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GAAP vs. IFRS: Fraud, Internal Controls, and Cash quiz

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  • Who sets the GAAP standards in the USA?
    The Financial Accounting Standards Board (FASB) sets the GAAP standards in the USA.
  • Which organization is responsible for setting IFRS internationally?
    The International Accounting Standards Board (IASB) is responsible for setting IFRS internationally.
  • What is the main purpose of internal controls under both GAAP and IFRS?
    The main purpose of internal controls is to help prevent fraud within a company.
  • How are cash and cash equivalents typically reported under both GAAP and IFRS?
    Cash and cash equivalents are usually reported together on the balance sheet under both GAAP and IFRS.
  • What qualifies as a cash equivalent under GAAP and IFRS?
    A cash equivalent is a very liquid investment that matures in under 90 days.
  • What internal control procedure over cash is emphasized by both GAAP and IFRS?
    Both GAAP and IFRS emphasize the importance of bank reconciliations as an internal control procedure over cash.
  • What major US law was enacted in response to accounting scandals like Enron and Worldcom?
    The Sarbanes-Oxley Act was enacted in response to these scandals.
  • What is the main focus of the Sarbanes-Oxley Act?
    The Sarbanes-Oxley Act focuses on imposing stricter internal controls and financial reporting standards for US companies.
  • Does the Sarbanes-Oxley Act apply to companies outside the USA?
    No, the Sarbanes-Oxley Act only applies to companies listed on US stock exchanges.
  • Are the rules for cash equivalents the same under GAAP and IFRS?
    Yes, the rules for cash equivalents are generally the same under both GAAP and IFRS.
  • Why was the Sarbanes-Oxley Act created?
    It was created to enhance transparency and accountability in financial reporting by US companies.
  • Do all companies in the US have to follow the Sarbanes-Oxley Act?
    No, only public companies listed on US stock exchanges are required to follow the Sarbanes-Oxley Act.
  • What is a key similarity between GAAP and IFRS regarding fraud prevention?
    Both require strong internal controls to help prevent fraud.
  • Who must comply with the stricter standards imposed by the Sarbanes-Oxley Act?
    Public companies listed on US stock exchanges must comply with these stricter standards.
  • What is the main difference between GAAP and IFRS in terms of internal controls and fraud?
    The main difference is the existence of the Sarbanes-Oxley Act, which imposes stricter controls only in the US.