CHAPTER 1 FINANCIAL ACCOUNTING AND ACCOUNTING STANDARDS

1. Financial accounting is the process of identifying,
measuring, analyzing, and communicating financial information needed by
management to plan, evaluate, and control a company’s operations.

2. Financial statements are the principal means
through which a company communicates its financial information to those outside
it.

3. Users of financial reports of a company use the
information provided by these reports to make their capital allocation
decisions.

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

5. The objective of financial reporting is to report
the plans made by a company to improve the productivity of its employees.

6. Investors are interested in financial reporting
because it provides information that is useful for making decisions.

7. Users of financial accounting statements have
both coinciding and conflicting needs for information of various types.

8. The Securities and Exchange Commission
appointed the Committee on Accounting Procedure.

9. The passage of a new FASB Accounting Standards
Update requires the support of five of the seven board members.

10. Statements of Financial Accounting Concepts
set forth fundamental objectives and concepts that are used by the FASB in
developing future standards of financial accounting and reporting.

11. The AICPA created the Accounting Principles
Board in 1959.

12. The FASB’s Codification creates a new set of GAAP.

13. The AICPA’s Code of Professional Conduct requires
that members prepare financial statements in accordance with generally accepted
accounting principles.

14. GAAP is a product of careful logic or
empirical findings and is not influenced by political action.

15. The Public Company Accounting Oversight Board
has oversight and enforcement authority and establishes auditing and
independence standards and rules.

16. The expectations gap is due to the difference
between what the public thinks accountants should do and what accountants think
they can do.

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

18. Accounting standards are now less likely to
require the recording or disclosure of fair value information.

19. U.S. companies that list overseas are required
to use International Financial Reporting Standards, issued by the International
Accounting Standards Board.

20. Ethical issues in financial accounting are
governed by the AICPA.