,✅ CHAPTER 1: FINANCIAL ACCOUNTING AND
ACCOUNTING STANDARDS
✅ 28 Advanced MCQs with Deep Rationales
Q1. Which of the following most accurately captures the primary
objective of financial reporting?
a. To provide information about the market value of a company
b. To satisfy tax reporting requirements for internal revenue purposes
c. To provide financial information useful to investors, lenders, and
other creditors in making decisions
d. To report profitability to governmental regulatory bodies
✅ Correct Answer: c
💡 Rationale: The FASB's Conceptual Framework defines the
objective of financial reporting as providing useful financial
information to external users (primarily investors and creditors) for
decision-making. Market value and tax reporting are secondary or
distinct concerns.
Q2. Which organization currently holds the primary responsibility for
establishing GAAP in the United States?
a. SEC
b. AICPA
c. IASB
d. FASB
✅ Correct Answer: d
💡 Rationale: The Financial Accounting Standards Board (FASB) is
recognized as the authoritative body for establishing GAAP in the
,U.S. The SEC has oversight but delegates standard-setting to the
FASB.
Q3. The SEC was created in response to which of the following
historical events?
a. The Sarbanes-Oxley Act of 2002
b. The Great Depression and 1929 stock market crash
c. The Enron scandal
d. The formation of the PCAOB
✅ Correct Answer: b
💡 Rationale: The SEC was created by the Securities Exchange Act
of 1934 as a response to financial market failures highlighted by the
Great Depression and the 1929 crash, aiming to restore investor
confidence.
Q4. Which of the following is NOT an essential characteristic of
financial accounting?
a. Historical cost basis
b. Objectivity
c. Confidentiality
d. Periodicity
✅ Correct Answer: c
💡 Rationale: Confidentiality pertains more to internal management
accounting. Financial accounting is meant for public dissemination
and focuses on objectivity, historical reporting, and timely (periodic)
communication.
, Q5. Which of the following bodies enforces accounting standards for
publicly traded companies in the United States?
a. GASB
b. SEC
c. AICPA
d. FASB
✅ Correct Answer: b
💡 Rationale: The SEC (Securities and Exchange Commission) has
legal authority to enforce compliance with financial reporting
standards by publicly traded companies.
Q6. What distinguishes the IASB from the FASB in the context of
accounting standards?
a. IASB only issues auditing standards
b. IASB has no jurisdiction over U.S.-based companies
c. IASB establishes international standards, while FASB governs U.S.
GAAP
d. IASB enforces tax law compliance
✅ Correct Answer: c
💡 Rationale: The IASB (International Accounting Standards Board)
sets IFRS for global use, while the FASB sets GAAP for U.S. entities.
Neither enforces standards, but both establish frameworks.
Q7. Which organization has the legal authority to prescribe
accounting standards for U.S. companies but typically defers that
responsibility to private standard-setters?
a. AICPA
b. SEC
ACCOUNTING STANDARDS
✅ 28 Advanced MCQs with Deep Rationales
Q1. Which of the following most accurately captures the primary
objective of financial reporting?
a. To provide information about the market value of a company
b. To satisfy tax reporting requirements for internal revenue purposes
c. To provide financial information useful to investors, lenders, and
other creditors in making decisions
d. To report profitability to governmental regulatory bodies
✅ Correct Answer: c
💡 Rationale: The FASB's Conceptual Framework defines the
objective of financial reporting as providing useful financial
information to external users (primarily investors and creditors) for
decision-making. Market value and tax reporting are secondary or
distinct concerns.
Q2. Which organization currently holds the primary responsibility for
establishing GAAP in the United States?
a. SEC
b. AICPA
c. IASB
d. FASB
✅ Correct Answer: d
💡 Rationale: The Financial Accounting Standards Board (FASB) is
recognized as the authoritative body for establishing GAAP in the
,U.S. The SEC has oversight but delegates standard-setting to the
FASB.
Q3. The SEC was created in response to which of the following
historical events?
a. The Sarbanes-Oxley Act of 2002
b. The Great Depression and 1929 stock market crash
c. The Enron scandal
d. The formation of the PCAOB
✅ Correct Answer: b
💡 Rationale: The SEC was created by the Securities Exchange Act
of 1934 as a response to financial market failures highlighted by the
Great Depression and the 1929 crash, aiming to restore investor
confidence.
Q4. Which of the following is NOT an essential characteristic of
financial accounting?
a. Historical cost basis
b. Objectivity
c. Confidentiality
d. Periodicity
✅ Correct Answer: c
💡 Rationale: Confidentiality pertains more to internal management
accounting. Financial accounting is meant for public dissemination
and focuses on objectivity, historical reporting, and timely (periodic)
communication.
, Q5. Which of the following bodies enforces accounting standards for
publicly traded companies in the United States?
a. GASB
b. SEC
c. AICPA
d. FASB
✅ Correct Answer: b
💡 Rationale: The SEC (Securities and Exchange Commission) has
legal authority to enforce compliance with financial reporting
standards by publicly traded companies.
Q6. What distinguishes the IASB from the FASB in the context of
accounting standards?
a. IASB only issues auditing standards
b. IASB has no jurisdiction over U.S.-based companies
c. IASB establishes international standards, while FASB governs U.S.
GAAP
d. IASB enforces tax law compliance
✅ Correct Answer: c
💡 Rationale: The IASB (International Accounting Standards Board)
sets IFRS for global use, while the FASB sets GAAP for U.S. entities.
Neither enforces standards, but both establish frameworks.
Q7. Which organization has the legal authority to prescribe
accounting standards for U.S. companies but typically defers that
responsibility to private standard-setters?
a. AICPA
b. SEC
