Ch 1 Practice MCQs

1) Financial accounting can be broadly defined as the area of accounting that prepares financial statements to be used

a. by parties internal to the business enterprise only.

b. by investors only.

c. by parties both internal and external to the business enterprise.

d. primarily by external users and Canada Revenue Agency.

 

2. Information provided by accounting is important because it enables investors and creditors to

a. compare income and assets of companies.

b. assess the relative risks and returns of investment opportunities.

c. channel their resources more effectively

d.  all of the above

 

3. Audited financial statements are prepared by

a. auditors.

b. financial analysts.

c. Canada Revenue Agency

d.  management.

4. As part of the objective of general-purpose financial reporting, which of the following perspectives are considered appropriate?

a) proprietary perspective

b) entity perspective

c) stakeholder perspective

d) None of the above perspectives are considered appropriate.

 

5. Where information asymmetry exists, the capital market may attract the wrong kind of company. This is known as

a) moral hazard.

b) conservative accounting.

c) adverse selection.

d) an inefficient marketplace.

 

6. The problem of information asymmetry can be reduced by

a) aggressive accounting.

 b) accounting standards.

c) adverse selection.

d) only focusing on positive events.

 

7. The adoption of International Financial Reporting Standards in Canada is an example of

a. the impact of technology on user's needs.

b. the impact of globalization on capital markets.

c. ethical behaviour.

d. the desire of most private companies to expand internationally.

 

8. The exercise of professional judgement does NOT involve

a. the use of knowledge gained through education.

b. the application of knowledge gained through experience.

c. the use of ethical decision making.

d. aggressive accounting.

 

9. In a principles-based standard-setting system (such as Canadian GAAP), compared to a rules-based approach (such as U.S. GAAP),

a. which is more prescriptive, it may be easier to defend how to account for a particular item.

b. there is a rule for every situation.

c. accountants either apply specific standards based on the conceptual framework, or, professional judgement consistent with the framework.

d. it is expected that professional accountants might encounter situations where they are unable to apply the principles appropriately.

 

10. Which of the following is likely to be an advantage of the advancement of technology on financial reporting?

a. Users of financial information will have access to more information.