(Test Bank) Intermediate Accounting

Spiceland, 10

Business

Test Bank

10th Edition

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Test Bank for Intermediate Accounting, The downloadable file consists of 2238 pages, and the total size of the file is 19.87 MB. Purchase now only for highly discounted price.

Author(s): Spiceland

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1 Copyright ©2021 McGraw-Hill Intermediate Accounting, 10e (Spiceland) Chapter 1 Environment and Theoretical Structure of Financial Accounting 1) The primary function of financial accounting is to provide relevant financial information to parties external to business enterprises. Answer: TRUE Difficulty: 1 Easy Topic: Environment of financial accounting and reporting Learning Objective: 01-01 Describe the function and primary focus of financial accounting. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking 2) Accrual accounting attempts to measure revenues and expenses that occurred during accounting periods so they equal net operating cash flow. Answer: FALSE Difficulty: 1 Easy Topic: Cash versus accrual accounting Learning Objective: 01-02 Explain the difference between cash and accrual accounting. Blooms: Understand AACSB: Reflective Thinking AICPA: FN Measurement 3) The FASB is currently the public-sector organization responsible for setting accounting standards in the United States. Answer: FALSE Difficulty: 1 Easy Topic: Development of accounting and reporting standards Learning Objective: 01-03 Define generally accepted accounting principles (GAAP) and discuss the historical development of accounting standards, including convergence between U.S. and international standards. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Legal 4) The FASB's due process invites various interested parties to indicate their opinions about whether financial accounting standards should be changed. Answer: TRUE Difficulty: 1 Easy Topic: GAAP―Standard-setting process Learning Objective: 01-04 Explain why establishing accounting standards is characterized as a political process. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Legal 5) Accounting for stock-based compensation is an area in which the FASB has received little political interference. Answer: FALSE Difficulty: 1 Easy 2 Copyright ©2021 McGraw-Hill Topic: GAAP―Standard-setting process Learning Objective: 01-04 Explain why establishing accounting standards is characterized as a political process. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Legal 6) The Public Reform and Investor Protection Act of 2002 (Sarbanes-Oxley) changed the entity responsible for setting standards for auditing public companies in the United States. Answer: TRUE Difficulty: 1 Easy Topic: Encouraging high-quality financial reporting Learning Objective: 01-05 Explain factors that encourage high-quality financial reporting. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Legal 7) A rules-based approach to standard-setting stresses professional judgment as opposed to following a list of rules. Answer: FALSE Difficulty: 1 Easy Topic: Encouraging high-quality financial reporting Learning Objective: 01-05 Explain factors that encourage high-quality financial reporting. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking 8) Under federal securities laws, the SEC has the authority to set accounting standards in the United States. Answer: TRUE Difficulty: 1 Easy Topic: Development of accounting and reporting standards Learning Objective: 01-03 Define generally accepted accounting principles (GAAP) and discuss the historical development of accounting standards, including convergence between U.S. and international standards. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Legal 9) The primary responsibility for properly applying GAAP when communicating with investors and creditors through financial statements lies with a firm's auditors. Answer: FALSE Difficulty: 1 Easy Topic: Encouraging high-quality financial reporting Learning Objective: 01-05 Explain factors that encourage high-quality financial reporting. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking 10) Auditors play an important role in the resource allocation process by adding credibility to financial statements. 3 Copyright ©2021 McGraw-Hill Answer: TRUE Difficulty: 1 Easy Topic: Encouraging high-quality financial reporting Learning Objective: 01-05 Explain factors that encourage high-quality financial reporting. Blooms: Understand AACSB: Reflective Thinking AICPA: BB Critical thinking 11) The purpose of the conceptual framework is to provide a structure and framework for a consistent set of GAAP. Answer: TRUE Difficulty: 1 Easy Topic: Conceptual framework―Purpose Learning Objective: 01-06 Explain the purpose of the conceptual framework. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking 12) In the United States, the conceptual framework indicates GAAP when a more specific accounting standard does not apply. Answer: FALSE Difficulty: 1 Easy Topic: Conceptual framework―Purpose Learning Objective: 01-06 Explain the purpose of the conceptual framework. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking 13) Materiality can be affected by the dollar amount of an item, the nature of the item, or both. Answer: TRUE Difficulty: 1 Easy Topic: Concepts―Qualitative characteristics Learning Objective: 01-07 Identify the objective and qualitative characteristics of financial reporting information, and the elements of financial statements. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking AICPA: FN Measurement 14) According to the FASB's Statements of Financial Accounting Concepts, conservatism is a desired qualitative characteristic of accounting information. Answer: FALSE Difficulty: 1 Easy Topic: Concepts―Qualitative characteristics Learning Objective: 01-07 Identify the objective and qualitative characteristics of financial reporting information, and the elements of financial statements. Blooms: Remember AACSB: Reflective Thinking 4 Copyright ©2021 McGraw-Hill AICPA: BB Critical thinking AICPA: FN Measurement 15) Equity is a residual amount representing the owner's interest in the assets of the business. Answer: TRUE Difficulty: 1 Easy Topic: Concepts―Elements of financial statements Learning Objective: 01-07 Identify the objective and qualitative characteristics of financial reporting information, and the elements of financial statements. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking AICPA: FN Measurement 16) Revenues are inflows of assets or settlements of liabilities from activities that constitute the entity's ongoing operations. Answer: TRUE Difficulty: 1 Easy Topic: Concepts―Elements of financial statements Learning Objective: 01-07 Identify the objective and qualitative characteristics of financial reporting information, and the elements of financial statements. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking AICPA: FN Measurement 17) Gains or losses result, respectively, from the disposition of business assets for greater than, or less than, their book values. Answer: TRUE Difficulty: 1 Easy Topic: Concepts―Elements of financial statements Learning Objective: 01-07 Identify the objective and qualitative characteristics of financial reporting information, and the elements of financial statements. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking AICPA: FN Measurement 18) Comprehensive income is another term for net income. Answer: FALSE Difficulty: 1 Easy Topic: Concepts―Elements of financial statements Learning Objective: 01-07 Identify the objective and qualitative characteristics of financial reporting information, and the elements of financial statements. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking AICPA: FN Measurement 19) The FASB's conceptual framework lists relevance and timeliness as the two fundamental qualitative characteristics of decision-useful information. 5 Copyright ©2021 McGraw-Hill Answer: FALSE Difficulty: 1 Easy Topic: Concepts―Qualitative characteristics Learning Objective: 01-07 Identify the objective and qualitative characteristics of financial reporting information, and the elements of financial statements. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking AICPA: FN Measurement 20) The monetary unit assumption requires that items in financial statements be measured in a particular monetary unit. Answer: TRUE Difficulty: 1 Easy Topic: GAAP―Underlying assumptions Learning Objective: 01-08 Describe the four basic assumptions underlying GAAP. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking AICPA: FN Measurement 21) The periodicity assumption requires that present value calculations take into account the number of compounding periods in each year. Answer: FALSE Difficulty: 1 Easy Topic: GAAP―Underlying assumptions Learning Objective: 01-08 Describe the four basic assumptions underlying GAAP. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking AICPA: FN Measurement 22) Determining fair value by calculating the present value of future cash flows is a level 1 type of input. Answer: FALSE Difficulty: 1 Easy Topic: Concepts―Recognition - Measurement - Disclosure Learning Objective: 01-09 Describe the recognition, measurement, and disclosure concepts that guide accounting practice. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking AICPA: FN Measurement 23) The FASB's framework for measuring fair value doesn't change the situations in which fair value is used under current GAAP. Answer: TRUE Difficulty: 1 Easy Topic: Concepts―Recognition - Measurement - Disclosure Learning Objective: 01-09 Describe the recognition, measurement, and disclosure concepts that guide accounting practice. 6 Copyright ©2021 McGraw-Hill Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking AICPA: FN Measurement 24) The revenue/expense approach emphasizes determining the appropriate amounts of revenue and expense in each reporting period. Answer: TRUE Difficulty: 1 Easy Topic: Evolving GAAP Learning Objective: 01-10 Contrast a revenue/expense approach and an asset/liability approach to accounting standard setting. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking AICPA: FN Measurement 25) The asset/liability approach emphasizes matching to determine what assets and liabilities should be reflected on the balance sheet. Answer: FALSE Difficulty: 1 Easy Topic: Evolving GAAP Learning Objective: 01-10 Contrast a revenue/expense approach and an asset/liability approach to accounting standard setting. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking AICPA: FN Measurement 26) In IFRS, the conceptual framework indicates appropriate accounting when a more specific accounting standard does not apply. Answer: TRUE Difficulty: 1 Easy Topic: International Financial Reporting Standards Learning Objective: 01-11 Discuss the primary differences between U.S. GAAP and IFRS with respect to the development of accounting standards and the conceptual framework underlying accounting standards. Blooms: Remember AACSB: Diversity AICPA: BB Global 27) Political pressure never affects the IFRS standard-setting process. Answer: FALSE Difficulty: 1 Easy Topic: International Financial Reporting Standards Learning Objective: 01-11 Discuss the primary differences between U.S. GAAP and IFRS with respect to the development of accounting standards and the conceptual framework underlying accounting standards. Blooms: Remember AACSB: Diversity AICPA: BB Global AICPA: BB Legal 28) External decision makers would not look primarily to financial accounting information to assist them in making decisions on: 7 Copyright ©2021 McGraw-Hill A) Granting credit. B) Capital budgeting. C) Selecting stocks. D) Mergers and acquisitions. Answer: B Difficulty: 1 Easy Topic: Environment of financial accounting and reporting Learning Objective: 01-01 Describe the function and primary focus of financial accounting. Blooms: Understand AACSB: Reflective Thinking AICPA: BB Resource management 29) The primary focus for financial accounting information is to provide information useful for: Investing decisions Credit decisions a. Yes Yes b. Yes No c. No Yes d. No No A) Option a. B) Option b. C) Option c. D) Option d. Answer: A Difficulty: 1 Easy Topic: Environment of financial accounting and reporting Learning Objective: 01-01 Describe the function and primary focus of financial accounting. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Resource management AICPA: FN Risk analysis 30) Which of the following groups is not among the external users for whom financial statements are prepared? A) Customers. B) Suppliers. C) Employees. D) Customers, suppliers, and employees are all external users of financial statements. Answer: D Difficulty: 1 Easy Topic: Environment of financial accounting and reporting Learning Objective: 01-01 Describe the function and primary focus of financial accounting. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking 8 Copyright ©2021 McGraw-Hill AICPA: FN Risk analysis 31) Which of the following is not true about net operating cash flow? A) It is the difference between cash receipts and cash disbursements from providing goods and services. B) It is a measure used in accrual accounting and is recognized as the best predictor of future operating cash flows. C) Over short periods, it may not be indicative of long-run cash-generating ability. D) It is easy to understand and all information required to measure it is factual. Answer: B Difficulty: 2 Medium Topic: Cash versus accrual accounting Learning Objective: 01-02 Explain the difference between cash and accrual accounting. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking AICPA: FN Measurement 32) Which of the following groups is not among financial intermediaries? A) Mutual fund managers. B) Financial analysts. C) CPAs. D) Credit rating organizations. Answer: C Difficulty: 2 Medium Topic: Environment of financial accounting and reporting Learning Objective: 01-01 Describe the function and primary focus of financial accounting. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking AICPA: FN Measurement 33) Which of the following was the first private-sector entity that set accounting standards in the United States? A) Accounting Principles Board. B) Committee on Accounting Procedure. C) Financial Accounting Standards Board. D) AICPA. Answer: B Difficulty: 2 Medium Topic: Development of accounting and reporting standards Learning Objective: 01-03 Define generally accepted accounting principles (GAAP) and discuss the historical development of accounting standards, including convergence between U.S. and international standards. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Legal 34) Which of the following does not provide guidance about GAAP for companies that are 9 Copyright ©2021 McGraw-Hill publicly listed on a stock exchange? A) FASB B) IASB C) GASB D) EITF Answer: C Difficulty: 1 Easy Topic: Development of accounting and reporting standards Learning Objective: 01-03 Define generally accepted accounting principles (GAAP) and discuss the historical development of accounting standards, including convergence between U.S. and international standards. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Legal 35) Porite Company recognizes revenue in the period in which it records an asset for the related account receivable, rather than in the period in which the account receivable is collected in cash. Porite's practice is an example of: A) Cash basis accounting. B) Accrual accounting. C) The matching principle. D) Economic entity. Answer: B Difficulty: 1 Easy Topic: Cash versus accrual accounting Learning Objective: 01-02 Explain the difference between cash and accrual accounting. Blooms: Evaluate AACSB: Analytical Thinking AICPA: FN Measurement 36) Which of the following is not a potential benefit of accrual accounting, compared to cash-basis accounting? A) Timeliness. B) Better reflecting economic activity. C) Periodicity. D) Better matching of revenues and expenses. Answer: C Difficulty: 1 Easy Topic: Cash versus accrual accounting Learning Objective: 01-02 Explain the difference between cash and accrual accounting. Blooms: Understand AACSB: Reflective Thinking AICPA: BB Critical thinking AICPA: FN Measurement 37) In a recent annual report, Apple Computer reported the following in one of its disclosure notes: "Warranty Expense: The Company provides currently for the estimated cost for product warranties at the time the related revenue is recognized." This note exemplifies Apple's use of: A) Conservatism. 10 Copyright ©2021 McGraw-Hill B) Matching. C) Revenue recognition. D) Economic entity. Answer: B Difficulty: 2 Medium Topic: Concepts―Recognition - Measurement - Disclosure Learning Objective: 01-09 Describe the recognition, measurement, and disclosure concepts that guide accounting practice. Blooms: Evaluate AACSB: Analytical Thinking AICPA: BB Critical thinking 38) GAAP is an abbreviation for: A) Generally authorized accounting procedures. B) Generally applied accounting procedures. C) Generally accepted auditing practices. D) Generally accepted accounting principles. Answer: D Difficulty: 1 Easy Topic: Development of accounting and reporting standards Learning Objective: 01-03 Define generally accepted accounting principles (GAAP) and discuss the historical development of accounting standards, including convergence between U.S. and international standards. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Legal 39) The FASB issues accounting standards in the form of: A) Accounting Research Bulletins. B) Accounting Standards Updates. C) Financial Accounting Standards. D) Financial Technical Bulletins. Answer: B Difficulty: 1 Easy Topic: Development of accounting and reporting standards Learning Objective: 01-03 Define generally accepted accounting principles (GAAP) and discuss the historical development of accounting standards, including convergence between U.S. and international standards. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Legal 40) Pronouncements issued by the Committee on Accounting Procedures: A) Dealt with specific accounting and reporting problems. B) Were based on exposure drafts and public comment letters. C) Originated from congressional studies and SEC directives. D) Were the outcome of research studies and a theoretical framework. Answer: A Difficulty: 1 Easy Topic: Development of accounting and reporting standards 11 Copyright ©2021 McGraw-Hill Learning Objective: 01-03 Define generally accepted accounting principles (GAAP) and discuss the historical development of accounting standards, including convergence between U.S. and international standards. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Legal 41) The FASB's standard-setting process includes, in the correct order: A) Exposure draft, research, discussion paper, Accounting Standards Update. B) Research, exposure draft, discussion paper, Accounting Standards Update. C) Research, discussion paper, exposure draft, Accounting Standards Update. D) Discussion paper, research, exposure draft, Accounting Standards Update. Answer: C Difficulty: 1 Easy Topic: GAAP―Standard-setting process Learning Objective: 01-04 Explain why establishing accounting standards is characterized as a political process. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Legal 42) Which of the following is not a provision of the Public Company Accounting Reform and Investor Protection Act of 2002 (Sarbanes-Oxley)? The Act: A) Changed the entity responsible for setting auditing standards. B) Increased corporate executive responsibility for financial statements. C) Limited nonaudit services that can be performed by auditors for audit clients. D) Changed the entity responsible for setting accounting standards. Answer: D Difficulty: 1 Easy Topic: Encouraging high-quality financial reporting Learning Objective: 01-05 Explain factors that encourage high-quality financial reporting. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Legal 43) CPAs are licensed by: A) The AICPA. B) The SEC. C) The federal government. D) State governments. Answer: D Difficulty: 1 Easy Topic: Encouraging high-quality financial reporting Learning Objective: 01-05 Explain factors that encourage high-quality financial reporting. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Legal 44) Which of the following has the statutory authority to set accounting standards in the United States? A) FASB. 12 Copyright ©2021 McGraw-Hill B) IRS. C) SEC. D) AICPA. Answer: C Difficulty: 1 Easy Topic: Development of accounting and reporting standards Learning Objective: 01-03 Define generally accepted accounting principles (GAAP) and discuss the historical development of accounting standards, including convergence between U.S. and international standards. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Legal 45) When a registrant company submits its annual filing to the SEC, it uses: A) Form 10-A. B) Form 10-K. C) Form 10-Q. D) Form S-1. Answer: B Difficulty: 1 Easy Topic: Development of accounting and reporting standards Learning Objective: 01-03 Define generally accepted accounting principles (GAAP) and discuss the historical development of accounting standards, including convergence between U.S. and international standards. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Legal 46) The most likely important flaw leading to the demise of the APB was the perceived lack of: A) Confidence. B) Competence. C) Independence. D) Importance. Answer: C Difficulty: 2 Medium Topic: Development of accounting and reporting standards Learning Objective: 01-03 Define generally accepted accounting principles (GAAP) and discuss the historical development of accounting standards, including convergence between U.S. and international standards. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking 47) Accounting standard-setting has been characterized as: A) A political process. B) Using the scientific method. C) Pure deductive reasoning. D) Pure inductive reasoning. Answer: A Difficulty: 1 Easy Topic: GAAP―Standard-setting process 13 Copyright ©2021 McGraw-Hill Learning Objective: 01-04 Explain why establishing accounting standards is characterized as a political process. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking 48) The International Accounting Standards Board: A) Was the predecessor to the IASC. B) Can overrule the FASB when their policies disagree. C) Promotes the use of high-quality, understandable global accounting standards. D) Has its headquarters in Geneva. Answer: C Difficulty: 1 Easy Topic: Development of accounting and reporting standards; International Financial Reporting Standards Learning Objective: 01-03 Define generally accepted accounting principles (GAAP) and discuss the historical development of accounting standards, including convergence between U.S. and international standards.; 01-11 Discuss the primary differences between U.S. GAAP and IFRS with respect to the development of accounting standards and the conceptual framework underlying accounting standards. Blooms: Remember AACSB: Reflective Thinking AACSB: Diversity AICPA: BB Global AICPA: BB Legal 49) Which of the following is not a provision of the Public Company Accounting Reform and Investor Protection Act of 2002? A) Corporate executive accountability. B) Auditor rotation. C) Retention of work papers. D) All of these answer choices are correct. Answer: D Difficulty: 1 Easy Topic: Encouraging high-quality financial reporting Learning Objective: 01-05 Explain factors that encourage high-quality financial reporting. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Legal 50) The primary professional organization for those accountants working in industry is the: A) AAA. B) AICPA. C) IIA. D) IMA. Answer: D Difficulty: 1 Easy Topic: Encouraging high-quality financial reporting Learning Objective: 01-05 Explain factors that encourage high-quality financial reporting. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking 14 Copyright ©2021 McGraw-Hill 51) Regarding convergence of accounting standards, the FASB and IASB: A) Have agreed to combine their organizations to form the BUSYB. B) Have achieved full convergence with respect to financial instruments. C) Do not intend to work together to achieve convergence where possible. D) Are not likely to achieve full convergence of accounting standards in the near future. Answer: D Difficulty: 1 Easy Topic: Development of accounting and reporting standards; International Financial Reporting Standards Learning Objective: 01-03 Define generally accepted accounting principles (GAAP) and discuss the historical development of accounting standards, including convergence between U.S. and international standards.; 01-11 Discuss the primary differences between U.S. GAAP and IFRS with respect to the development of accounting standards and the conceptual framework underlying accounting standards. Blooms: Remember AACSB: Diversity AICPA: BB Global 52) Which of the following is not a concern regarding IFRS adoption by the U.S.? A) Need for the U.S. to have strong influence on the standard-setting process and ensure that standards meet U.S. needs. B) Geographic dispersion of standard setters make it unlikely that boards can interact to achieve consensus. C) The high costs to companies of converting to IFRS. D) The fact that many laws, regulations and private contracts reference U.S. GAAP. Answer: B Difficulty: 1 Easy Topic: Development of accounting and reporting standards Learning Objective: 01-03 Define generally accepted accounting principles (GAAP) and discuss the historical development of accounting standards, including convergence between U.S. and international standards. Blooms: Remember AACSB: Diversity AICPA: BB Global 53) The most political issue in the FASB's most recent deliberations and amendments to GAAP on stock options was: A) The negative effects on earnings of companies in the tech industry if they had to recognize expenses associated with stock compensation. B) The negative effects on assets of recognizing stock options in equity. C) The disclosure of stock compensation expense in the notes. D) Accounting for stock options that have not yet been granted to employees. Answer: A Difficulty: 3 Hard Topic: GAAP―Standard-setting process Learning Objective: 01-04 Explain why establishing accounting standards is characterized as a political process. Blooms: Understand AACSB: Reflective Thinking AICPA: BB Critical thinking 15 Copyright ©2021 McGraw-Hill 54) An important historical reason for the FASB reversing its positions when political pressures occur is: A) The cost of gathering data was prohibitive. B) The difficulties in measurement were too great. C) Companies withdraw financial support for the FASB. D) The SEC did not support the FASB position. Answer: D Difficulty: 2 Medium Topic: GAAP―Standard-setting process Learning Objective: 01-04 Explain why establishing accounting standards is characterized as a political process. Blooms: Remember AACSB: Reflective Thinking AICPA: BB Critical thinking 55) The most recent example of the political process at work in standard-setting is the heated debate that occurred on the issue of: A) Creation of the FASB. B) Accounting for stock compensation. C) Establishing the SEC. D) Accounting for fair values. Answer: D Difficulty: 2 Medium Topic: GAAP―Standard-setting process Learning Objective: 01-04 Explain why establishing accounting standards is characterized as a political process. Blooms: Understand AACSB: Reflective Thinking AICPA: BB Critical thinking 56) Independent auditors express an opinion on the: A) Fairness of financial statements. B) Accuracy of financial statements. C) Soundness of a company's future. D) Quality of a company's management. Answer: A Difficulty: 2 Medium Topic: Encouraging high-quality financial reporting Learning Objective: 01-05 Explain factors that encourage high-quality financial reporting. Blooms: Remember AACSB: Reflective Thinking AICPA: FN Reporting 57) The possibility that the capital markets' focus on periodic profits may tempt a company's management to bend or even break accounting rules to inflate reported net income is an example of: A) An ethical dilemma. B) An accounting theory issue. C) A technical accounting issue.