CHAPTER 1
FINANCIAL REPORTING AND
ACCOUNTING STANDARDS
CHAPTER LEARNING OBJECTIVES
test bank for Intermediate Accounting: IFRS Edition,4e
1 - 2
1. Describe the global financial markets and their relation to financial reporting.
2. Explain the objective of financial reporting.
3. Identify the major policy-setting bodies and their role in the standard-setting process.
4. Discuss the challenges facing financial reporting.
Financial Reporting and Accounting Standards
1 - 3
TRUE-FALSE —Conceptual
1. Financial statements are the principal means through which financial information is
communicated to those outside an enterprise.
Ans: T
LO: 1.1
Bloom: K
Difficulty: Easy
Min: 1
AACSB: Analytic
AICPA BB: Strategic/Critical Thinking
AICPA FN: Measurement
AICPA PC: Problem Solving and Decision-making
IMA: None
2. Capital markets are increasingly integrated and companies have greater flexibility in deciding
where to raise capital.
Ans: T
LO: 1.1
Bloom: K
Difficulty: Easy
Min: 1
AACSB: Analytic
AICPA BB: Strategic/Critical Thinking
AICPA FN: Measurement
AICPA PC: Problem Solving and Decision-making
IMA: None
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.
Ans: F
LO: 1.1
Bloom: K
Difficulty: Easy
Min: 1
AACSB: Analytic
AICPA BB: Strategic/Critical Thinking
AICPA FN: Measurement
AICPA PC: Problem Solving and Decision-making
IMA: None
4. General-purpose financial statements are not considered cost-effective because, while they
provide useful information, the cost to provide the information is quite high.
Ans: F
LO: 1.2
Bloom: K
Difficulty: Easy
Min: 1
AACSB: Analytic
AICPA BB: Strategic/Critical Thinking
test bank for Intermediate Accounting: IFRS Edition,4e
1 - 4
AICPA FN: Measurement
AICPA PC: Problem Solving and Decision-making
IMA: None
5. Investors and creditors are considered the primary user group of general-purpose financial
reporting.
Ans: T
LO: 1.2
Bloom: K
Difficulty: Easy
Min: 1
AACSB: Analytic
AICPA BB: Strategic/Critical Thinking
AICPA FN: Measurement
AICPA PC: Problem Solving and Decision-making
IMA: None
6. An effective process of capital allocation promotes productivity and provides an efficient
market for buying and selling securities and obtaining and granting credit.
Ans: T
LO: 1.2
Bloom: K
Difficulty: Easy
Min: 1
AACSB: Analytic
AICPA BB: Strategic/Critical Thinking
AICPA FN: Measurement
AICPA PC: Problem Solving and Decision-making
IMA: None
7. The emphasis on “assessing cash flow prospects” means that the cash basis is preferred
over the accrual basis of accounting.
Ans: F
LO: 1.2
Bloom: K
Difficulty: Easy
Min: 1
AACSB: Analytic
AICPA BB: Strategic/Critical Thinking
AICPA FN: Measurement
AICPA PC: Problem Solving and Decision-making
IMA: None
8. While objectives for financial reporting exist on an informal basis, no formal objectives have
been adopted.
Ans: F
LO: 1.2
Bloom: K
Difficulty: Easy
Min: 1
AACSB: Analytic
AICPA BB: Strategic/Critical Thinking
Financial Reporting and Accounting Standards
1 - 5
AICPA FN: Measurement
AICPA PC: Problem Solving and Decision-making
IMA: None
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.
Ans: F
LO: 1.2
Bloom: K
Difficulty: Easy
Min: 1
AACSB: Analytic
AICPA BB: Strategic/Critical Thinking
AICPA FN: Measurement
AICPA PC: Problem Solving and Decision-making
IMA: None
10. The passage of a new International Financial Reporting Standard requires the support of ten
of the thirteen board members.
Ans: F
LO: 1.3
Bloom: K
Difficulty: Easy
Min: 1
AACSB: Analytic
AICPA BB: Strategic/Critical Thinking
AICPA FN: Measurement
AICPA PC: Problem Solving and Decision-making
IMA: None
11. International Financial Reporting Standards preceded International Accounting Standards.
Ans: F
LO: 1.3
Bloom: K
Difficulty: Easy
Min: 1
AACSB: Analytic
AICPA BB: Strategic/Critical Thinking
AICPA FN: Measurement
AICPA PC: Problem Solving and Decision-making
IMA: None
12. The standard-setting structure includes a Monitoring Board whose purpose is to provide
advice and counsel to the IASB on major policies and technical issues.