LO 6

Question 1

Bondholders

Answer 1

want to ensure the company will be able to pay back their debts

Question 2

shareholders

Answer 2

are interested in the magnitude and timing of cash flow that the company can provide them

Question 3

management

Answer 3

wants to ensure that their business will be solvent and profitable since this could affect their compensation

Question 4

employees

Answer 4

want to make sure the company can continue to pay their wages

Question 5

communities

Answer 5

are interested in the socioeconomic impact a company will have if they continue operations

Question 6

customers

Answer 6

want to make sure they can continue to receive the products/services they have grown to rely on

Question 7

suppliers

Answer 7

are interested in seeing the company’s compacity for paying their accounts payable

Question 8

governments

Answer 8

want to see how profitable the company is to determine taxable income

Question 9

complete fabrication

Answer 9

easiest to carry out and detect

Question 10

misstating assets and liabilities can be

Answer 10

legal

Question 11

IASB

Answer 11

international accounting standards board
not-for-profit international organization
generally used outside the US

Question 12

IASB establishes

Answer 12

IFRS (International Financial Reporting Standards)

Question 13

FASB

Answer 13

Financial Accounting Standards Board
independent, private sector, not-for-profit
used mainly within the US

Question 14

FASB establishes

Answer 14

GAAP (Generally Accepted Accounting Principles)

Question 15

local vs global

Answer 15

IFRS is used in so many jurisdictions while GAAP is generally reserved for US companies

Question 16

Rules-based vs. Principles-based

Answer 16

• GAAP is more rules-based which means industry specific rules and guidance
• IFRS is principles-based which means it relies on judgment and interpretation to determine how the rules are applied

Question 17

inventory methods

Answer 17

1. both GAAP and IFRS allow FIFO, weighted-average cost and specific identification to determine inventory costs
2. GAAP allows LIFO but IFRS does not

Question 18

inventory write-down reversals

Answer 18

• both GAAP and IFRS allow inventory to be written down to market values
• only IFRS allows the earlier write-down to be reversed

Question 19

fair value revaluations

Answer 19

IFRS allows revaluation of many assets to fair value if the fair value can be measured reliably. for GAAP, it is only allowed for marketable securities

Question 20

impairment loss

Answer 20

both GAAP and IFRS allow impairment losses on long-lived assets when market values decline. IFRS allows this write down to be reversed for all assets except goodwill. GAAP does not

Question 21

intangible assets

Answer 21

• When creating intangible assets internally, associated costs such as development and research are capitalized under IFRS.
• Under GAAP, development costs are expensed as they are incurred except internally developed software

Question 22

fixed assets

Answer 22

• GAAP requires that long-lived assets be valued at historical cost and depreciated properly
• For IFRS, these assets are revalued periodically to market value.
• IFRS has a special category for properties that are held for rental income or capital appreciation, measured at cost and subsequently adjusted to market value. GAAP does not

Question 23

lease accouting

Answer 23

IFRS allows lessees to exclude leases for low-value assets from their accounting, but GAAP does not

Question 24

regulatory authorities

Answer 24

government entities that have the legal authority to hold companies accountable for violating the accounting standards

Question 25

3 regulatory authorities

Answer 25

1. International Organization of Securities Commissions 2. Securities and Exchange Commission (US) 3. European Securities Commission (EU)