CA1-2
(GAAP and Standard-Setting) Presented below are four statements which you are to identify as
true or false. If false, explain why the statement is false.
1. The objective of financial statements emphasizes a stewardship approach for reporting financial
information.
2. The purpose of the objective of financial reporting is to prepare a balance sheet, an income statement,
a statement of cash flows, and a statement of owners’ or stockholders’ equity.
3. Because they are generally shorter, FASB interpretations are subject to less due process, compared
to FASB standards.
4. The objective of financial reporting uses an entity rather than a proprietary approach in determining
what information to report.
Solution
1. False. In addition to providing decision-useful information about future cash flows, management also is accountable to investors for the custody and safekeeping of the company's economic resources and for their efficient and profitable use; however, this is not considered an objective.
2. False. The objective of financial reporting is 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.
3. False. The FASB follows the same due process procedures for interpretations and standards.
4. True.
(GAAP and Standard-Setting) Presented below are four statements which you are to identify as
true or false. If false, explain why the statement is false.
1. The objective of financial statements emphasizes a stewardship approach for reporting financial
information.
2. The purpose of the objective of financial reporting is to prepare a balance sheet, an income statement,
a statement of cash flows, and a statement of owners’ or stockholders’ equity.
3. Because they are generally shorter, FASB interpretations are subject to less due process, compared
to FASB standards.
4. The objective of financial reporting uses an entity rather than a proprietary approach in determining
what information to report.
Solution
1. False. In addition to providing decision-useful information about future cash flows, management also is accountable to investors for the custody and safekeeping of the company's economic resources and for their efficient and profitable use; however, this is not considered an objective.
2. False. The objective of financial reporting is 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.
3. False. The FASB follows the same due process procedures for interpretations and standards.
4. True.
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