1.The concept of "materiality" represents which of the following ideas:

None of the above accurately represents the concept of materiality.

If a company informally agrees to rent a premise for their business but has not yet signed a lease, it would not be recorded because it is not "material".

An item is "material" if it will cause a large adjustment when converting cash accounting financial statements to accrual accounting financial statements.

An item is "material" if it will influence the decision-making of an informed financial statement user.

If the owner of a company donates new computers but the company already has computers that it is using in the business, it would not be recorded because it is not "material".

2.Which of the following is true about the agency theory

The principal is the owner and manager of the company

The principal is the owner the company

None of the other alternatives are correct

The agent is the owner and manager of the company

The principal is the money invested that generates interest

3.Recently, a Canadian Public Accountability Board has been created to oversee and police auditors employed by Canadian publicly traded companies. The Board will have 11 members, including seven non-accountants. The Board will review accounting firms and it is hoped as a result investor and public confidence will be restored by "giving Canadians the assurance of independent, rigorous inspection of public company auditors" [David Brown, chairman of Ontario Securities Commission, as reported in the Toronto Star, D1, July 18, 2002].

The national inspection system this Board will oversee is expected to cost $6million a year and accounting firms will pay for the cost of the inspections.

Accounting firms would most likely be willing to pay for the cost of the inspections because

None of the other alternatives are correct

accounting is a self-regulating profession

with a system of inspections in place there will be no need for professional liability insurance

Accounting firms have big clients that can pay for it

all accountants are rich

4.Which of the following is not a desirable attribute of financial statements

relevance

subjectivity

completeness

None of the other alternatives are correct

reliability

5.If you had limited time and resources that prevented you from designing a complete system of internal control for your organization, you would focus your scarce resources on setting up controls over:

Expense transactions

Inventory

Revenue transactions

Capital assets

Cash