Understanding how and why accounting and auditing principles and standards are developed.
Read each of the following statements carefully and indicate whether each is true or false.
1. Many nonpublic companies are not required to follow GAAP.
2. The American Institute of CPAs has, in the past, had a strong influence on the development of auditing principles.
3. The FASB is a division of the Internal Revenue Service.
4. The PCAOB regulates CPA firms that audit nonpublic companies.
5. Accounting principles and standards are based on the assumption that the statements will be read by individuals who have little understanding of accounting and financial reporting.
6. The IASB has authority to accept or reject financial accounting principles and standards developed by the FASB.
7. The FASB Standards are designed primarily for the use of the IRS.
8. Because of the Sarbanes-Oxley Act, it is probable that the FASB’s conceptual framework will become less important in developing accounting principles and standards.
9. It is likely that in the future there will be a convergence of U.S. financial reporting standards and those of the International Accounting Standards Board.
10. The Sarbanes-Oxley Act places great emphasis on internal controls and fraud prevention.
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