Exam 2: The Conceptual Framework of Accounting and Its Relevance to Financ

Which of the following is/are characteristics of "comparability"?

The accountant of Broken Bay Ltd decided to retain the historical cost of the entity's intangible assets because it was difficult to obtain fair value of these assets. This action is consistent ____________.

Which of the following statement(s) is/are true of the qualitative characteristic "reliability"?

In adopting the standards of IASB, Australian entities are required to comply with:

Which of the following Statement of Accounting Concepts are still operational in Australia?

Which of the following actions are consistent with the notion of "prudence"?

Identify which qualitative characteristic of financial reports is best described in each item below: The financial reports of Curl Curl Ltd are audited by a chartered accountant. Curl Curl Ltd and Bondi Ltd both use fair value accounting to recognise financial instruments. Curl Curl Ltd authorises issue of its financial reports prior to the shareholders' meeting.

The Framework outlines two underlying assumptions of financial statements. These arE.

Mr and Mrs K Urban are partners in Urban Ltd a music shop with sales revenue of $5,000,000 per annum, total assets of $10,000,000 and employees totalling 15. Blank Ltd is: 1. a reporting entity because there are at least two users of a financial report. 2. not likely to be a reporting entity because it is unlikely to have users dependent on its financial reports. 3. likely to be a reporting entity because there are two shareholders and it is an exempt proprietary entity. 4. not a reporting entity because small proprietary companies are frequently not considered reporting entities. 5. is a reporting entity because total assets of the entity is greater than $5,000,000.

Which of the following are considered in the AASB Framework as primary qualitative characteristics?

The IASB and US FASB are jointly developing a common conceptual framework to guide both standard setters in developing separate standards for their constituents.

Which of the following items is not considered an asset?

The Australian Accounting Standards Board (AASB) retained the use of its own conceptual framework even after harmonisation:

In accordance with AASB framework which of the following is consistent with the definition of expenses?

The audit of Liverpool Ltd had been completed and the audit senior for the engagement prepared items for discussion. He argues that the following list of accounting changes violate the consistency qualitative characteristic of accounting information. As audit manager, which of the following items do you think are worthy of discussion with the audit partner? 1. After five years of using straight-line depreciation for reporting purposes and accelerated depreciation for tax purposes, the entity decided to adopt accelerated depreciation for reporting purposes. 2. The company uses an inventory valuation method that is different from the method used by other companies in the industry. 3. The estimated remaining useful life of an asset was reduced due to the increase in volume of use of the asset. 4. The company disposed of a subsidiary that had been included in the financial reports in prior years. 5. The company wrote off equipment due to obsolescence.

Which of the following factors should be considered in order to determine whether an entity is a reporting entity when it is not obvious that users exist who would be dependent on the financial reports of the entity.

When preparing financial reports "users are assumed to have a reasonable knowledge of the business and economic activities and accounting and a willingness to study the information with reasonable diligence". This statement is consistent with the qualitative characteristic of:

Ms Marple is an accounting cadet for one of the big accounting firms. She is a bit confused as to which of the following Anss should be applied first in dealing with an accounting issue. I. Industry Practice II. Accounting Standards III. Conceptual Framework IV. International Financial Reporting Interpretations Committee (IFRIC) Which ordering would you recommend?

Prudence is exercised in the preparation and presentation of financial statements when asset values are never shown in excess of their realisable values but could be understated, and liabilities are never to be understated.

One of the uses of the Conceptual Framework is that it provides parameters for the exercise of judgement in resolving accounting issues: