Question :
5.2 Multiple-Choice Questions
1) In which of the following aspects does : 1222583
5.2 Multiple-Choice Questions
1) In which of the following aspects does audit differ from compilation or review?
A) An audit gives reasonable level of assurance to the users, whereas a compilation or review does not give any level of assurance to the users.
B) An audit requires an understanding of the entity’s internal controls and assessment of fraud risk, whereas a compilation or review does not require such understanding or assessment.
C) An audit requires an auditor or accountant to perform inquiry and analytical procedures, whereas a compilation or review does not require such procedures.
D) An audit is performed to obtain limited assurance that there are no material modifications that should be made to the financial statements, whereas a compilation or review is performed without obtaining any level of assurance.
2) Since 2002, the FASB and the International Accounting Standards Board (IASB) have been working to merge U.S. GAAP with international financial reporting standards (IFRS). Which of the following terms is used to describe this process?
A) merger
B) integration
C) convergence
D) unification
3) Which of the following is true of reviewed financial statements?
A) These represent the most basic level of financial statements.
B) These have a broader scope as compared to audited financial statements.
C) These provide assurance to the user of the financial statements.
D) These have a limited implication of assurance.
4) Which of the following is a difference between audits and compilations?
A) The auditor’s objective is to obtain reasonable assurance that the financial statements are free of material misstatements, whereas the objective of a compilation is to assist management in presenting financial information without obtaining any level of assurance.
B) Audits do not require an understanding of the entity’s internal controls and an assessment of fraud risk, whereas compilations require an understanding of the entity’s internal controls and an assessment of fraud risk.
C) Audits have a narrower scope as compared to reviews, whereas compilations have a broader scope as compared to reviews.
D) Audits provide a reasonable level of assurance to the users of the financial statements, whereas compilations provide a limited level of assurance to the users of the financial statements.
5) Which of the following is true of the cost principle?
A) It highlights the proposition that value is not the focus of accounting and is not represented in financial statements.
B) Using this principle results in the subjectivity of value assessments.
C) Under this, costs are measured subjectively on actual basis.
D) It results in reflecting the current values of assets, liabilities, equity, revenues, and expenses shown on the financial statements.
6) Which of the following is a fundamental accounting principle?
A) price principle
B) objectivity principle
C) subjectivity principle
D) conformity principle
7) Which of the following is a difference between conservatism principle and materiality principle?
A) Conservatism requires that financial reporting should neither disproportionately overstate nor understate a situation, whereas materiality holds that strict adherence to accounting principles is not required for items of little significance.
B) Conservatism is listed as a constraint in the conceptual framework determined by the American financial community, whereas materiality is no longer listed as a constraint in the conceptual framework.
C) Conservatism holds that strict adherence to accounting principles is not required for items of little significance, whereas materiality requires that financial reporting should neither disproportionately overstate nor understate a situation.
D) Conservatism requires that revenues be measured within the specific reporting period, whereas materiality requires that costs be deducted from the reported revenues to determine the period’s net income.
8) Which of the following best defines the term earnings management?
A) It is the intervention by the management in the internal financial reporting process, with the intent of boosting the earnings of an organization.
B) It is the purposeful intervention in the external financial reporting process, with the intent of obtaining some private gain.
C) It is the legitimate alteration of internal reports by the management to influence contractual outcomes that depend on reported accounting numbers.
D) It is a systematic management of earnings of an organization by its external shareholders, with the intent of increasing future profits.
9) Which of the following is an accounting choice that violates GAAP?
A) recording sales after they are realized, not before it
B) recording intangible assets
C) recording fictitious inventory
D) using estimates to determine provisions for bad debts
10) Which of the following accountants use a conservative reporting strategy?
A) Imogene reported a higher inventory than actual.
B) Malik understated the expense incurred during the year.
C) Lia capitalized the general maintenance expenses.
D) Yuriko used a higher depreciation rate for the assets.
