Chapter 1

Question 1

Financial statements are the principal means through which financial information is communicated to those outside an enterprise.

Answer 1

T

Question 2

Capital markets are increasingly integrated and companies have greater flexibility in deciding where to raise capital.

Answer 2

T

Question 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.

Answer 3

F

Question 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.

Answer 4

F

Question 5

Users of the financial information provided by a company use that information to make capital allocation decisions.

Answer 5

T

Question 6

An effective process of capital allocation promotes productivity and provides an efficient market for buying and selling securities and obtaining and granting credit.

Answer 6

T

Question 7

Over 115 countries require or permit use of International Financial Reporting Standards (IFRS).

Answer 7

T

Question 8

While objectives for financial reporting exist on an informal basis, no formal objectives have been adopted.

Answer 8

F

Question 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.

Answer 9

F

Question 10

The passage of a new International Financial Reporting Standards Statement requires the support of ten of the sixteen board members.

Answer 10

F

Question 11

International Financial Reporting Standards preceded International Accounting Standards.

Answer 11

F

Question 12

The standard-setting structure used by the International Accounting Standards Board is very similar to that used by the Financial Accounting Standards Board.

Answer 12

T

Question 13

The rules-based standards of IASB are more detailed than the simpler, principles-based standards of U.S. GAAP.

Answer 13

F

Question 14

The International Accounting Standards Board issues International Financial Reporting Standards.

Answer 14

T

Question 15

International Accounting Standards are no longer considered applicable because they have been replaced by International Financial Reporting Standards.

Answer 15

F

Question 16

The standards issued by various standard-setting organizations around the world include standards that are profit-oriented and investor-focused.

Answer 16

F

Question 17

The two major standard-setting organizations in the world are the International Accounting Standards Board (IASB) and International Organization of Securities Commission (IOSCO).

Answer 17

F

Question 18

IFRS is considered more comprehensive than U.S. GAAP and the standards contain more implementation guidance than U.S. GAAP.

Answer 18

F

Question 19

The International Organization of Securities Commissions (IOSCO) sets accounting standards for those countries which have not yet adopted IFRS.

Answer 19

F

Question 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.

Answer 20

F

Question 21

A unanimous vote by all Board members is needed to issue a new International Financial Reporting Standard (IFRS).

Answer 21

F

Question 22

The International Accounting Standards Board (IASB) has 16 members and each member of the IASB must come from a different country.

Answer 22

F

Question 23

Interpretations issued by the IFRS Interpretations Committee are more authoritative than IASB Standards and Interpretations.

Answer 23

F

Question 24

The International Accounting Standards Board (IASB) is a regulatory agency with enforcement powers for its International Financial Reporting Standards (IFRS).

Answer 24

F

Question 25

International financial reporting interpretations (issued by the International Accounting Standards Board) are considered authoritative and must be followed.

Answer 25

T

Question 26

Financial reports in the early 21st century did not provide any information about a company’s soft assets.

Answer 26

F

Question 27

Accounting standards are now less likely to require the recording or disclosure of fair value information due to its inherent subjectivity.

Answer 27

F

Question 28

IFRS are a product of careful logic or empirical findings and are not influenced by political action.

Answer 28

F

Question 29

The expectations gap is caused by what the public thinks accountants should be doing and what accountants think they can do.

Answer 29

T

Question 30

Ethical issues in financial accounting are governed by the AICPA.

Answer 30

F

Question 31

Politics and political pressure in establishing IFRS is a negative force.

Answer 31

F

Question 32

Significant financial reporting issues facing global financial reporting and efficient capital allocation include how to provide backward-looking information.

Answer 32

F

Question 33

The IASB relies primarily on the International Organization of Securities Commissions (IOSCO) for regulation and enforcement of its standards.

Answer 33

T

Question 34

U.S. and European regulators have agreed to recognize each other’s standards for listing on the various world securities exchanges.

Answer 34

T

Question 35

IFRS tends to be simpler and more flexible in the accounting and disclosure requirements than U.S. GAAP.

Answer 35

T