Financial Reporting and Analysis 【Reading 24】Sample following, standards, statements, 2012

Kingpin804

Which of the following statements about financial statements and reporting standards is least accurate?

A) Financial statements could potentially take any form if reporting standards didn’t exist.

B) The objective of financial statements is to provide economic decision makers with useful information.

C) Reporting standards focus mostly on format and presentation and allow management wide latitude in assumptions.

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Given the variety and complexity of possible transactions, and the estimates and assumptions a firm must make when presenting its performance, financial statements could potentially take any form if reporting standards didn’t exist. Reporting standards ensure that the information is “useful to a wide range of users,” including security analysts, by making financial statements comparable to one another and narrowing the range within which management’s estimates can be seen as reasonable. Reporting standards limit the range of assumptions management can make.

karoliukas

Which description of the objective of financial statements is most accurate? The objective of financial statements is:

A) to provide economic decision makers with useful information about a firm’s financial performance and changes in financial position.

B) to provide securities analysts with objective data about a firm’s financial prospects.

C) to provide a wide range of users with information about a firm’s financial prospects.

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The objective of financial statements is to provide economic decision makers with useful information about a firm’s financial performance and changes in financial position. Assessing its prospects is the responsibility of analysts. Financial statements fall under the purview of the FASB in the US, not the IASB. The SEC does not set the objectives of financial statements, it is a regulatory authority.

karoliukas

Which of the following statements about financial reporting standards is least accurate? Reporting standards:

A) are disclosed on Form 8K by publicly traded firms in the United States.

B) narrow the range within which management estimates can be seen as reasonable.

C) ensure that the information is “useful to a wide range of users.”

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Reporting standards ensure that the information is “useful to a wide range of users,” including security analysts, by making financial statements comparable to one another and narrowing the range within which management’s estimates can be seen as reasonable. Securities & Exchange Commission Form 8K addresses acquisitions, divestitures, etc. and not reporting standards.

karoliukas

Which of the following is least likely to be considered a stated goal of the International Accounting Standards Board (IASB)?

A) Remain neutral in the debate on the use of global accounting standards to avoid appearance of a conflict of interest.

B) Develop global accounting standards requiring transparency, comparability, and high quality in financial statements.

C) Account for the needs of emerging markets and small firms when implementing global accounting standards.

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The IASB has four stated goals:
1. Develop global accounting standards requiring transparency, comparability, and high quality in financial statements.
2. Promote the use of global accounting standards.
3. Account for the needs of emerging markets and small firms when implementing global accounting standards.
4. Achieve convergence between various national accounting standards and global accounting standards.

karoliukas

When a publicly traded U.S. company prepares a proxy statement for its shareholders prior to the annual meeting or other shareholder vote, it also files the statement with the SEC as Form:

A) DEF-14A.

B) 8-K.

C) 144.

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Form DEF-14A: When a company prepares a proxy statement for its shareholders prior to the annual meeting or other shareholder vote, it also files the statement with the SEC as Form DEF-14A.
Form 8-K: Companies must file this form to disclose material events including significant asset acquisitions and disposals, changes in management or corporate governance, or matters related to its accountants, financial statements, or the markets on which its securities trade.
Form 144: A company can issue securities to certain qualified buyers without registering the securities with the SEC, but must notify the SEC that it intends to do so.

karoliukas

Professional organizations of accountants and auditors that establish financial reporting standards are called:

A) Regulatory authorities.

B) International organizations of securities commissions.

C) Standard setting bodies.

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Standard-setting bodies are professional organizations of accountants and auditors that establish financial reporting standards. Regulatory authorities are government agencies that have the legal authority to enforce compliance with financial reporting standards. Regulatory authorities, such as the Securities and Exchange Commission (SEC) in the U.S. and the Financial Services Authority (FSA) in the United Kingdom, are established by national governments. Most national authorities belong to the International Organization of Securities Commissions (IOSCO).

karoliukas

Desirable attributes of accounting standard-setting bodies least likely include:

A) operating independently of interested stakeholders.

B) having clear and consistent standard-setting processes.

C) making decisions that are in the public interest.

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Although standard-setting bodies should not be compromised by special interests, seeking input from stakeholders is considered a desirable attribute.

karoliukas

The process of developing one universally accepted set of accounting standards is best described as:

A) convergence.

B) unification.

C) IASB.

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Developing one universally accepted set of accounting standards is referred to as “convergence.” The IASB is an accounting standard setting body involved in the process.

karoliukas

Which of the following is most likely to be considered a barrier to developing one universally recognized set of reporting standards?

A) Reluctance of firms to adhere to a single set of reporting standards.

B) GATT already requires sufficient agreement.

C) Different standard-setting bodies of different countries disagree on the best treatment of a particular issue.

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A principal obstacle to agreement on a single set of reporting standards is that various standard-setting bodies and regulatory authorities disagree on what the standards should be. Firms generally support the idea because it would reduce the cost of reporting. GATT is the General Agreement on Tariffs and Trade and does not relate to financial reporting.

karoliukas

The term “convergence” is most accurately used to describe:

A) the reduction of the premium on a bond as it nears maturity.

B) when expected return and required return are equal.

C) the process of developing one universally accepted set of accounting standards.

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Moving towards agreement on a single set of accounting standards is referred to as “convergence.”