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

The IASB Conceptual Framework serves as a guide to the UK Accounting Standards Board (ASB)in developing accounting standards.

The recognition criteria for liabilities are consistent with those for assets.

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:

Discuss issues covered by IASB and the US FASB with respect to measurement principles in the development of a common conceptual framework.

The IASB Conceptual Framework has the force of law.

Faithful presentation is one on the two primary fundamental qualitative characteristics for financial information to be useful.According to the IASB Conceptual Framework a financial report is faithfully presented if it is:

Your best friend from high school approaches you to invest in 'e-track' an upcoming high-tech company which he is convinced will make huge profits in the future.You are sceptical of the business venture and say that you would have to look up the financial statements of the company before investing your own money.He sends you the financial report and you notice that the report is unaudited and does not provide prior years' results even though the firm had been operating for the last three years. Based on the above information,which qualitative characteristics is lacking in e-track's financial reports?

When an IASB standard conflicts with the Conceptual Framework,the former prevails.

Which of the following accounting policies is an example of a trade-off between relevance and faithful representation?

The efficiency perspective is consistent with limiting accounting policy choices in the interest of consistency and comparability.

Which of the following actions are consistent with the Doctrine of Conservatism?

Ms Maple is an accounting cadet for one of the big accounting firms.She is a bit confused as to which of the following sources should be referred to first in dealing with an accounting issue.

Social accountability is considered in the Conceptual Framework as part of the objectives of general purpose financial reports.

The IASB Conceptual Framework for Financial Reporting (as released in 2010),requires that general purpose financial reports disclose information that is:

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.

The audit of Liverpool Plc 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?

The Conceptual Framework outlines two underlying assumptions of financial statements.These are:

In accordance with IASB Conceptual Framework which of the following is consistent with the definition of expenses?

Jackson Plc is developing computer software for use in its courier delivery service business.So far the company had spent £50 000 but the software is still unfinished and not expected to be finished in time for the preparation of the reports.As a result,the company had to purchase a computer package amounting to £100 000 to finalise its accounts.There is no further use for the unfinished software as it is expected that the purchased computer package could be used by the entity for another 10 years.Which accounting treatment would be consistent with the Conceptual Framework?

For the preparation and presentation of financial statements,Europe adopts the IASB Conceptual Framework.