The Act requires the regulation of auditors and the types of services they furnish to clients, increases accountability of corporate executives, addresses
conflicts of interest for auditors and securities analysts, and requires that companies document and report on the adequacy of their internal controls. It also
requires auditors to express an opinion on management's assessment of internal controls, and the auditors must also express their own opinion on
company internal controls.
References
Essay Difficulty: 2 Medium Learning Objective: 01-05 Explain factors that encourage high-
quality financial reporting.
148.
Award: 10.00 points
What is the value of a company having financial statements audited by an independent auditor?
Outside auditors add credibility to financial statements, increasing the confidence of capital market participants who rely on financial statements in making
investment and credit decisions and recommendations.
References
Essay Difficulty: 2 Medium Learning Objective: 01-05 Explain factors that encourage high-
quality financial reporting.
149.
Award: 10.00 points
What responsibilities do auditors have with respect to reporting critical audit matters (CAMs)?
Starting in 2019, audit reports include descriptions of Critical audit matters (CAMs), including discussion of how the CAM was addressed in the audit.
References
Essay Difficulty: 1 Easy Learning Objective: 01-05 Explain factors that encourage high-
quality financial reporting.
150.
Award: 10.00 points
Briefly describe how materiality is featured in the conceptual framework.
Materiality—Information is material if it can have an effect on a decision made by a user. Thus, materiality is an aspect of relevance. If an item is not
material, GAAP need not be followed. For example, if a large corporation purchased a water cooler for one of its common areas for $120, the amount could
be expensed rather than recorded as an asset even though the cooler will be useful for several years. Materiality is a judgment call. Materiality is
concerned with both the dollar amount of an item and/or the nature of an item. It would probably be material if Microsoft received $1,000,000 in bribes
from a Chinese company for its technology. A $1,000,000 write-off of old equipment would probably be immaterial for Microsoft.
References
Essay Difficulty: 3 Hard Learning Objective: 01-07 Identify the objective and qualitative
characteristics of financial reporting information and the elements
of financial statements.
151.
Award: 10.00 points
What are the fundamental qualitative characteristics that are necessary for financial information to be useful, according to the FASB’s conceptual
framework? Define each, including their key components or aspects.
Relevance and Faithful Representation. Relevance requires that information have predictive and confirmatory value, and that it be material. Faithful
representation requires that there is agreement between a measure and a real-world phenomenon that the measure is supposed to represent. It requires
that the information be complete, neutral, and free from error.
References
Essay Difficulty: 2 Medium Learning Objective: 01-07 Identify the objective and qualitative
characteristics of financial reporting information and the elements
of financial statements.
152.
Award: 10.00 points
Give an example of a violation of the stable monetary unit assumption. How would it affect the quality of financial statement information?
If a country experiences severe inflation, this would violate the assumption that dollar amounts are constantly valued. This would limit the usefulness of
adding numbers in financial statements, because (for instance) costs at different times are not comparable without adjusting for changes in purchasing
power.
References
Essay Difficulty: 2 Medium Learning Objective: 01-08 Describe the four basic assumptions
underlying GAAP.
153.
Award: 10.00 points
Identify or define the following terms: periodicity, monetary unit.
Periodicity—The life of a company can be divided into artificial periods to provide timely information to external users.
Monetary unit—In the United States, financial statement elements should be measured in terms of the U.S. dollar. It assumes that the value of a dollar is
stable over time.
References
Essay Difficulty: 1 Easy Learning Objective: 01-08 Describe the four basic assumptions
underlying GAAP.
154.
Award: 10.00 points
Identify or define the following term: historical cost.
Historical cost—A measurement attribute under which asset and liability measurements are based on the amount given or received in an exchange