36. d 42. a 48. c 54. c 60. c 66. b 72. a
37. b 43. d 49. c 55. c 61. d 67. a 73. c
38. b 44. a 50. b 56. d 62. b 68. c 74. a
39. b 45. a 51. c 57. c 63. d 69. c 75. d
40. b 46. d 52. c 58. d 64. d 70. a
41. a 47. a 53. d 59. d 65. c 71. c
Financial Reporting and Accounting Standards
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EXERCISES
Ex. 1-76—Objective of financial reporting.
What is the objective of general-purpose financial reporting?
Solution 1-76
The objective of financial reporting is to provide financial information about the reporting entity
that is useful to present and potential equity investors, lenders and other creditors in making
decisions about providing resources to the entity.
Information that is decision-useful to capital providers (investors) may also be useful to other users
of financial reporting who are not investors.
LO: 1.2
Bloom: C
Difficulty: Easy
Min: 5-10
AACSB: Communication
AICPA BB: Strategic/Critical Thinking
AICPA FN: Measurement
AICPA PC: Communication
IMA: None
Ex. 1-77—Due process
In establishing financial accounting standards, the IASB has a thorough, open, and transparent due
process. List the elements that comprise the IASB due process.
Solution 1-77
1. An independent standard-setting board overseen by a geographically and professionally
diverse body of trustees.
2. A thorough and systematic process for developing standards.
3. Engagement with investors, regulators, business leaders, and the global accountancy
profession at every stage of the process.
4. Collaborative efforts with the worldwide standard-setting community.
LO: 1.3
Bloom: C
Difficulty: Easy
Min: 5-10
AACSB: Communication
AICPA BB: Strategic/Critical Thinking
AICPA FN: Measurement
AICPA PC: Communication
IMA: None
Ex. 1-78—IASB.
test bank for Intermediate Accounting: IFRS Edition,4e
1 - 32
List and discuss the characteristics of the International Accounting Standards Board (IASB) that
reinforce the importance of an open, transparent and independent process.
Solution 1-78
1. Membership. The Board consists of 14 members. Members are well-paid and appointed for
five-year renewable terms. The 14 members come from different countries.
2. Autonomy. The IASB is not part of any other professional organization. It is appointed by and
answerable only to the IFRS Foundation.
3. Independence. IASB members must sever all ties from their past employer. The members are
selected for their expertise in standard-setting rather than to represent a given country.
4. Voting. A majority of votes are needed to issue a new IFRS.
LO: 1.3
Bloom: C
Difficulty: Easy
Min: 5-10
AACSB: Communication
AICPA BB: Strategic/Critical Thinking
AICPA FN: Measurement
AICPA PC: Communication
IMA: None
Financial Reporting and Accounting Standards
1 - 33
Ex. 1-79—Evolution of a statement of financial accounting standard.
In establishing financial accounting standards, the IASB has a thorough, open and transparent "due
process." What steps does the IASB follow in the development of a typical IFRS?
Solution 1-79
The steps in the development of an IFRS are:
a. Topics are identified and placed on the Board's agenda.
b. Research and analysis are conducted and preliminary views of pros and cons are issued.
c. A public hearing on the proposed standard is held.
d. The Board evaluates the research and public response and issues an exposure draft.
e. The Board evaluates the responses and changes the exposure draft, if necessary. The final
standard is then issued.
LO: 1.3
Bloom: C
Difficulty: Medium
Min: 5-10
AACSB: Communication
AICPA BB: Strategic/Critical Thinking
AICPA FN: Measurement
AICPA PC: Communication
IMA: None
Ex. 1-80—Politics in standard setting
Should there be politics in establishing IFRS for financial accounting and reporting?
Solution 1-80
Politics is everywhere in modern life – at home, in school, at the office and at places of worship.
Since IFRS is part of the real world, it cannot escape politics and political pressures. Politics need
not be a negative force in establishing IFRS. Special interest groups are vocal about the expected