Exam 2: Conceptual Framework Underlying Financial Reporting

In the absence of specific GAAP guidance, an entity should adopt accounting policies that are i. consistent with specific GAAP guidance. Ii) consistent with the most conservative reporting choices. Iii) collaboratively developed with the assistance of all business units. Iv) developed through exercising professional judgement and applying the conceptual framework.

The economic entity assumption

Equitable obligations Due to the current poor economic conditions, Inferno Corp., a medium-size manufacturer in Burnaby, is downsizing its shipping department and has to let go two of the employees, Chevron and Shell. Both are excellent workers and have been with the company for several years. The department's supervisor, Jo-Ann Roberts, goes to the company CEO to see if there is another alternative for these employees (other than termination of their employment). Jo-Ann suggests that Chevron could be retrained to learn how to operate a forklift and Shell would like to learn how to be a first aid attendant. Since Inferno always needs employees with these skills, the CEO agrees to try this. Inferno's workforce is not unionized. What type of obligation is this? Discuss.

Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an example of

Foundational principles Briefly explain the foundational principles of recognition, measurement, and presentation and disclosure that underlie financial accounting.

The common characteristic of both assets and liabilities is that they both

Constructive obligations It was recently found that a fleet of vehicles produced by Agrarium Automotive Corp. possess a manufacturing defect relating to emissions compliance. In the past, Agrarium has issued recalls to owners of such vehicles, and paid for the associated repair cost. Agrarium has announced that they will continue to stand behind their products. Owners of the vehicle thus expect that Agrarium with replace or repair their vehicles. What type of obligation is this? Discuss.

The matching principle is best demonstrated by

Which of the following does NOT relate to the concept of relevance?

The operations of a resource company's oil sands operations results in environmental damage. While the extent of the damage cannot be determined at this time, the situation is disclosed in its financial statements. This best demonstrates

Moral hazard In Chapter 1, the issue of information asymmetry, and the concept of moral hazard were introduced. Explain why the moral hazard issue is worse where some users (such as accountants and bankers) have expert knowledge.

The practice of matching

Which of the following is NOT part of the conceptual framework for financial reporting?

Measurement, existence, and outcome uncertainties Explain the difference between measurement uncertainty, existence uncertainty, and outcome uncertainty.

Harlow Ltd. operates in both Canada and the United States. The company wants to improve the qualitative characteristics of its financial statements. Which of the following would most likely improve the comparability of Harlow's financial statements?

Under GAAP, inflation has been historically ignored due to the

Which of the following elements of financial statements is NOT a component of comprehensive income?

Equitable obligations arise due to

Fraudulent financial reporting Identify several factors that contribute to fraudulent financial reporting.

Fair value (of an asset) is