Financial Accounting and Reporting

1. What is the function and primary focus of financial accounting?
The main function of accounting is to maintain systematic records of business transaction, to

classify them and write them in ledger to prepare the final accounts. Accounting is also used to
communicate financial information in respect of net profit/loss, assets, liabilities to interested
parties. It must be able to Comply with legal requirements. And the other function of financial
accounting is protecting business assets, and Assistance to Management.
2. What are the two categories of financial statements users? Differentiate their decision-
making needs.
External user and Internal user are the two categories. External users do not make decisions
for the business however, they are interested in the company's financial information for some
other purposes. While Internal users those who use information in making decisions for the
business. They need financial information to guide them in doing their tasks and in making
informed decisions that affect the operations of the company.
3. Describe financial reporting and how may a company's financial information be reported?
Financial reporting is the process of producing statements, that disclose an organization’s
status to management, investor & the government to assist them in making informed decisions
about allocating scarce resources.
4. What is the International Accounting Standards Board and what is its role?
International Accounting Standards Board (IASB) is an independent, private-sector body that
develops and approves International Financial Reporting Standards (IFRSs). IASB is
responsible for developing international Financial Reporting Standards and promoting the use
and application of these standards. Also, IASB has complete responsibility for all technical
matters of the IFRS Foundation
5. Why are the differing national accounting standards converging to a common global
standard?
Because many corporations are multinationals having business operations in different
countries around the globe. However, the problem is that accounting standards differ from
country to country due to differences in the legal system, levels of inflation, culture, degrees of
sophistication and use of capital markets, and political and economic ties with other countries.
And it causes a huge problem for multinational companies. Over the years the FASB and the
IASB have been working together to converge to one global set of accounting standards, and
their goal is to established a single set of accounting standards that will be used internationally.
6. What are some of the financial reporting issues?

Some of financial reporting are they cannot provide all the information that existing, potential,
investors and other creditor needs. Also, financial reports lack comparative data, percentage
differences, failure to calculate and analyze financial ratios and Failure to read/study/scrutinize
financial statements.
7. What is the economic and political environment in which standard setting occurs?
Economic environment is a major determinant of global market potential and opportunity. And
The political environment of global marketing is the set of governmental institutions, political
parties, and organizations that are the expression of the people in the nations of the world.
8. List the steps a person should follow to determine whether an action is ethical
According to (Davis, M. (1999) Ethics and the university, New York: Routledge, p. 166-167.that
a person should follow to determine an action is ethical; Fist identify the dilemma, check the
facts, identify relevant factors (internal and external), develop a list of options and test the
options. The six steps are making a choice based on steps 1-5, and lastly review the six steps.
9. Explain what is meant by adverse economic consequences of new accounting standards.

The changes in standards can have significant differential effects on companies, investors and
creditors, and other interest groups by causing redistribution of wealth and it can be harm the
economy as a whole by causing companies to change their behavior.
10. Explain what is meant by: The benefits of accounting information must exceed the costs.
Information is only cost effective if benefits of what that information will provide, and
actions taken with that information outweigh the cost incurred to provide that
information
MULTIPLE CHOICES:
1. Choose the statement that is correct.

a. External decision-makers can obtain whatever financial data they need whenever
they need it.
b. Accounting information is prepared for and useful to only outside decision-makers.
c. The members of the Board of Directors are not "external users" of financial
information but are "internal users" only.
d. Managers of an entity are considered to be internal decision-makers.
ANS: C
2. Choose the incorrect statement.
a. The objective of external financial statements is to communicate the economic
effects of completed transactions and other events in the entity.
b. General purpose financial statements were developed primarily because all
outside users have the same information needs.
c. The double-entry system of accounting has been used for centuries.
d. The practice of accounting requires considerable professional judgment.
ANS: D
3. Choose the incorrect statement
a. Disclosure notes facilitate the evaluation of enterprise position and performance
because they include information which helps to explain the quality of earnings.
b. Disclosure notes are an integral part of the financial statements.
c. Companies often look for opportunities to smooth earnings.
d. Accounting concepts, principles and standards are just as broad and general
today as were six years ago.
ANS: A
4. A primary objective of financial reporting is to:
a. assist investors in analyzing the economy.
b. assist suppliers in determining an appropriate discount to offer a particular
company.
c. assist investors in predicting prospective cash flows.
d. assist banks to determine an appropriate interest rate for their commercial loans.
ANS: A
5. The objective of general-purpose financial reporting is to provide financial information
about a reporting entity to each of the following except
a. potential equity investors
b. potential lenders
c. present investors
d. rank and file employees
ANS: D
6. The objective of general-purpose financial reporting is
a. to provide financial information about the reporting entity that is useful to present
and potential equity investors, lenders. and other creditors in making decisions in
their capacity as capital providers.
b. to provide companies with the option to select information that favors one set of
interested parties over another.
c. to provide users with financial information that implies total freedom from error.
d. to provide a metric for financial information used to determine when the boundary
between two or more entities should be disregarded and the entities considered to
be a licensing arrangement.
ANS: A
7. Accounting information is considered to be relevant when it.
a. can be depended on to represent the economic conditions and events that it is
intended to represent.
b. is capable of making a difference in a decision.
c. is understandable by reasonably informed users of accounting information.
d. is verifiable and neutral.
ANS: B
8. Which of the following is a constraint in presenting financial information?
a. Cost
b. Full disclosure
c. Relevance
d. Consistency
ANS: D
9. All of the following represent costs of providing financial information except
a. Processing/Preparing
b. Disseminating
c. Accessing capital
d. Auditing
ANS: B
10. Which of the following is a benefit of providing financial information?
a. Potential litigation
b. Auditing
c. Disclosure to competition
d. Improved allocation of resources
ANS: D

Financial Accounting and Reporting

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1. What is the function and primary focus of financial accounting?

The main function of accounting is to maintain systematic records of business transaction, to

6. What are some of the financial reporting issues?

9. Explain what is meant by adverse economic consequences of new accounting standards.

1. Choose the statement that is correct.

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