Test Bank For Accounting Theory Conceptual Issues In A Political And Economic Environment 9th Edition Harry I. -James L

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Test Bank For Accounting Theory Conceptual Issues In A Political And Economic Environment 9th Edition Harry I. -James L

Chapter 3—DEVELOPMENT OF INSTITUTIONAL STRUCTURE OF FINANCIAL ACCOUNTING

TRUE/FALSE

1.The accounting profession has been regulated by Congress since the 1880s when it became clear that accounting was an important instrument in America for conducting business.

ANSWER: F

2.The SEC was created by Congress to replace the AICPA’s standard-setting group.

ANSWER: F

3.The SEC is legally empowered to regulate accounting principles.

ANSWER: T

4.Most of the responsibility for establishing accounting principles has remained with the private sector rather than the SEC.

ANSWER: T

5.The Securities Act of 1933 and the Securities and Exchange Act of 1934 were the first national securities legislations in the United States.

ANSWER: T

6.The Journal of Accountancy was founded by the American Association of Public Accountants in 1905.

ANSWER: T

7.The American Accounting Association was originally called the American Society of Certified Public Accountants.

ANSWER: F

8.The Committee on Accounting Procedures (CAP) used a formalized deductive approach to develop a comprehensive accounting theory.

ANSWER: F

9.The Committee on Accounting Procedures (CAP) represented the profession’s first sustained attempt to develop workable financial accounting rules.

ANSWER: T

10.APB Opinions were originally expected to be based on in-depth research studies.

ANSWER: T

11.The Trueblood Study Group formed the FASB and called for significant changes in the establishment of financial accounting standards.

ANSWER: F

12.The responsibility of the Financial Accounting Foundation is to elect the board of trustees, which selects FASB members, funds the board’s activities, and performs the oversight role.

ANSWER: T

13.The FASB has made more extensive use of research than did its predecessors.

ANSWER: T

14.FASB statements have resulted in a more conservative balance sheet and immediate recognition of events on the income statement.

ANSWER: T

15.The Accounting Standards Executive Committee of the AICPA (ASEC) and the Emerging Issues Task Force (EITF) were established to solve the problems of particular industries as well as narrow technical issues.

ANSWER: T

16.A normal four-to-three majority vote is required for passing new accounting standards.

ANSWER: T

17.The Federal Litigation Reform Act of 1995 replaced the previous proportionate liability requirement with joint and several liability for damages suffered by third parties who rely on the financial statement of firms attested to by CPAs.

ANSWER: F

18.The AICPA has exclusive authority in the private sector for promulgating auditing rules.

ANSWER: F

19.Congress has recently been concerned with the laxity of auditors in detecting and disclosing fraud.

ANSWER: T

20.An important role of the AICPA is to curb “shopping for accounting principles.”

ANSWER: T

21.An annual report to stockholders prepared using FASB accounting standards generally has more disclosure of nonfinancial statement information than does the typical annual report filed with the SEC.

ANSWER: F

22.The Litigation Reform Act of 1995 requires that an audit include procedures designed to guarantee that illegal acts that would materially affect financial statements will be detected.

ANSWER: F

23.The importance of the auditing function relative to the management consulting function is declining in major auditing firms.

ANSWER: T

24.A problem with the increased importance of the management consulting function in auditing firms is the possible erosion of the integrity of the auditing function.

ANSWER: T

25.The AICPA has developed an electronic filing of financial data called EDGAR.

ANSWER: F

26. FASB lost a significant amount of independence from the SEC due to Sarbanes-Oxley’s passage.

ANSWER: T

27. The International Accounting Standards Board’s role in establishing standards has decreased significantly since 2002.

ANSWER:F

MULTIPLE CHOICE

1.Which of the following characteristics does not apply to accounting practices and procedures in the United States prior to 1930?

a.

They were applied uniformly among companies.

b.

They were considered confidential by the companies applying them.

c.

They met the needs of creditors to a greater extent than they met the needs of shareholders.

d.

They emphasized the disclosure of cash and near-cash resources.

ANSWER: A

2.Which of the following was an accomplishment of the American Association of Public Accountants?

a.

The passage of a law in 1896 that created the professional designation of “Certified Public Accountant”

b.

The founding of The Journal of Accountancy in 1905

c.

The development of a list of terms and definitions in 1915

d.

All of the above

ANSWER: D

3.In 1918, the American Institute of Accountants (AIA) worked with which of the following organizations to publish minimum standards for conducting a balance sheet audit?

a.

The Federal Trade Commission (FTC)

b.

The Securities and Exchange Commission (SEC)

c.

The American Society of Certified Public Accountants

d.

The New York Stock Exchange (NYSE)

ANSWER: A

4.Which state passed the law that first created the designation “Certified Public Accountant”?

a.

Massachusetts

b.

California

c.

Ohio

d.

New York

e. Iowa

ANSWER: D

5.Which of the following factors led to significant changes in accounting practices?

a.

The Great Depression of 1929

b.

The election of Franklin D. Roosevelt to the presidency in 1932

c.

The enactment of the New Deal legislation

d.

All of the above

ANSWER: D

6.Which of the following is not true regarding Accounting Series Release No. 4?

a.

It stated that financial statements filed with the SEC and prepared in accordance with accounting principles for which there is no substantial authoritative support would be presumed to be misleading.

b.

It implied that the SEC might in the future determine acceptable accounting practices and mandate methods to be used in reports filed with it.

c.

It established an authoritative body for the development of accounting standards.

d.

It indicated that the SEC was growing impatient with the accounting profession.

ANSWER: C

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