International Accounting Standards Board (IASB) is a regulatory agency with enforcement
powers for its International Financial Reporting Standards (IFRS).
25. International financial reporting interpretations (issued by the International Accounting
Standards Board) are considered authoritative and must be followed.
26. Financial reports in the early 21st century did not provide any information about a company’s
soft assets.
27. Accounting standards are now less likely to require the recording or disclosure of fair value
information due to its inherent subjectivity.
28. IFRS are a product of careful logic or empirical findings and are not influenced by political
action.
29. The expectations gap is caused by what the public thinks accountants should be doing and what
accountants think they can do.
30. Ethical issues in financial accounting are governed by the AICPA.
31. Politics and political pressure in establishing IFRS is a negative force.
