Contemporary Issues in Accounting Practice Exam
Course Introduction
This course explores the dynamic landscape of accounting by examining current and emerging issues affecting the profession globally. Topics include the impact of globalization, technological advancements such as blockchain and artificial intelligence, evolving regulatory standards, ethical considerations, corporate governance, and environmental and social responsibility reporting. Through critical analysis of real-world cases and recent research, students will gain an understanding of how contemporary trends influence accounting practices, decision-making, and the broader economy. The course prepares participants to anticipate and navigate the challenges faced by accounting professionals in a rapidly changing environment.
Recommended Textbook
Accounting Theory Conceptual Issues in a Political and Economic Environment 9th Edition by Harry
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Chapter 1: An Introduction to Accounting Theory
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Q1) In a ratio scale, the zero point implies "nothingness," or the absence of the quality being measured.
A)True
B)False
Answer: True
Q2) Which of the following has/have been the accepted valuation system for published financial statements throughout the financial history of the United States?
A)Historical cost
B)Income tax valuation
C)Discounted cash flows
D)General price level
Answer: A
Q3) For which measurement scale must the change in the attribute measured among assigned numbers be equal?
A)Interval scale
B)Ratio scale
C)Ordinal scale
D)Both a and b
Answer: D
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Chapter 2: Accounting Theory and Accounting Research
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Q1) Answer the following related to behavioral research:
a.What is the main concern of behavioral research?
b.How does behavioral research differ from the decision-model approach?
c.What are some of the findings of this research?
Answer: a.The main concern of behavioral research is how users of accounting information make decisions and what information they need.
b.This approach is descriptive, whereas the decision-model approach is normative. Also, much of behavioral research uses laboratory subjects in carefully controlled experimental situations.
c.Many behavioral studies have shown discrepancies between normative decision models and the actual decision processes of users. Also, revision of probabilities by decision-makers occurs less than Bayesian decision models indicate is appropriate. Other research has found that there may be a tendency to use published financial statements for managerial decision-making purposes.
Q2) Deductive and inductive research are competing approaches and may not be used together.
A)True
B)False
Answer: False
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Chapter 3: Development of Institutional Structure of Financial Accounting
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Q1) How has the Government Accounting Standards Board (GASB) challenged the FASB's standard setting powers?
Answer: The GASB establishes another jurisdiction. It was created by the FAF in 1984 to deal with municipal accounting issues. However, its responsibilities overlap with those of the FASB. Separately issued general-purpose financial statements of such entities as hospitals, colleges and universities, and pension plans are supposed to utilize FASB standards except where the GASB has issued a particular standard covering a specific type of entity or a precise economic practice or activity. As a result of this overlap, GASB standards tend to "muscle out" particular FASB standards for governmental entities.
Q2) 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.
A)True
B)False
Answer: False
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Chapter 4: The Economics of Financial Reporting Regulation
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Q1) According to signalling theory, firms have an economic incentive to report bad news.
A)True
B)False
Q2) Which of the following is not a reason cited in the text for the failure of the CAP and the APB as regulatory bodies?
A)The SEC did not officially endorse private-sector standard setting until 1973.
B)The CAP and the APB lacked the necessary political structure to ensure their survival.
C)Policy making was exposed to outside influence.
D)There appeared to be no due process in the determination of accounting and disclosure rules.
Q3) Arguments supporting unregulated markets are largely inductive in nature.
A)True
B)False
Q4) Overproduction of accounting information, or the problem of standards overload, has the greatest effect on large, publicly traded companies.
A)True
B)False
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Chapter 5: Postulates, Principles, and Concepts
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Q1) Which of the following postulates is violated when liquidation values for assets and equities are reported under ordinary circumstances?
A)Entities
B)Time period
C)Consistency
D)Going concern
Q2) Which of the following theories assumes that the owners and the firm are virtually identical?
A)Residual equity theory
B)Proprietary theory
C)Entity theory
D)Commander theory
Q3) What were the reasons for the failure of ARS 1 and ARS 3?
Q4) _________ refers to a firm's use of the same accounting methods over consecutive time periods.
A)Comparability
B)Materiality
C)Consistency
D)Objectivity
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Chapter 6: The Search for Objectives
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Q1) Identify the major contributions of APB Statement 4.
Q2) Which of the following is not a problem of APB Statement 4 mentioned in the text?
A)It is questionable whether the objectives can be implemented by means of the various principles derived from the existing body of accounting.
B)It contains a loosely worded set of definitions.
C)It attempts to be all things to all people.
D)It does not state important evolutionary changes that had begun to occur.
Q3) ASOBAT emphasized which of the following in its definition of accounting?
A)The creative ability of the accountant
B)The work and skill of the accountant
C)The needs of the users of accounting information
D)Recording transactions
Q4) The Chartered Financial Analysts' business reporting model for equity investors shows a preference for relevance over reliability.
A)True
B)False
Q5) How did the definition of accounting change from the period before ASOBAT to the issuance of SATTA in 1977?
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Chapter 7: The Fasbs Conceptual Framework
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Q1) Codification is a justification of the standard-setting process itself rather than of the individual standards that result from that process.
A)True
B)False
Q2) Which statement in the conceptual framework is concerned with the objectives of business financial reporting? Note that SFAC 8 replaces this SFAC.
A)SFAC No. 1
B)SFAC No. 2
C)SFAC No. 3
D)SFAC No. 5
Q3) Under SFAC No. 8, which of the following are aspects of relevance?
A)Comparability and understandability
B)Timeliness and comparability
C)Representational faithfulness and decision usefulness
D)Predictive value and confirmatory value
Q4) The conceptual framework is an attempt to provide a metatheoretical structure for financial accounting.
A)True
B)False
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Chapter 8: Usefulness of Accounting Information to
Investors and Creditors
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Q1) Which of the following statements does \(\underline{not}\) apply to the market model?
A)It is a simpler approach than the standard version of the capital asset pricing model.
B)This approach is seldom used in accounting research.
C)In this model, the risk-free return is dropped from the equation.
D)Abnormal returns are captured in the error term of the model.
Q2) Economic profit is equal to net operating profit less taxes paid minus a charge on invested capital.
A)True
B)False
Q3) Residual income refers to income in excess of a charge for the capital that is employed to generate that income.
A)True
B)False
Q4) The theoretical foundation of capital market or security price research comes from the efficient markets hypothesis.
A)True
B)False
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Chapter 9: Uniformity and Disclosure: Some Policy-Making
Directions
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Q1) The requirement by SFAS No. 2 that research and development costs be immediately expensed is an example of:
A)elastic uniformity.
B)finite uniformity.
C)flexible uniformity.
D)rigid uniformity.
Q2) Which of the following is a true statement?
A)Finite uniformity should be more representationally faithful than rigid uniformity.
B)Finite uniformity should be more verifiable than rigid uniformity.
C)Rigid uniformity is more relevant than finite uniformity.
D)Rigid uniformity can be obtained only at a greater cost that finite uniformity.
Q3) Flexibility applies to situations in which there are relevant circumstances and more than one possible accounting method exists.
A)True
B)False
Q4) Distinguish between finite uniformity, rigid uniformity, and flexibility. Also, explain when each is appropriately used.
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Chapter 10: International Accounting
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Q1) Many continental model countries, such as France and Germany, have viewed harmonization as an opportunity to coordinate their accounting standards with those of the US.
A)True
B)False
Q2) Which of the following terms is used to refer to harmonization among accounting practice of different enterprises?
A)Formal harmonization
B)Material harmonization
C)De jure harmonization.
D)Convergence
Q3) What does harmonization of accounting standards mean, and what are the two aspects of harmonization?
Q4) The two general financial reporting models that have evolved in economically advanced countries are the Anglo-Saxon model and the European Model.
A)True
B)False
Q5) Compare and contrast the Anglo-Saxon financial reporting model with the continental model.
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Chapter 11: The Balance Sheet
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Q1) Although not specifically mentioned in the most recent definition of liabilities, deferred credits continue to be part of the liability section in the balance sheet under present practices.
A)True
B)False
Q2) There are only a few examples of accounting standards that emphasize the effects of transactions on the income statement to the exclusion of their impact on the balance sheet.
A)True
B)False
Q3) Which of the following is true regarding SFAS No. 144?
A)SFAS No. 144 changed the basic measurement rules of SFAS No. 121.
B)SFAS No. 144 converted goodwill into a non-amortizable asset.
C)Under SFAS No. 144, when several assets constitute a productive unit but the assets have different lives, a discounted cash flow analysis is performed.
D)SFAS 144 supersedes Opinion No. 30 in terms of the valuation of assets in discontinued segments.
Q4) How should stock dividends be measured and accounted for? Is this treatment justified?
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Chapter 12: The Income Statement
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Q1) Which of the following represents the attribute(s) that must be measurable before revenue is recognized?
A)Sales price and cash collections
B)Sales price
C)Cash collections
D)Sales price, cash collections, and future costs
Q2) The FASB appears to be continuing to take a revenue-expense approach to financial statements.
A)True
B)False
Q3) A troubled debt restructuring occurs when a creditor, for economic or legal reasons related to the debtor's financial difficulties, grants a concession to the debtor that it would not otherwise consider.
A)True
B)False
Q4) Research on the smoothing of year-to-year income suggests that operating income is better predicted by operating rather than all-inclusive income.
A)True B)False
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Chapter 13: Statement of Cash Flows
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Q1) Only transactions having a direct effect on fund accounts were included in the statement of changes in financial position.
A)True
B)False
Q2) With SFAS No. 95, the FASB chose to follow the entity model rather than the traditional income statement (proprietary) approach.
A)True
B)False
Q3) A FASB discussion memorandum suggested that cash flow data are a useful supplemental disclosure for all of the following reasons except:
A)they provide information about the quality of income.
B)they aid in assessing flexibility and liquidity.
C)they help to identify the relationship between accounting income and cash flows.
D)they are a better predictor of future earnings than is accounting income.
Q4) The direct method requires a schedule reconciling net operating cash flow with net income.
A)True
B)False
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Chapter 14: Income Taxes and Financial Accounting
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Q1) In partial tax allocation, resulting credits are interpreted as liabilities that mature beyond a year.
A)True
B)False
Q2) Timing differences are now referred to as temporary differences.
A)True
B)False
Q3) Which of the following would create a permanent difference between published statements and tax returns?
A)Municipal bond interest income
B)Deductible charitable contributions
C)MACRS depreciation
D)Bad debt expense
Q4) SFAS No. 96 switched from the revenue-expense (matching) orientation of APB Opinion No. 11 to the asset-liability viewpoint.
A)True
B)False
Q5) Describe the methods that are allowed to be used in accounting for the Investment Tax Credit.
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Chapter 15: Pensions and Other Postretirement Benefits
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Q1) FASB Interpretation 3 was issued in response to the passage of ERISA.
A)True
B)False
Q2) The assumption that OPEBs are part of the total compensation package for covered employees clearly stamps them as being attributable to past transactions or events.
A)True
B)False
Q3) The disclosure requirements of SFAS No. 132 pertain to both pensions and OPEBs where applicable.
A)True
B)False
Q4) What were the major effects of SFAS No. 106 on reporting for post-retirement benefits other than pensions?
Q5) SFAS No. 87 achieved greater uniformity in measuring accrued pension expense by mandating use of one actuarial method, the accumulated benefit method.
A)True
B)False
Q6) Explain in general terms how defined benefit pension plans are funded.
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Chapter 16: Leases
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Q1) Which of the following applies to leveraged leases?
A)Leveraged leases are a special type of operating lease involving three parties.
B)The lessor acquires an asset to be leased by borrowing money from a third party.
C)From a lessor's viewpoint, this type of lease is not any different from other leases.
D)The FASB concluded in SFAS No. 13 that the financing-type lease plus debt transaction analogy was adequate to report leveraged leases.
Q2) A lease must be accounted for as either a rental agreement, a sale equivalent with debt financing, or a loan equivalent by:
A)the lessor.
B)the lessee.
C)both the lessor and lessee.
D)none of the above
Q3) APB Opinion No. 5 was criticized on the grounds that it excluded many leases that should be capitalized.
A)True
B)False
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Chapter 17: Intercorporate Equity Investments
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Q1) Which of the following standard-setting bodies was the first to address translation of foreign-based operations and holdings into U.S. dollars?
A)CAP
B)APB
C)FASB
D)SEC
Q2) What are the relevant circumstances that justify differential accounting for intercorporate equity investments?
Q3) Research has provided evidence that the stock market may be fooled by the higher income reported under the pooling method.
A)True
B)False
Q4) The pooling of interests consolidation method has been eliminated for new acquisitions by SFAS No. 141.
A)True
B)False
Q5) What is "one-line consolidation," and when is it used?
Q6) What is meant by proportionate consolidation, and what are its advantages?
Q7) What were special purpose entities (SPEs) and what were their advantages?
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