Deck 2: Conceptual Framework for Financial Reporting

Question 1

The 2^nd level of the IASB's conceptual framework provides the qualitative characteristics that make accounting information useful and the elements of financial statements.

Answer 1

True

Question 2

The second level of the International Accounting Standards Board's (IASB's) Conceptual Framework serves as a bridge between the "why" of accounting and the "how" of accounting.

Answer 2

True

Question 3

Decision usefulness is the underlying theme of the conceptual framework.

Answer 3

True

Question 4

Relevance and faithful representation are the two fundamental qualities that make accounting information useful for decision making.

Question 5

The idea of consistency does not mean that companies cannot switch from one accounting method to another.

Question 6

The International Accounting Standards Board (IASB) uses a conceptual framework based on individual concepts developed by each member of the standard-setting body.

Question 7

Users of financial statements are assumed to have no knowledge of business and financial accounting matters by financial statement preparers.

Question 8

Verifiability and predictive value are two ingredients of faithful representation.

Question 9

A soundly developed conceptual framework enables the International Accounting Standards Board (IASB) to quickly solve new and emerging practical problems by referencing basic theory.

Question 10

A soundly developed conceptual framework enables the International Accounting Standards Board (IASB) to issue more useful and consistent pronouncements over time.

Question 11

An implicit assumption of the International Accounting Standards Board's (IASB's) Conceptual Framework is that users need to be experts in business and financial accounting matters to understand the information contained in financial statements.

Question 12

Timeliness and neutrality are two ingredients of relevance.

Question 13

The first level of the conceptual framework identifies the recognition and measurement concepts used in establishing accounting standards.

Question 14

The International Accounting Standards Board's (IASB's) Conceptual Framework includes supplementary information.

Question 15

The IASB has issued a conceptual framework and has agreed to develop a common conceptual framework with the FASB.

Question 16

The foundation of the International Accounting Standards Board's (IASB's) Conceptual Framework is found on the third level of the Framework and includes assumptions, principles, and constraints.

Question 17

The conceptual framework for accounting has been discovered through empirical research.

Question 18

The International Accounting Standards Board's (IASB's) Conceptual Framework includes the elements of financial statements.

Question 19

A conceptual framework is a coherent system of concepts that flow from an objective.

Question 20

One of the challenges in developing a common conceptual framework will be to agree on how the framework should be organized since the FASB and IASB conceptual frameworks are organized in very different ways.

Question 21

Companies consider only quantitative factors in determining whether an item is material.

Question 22

The historical cost principle would be of limited usefulness if not for the going concern assumption.

Question 23

In the International Accounting Standards Board's (IASB's) Conceptual Framework, qualitative characteristics distinguish better information from inferior information for decision-making purposes.

Question 24

An enhancing quality as described by the International Accounting Standards Board's (IASB's) Conceptual Framework is comparability.

Question 25

Moon, Inc. applies different accounting treatments to similar events from period to period. Moon, Inc. is violating verifiability as described by the International Accounting Standards Board's (IASB's) Conceptual Framework.

Question 26

Revenues are recognized in the accounting period in which the performance obligation is satisfied.

Question 27

In the International Accounting Standards Board's (IASB's) Conceptual Framework, an enhancing qualitative characteristic is predictive value.

Question 28

The expense recognition principle states that debits must equal credits in each transaction.

Question 29

To be a faithful representation as described by the International Accounting Standards Board's (IASB's) Conceptual Framework, information must be confirmatory.

Question 30

The economic entity assumption means that economic activity can be identified with a particular legal entity.

Question 31

Timeliness is one of the basic assumptions of accounting used by the International Accounting Standards Board (IASB).

Question 32

The periodicity assumption of accounting (used by the International Accounting Standards Board) makes depreciation and amortization policies justifiable and appropriate.

Question 33

One assumption made by the IASB conceptual framework is that the reporting entity is a going concern.

Question 34

The IASB conceptual framework specifically identifies accrual basis accounting as one of its fundamental assumptions.

Question 35

In the International Accounting Standards Board's (IASB's) Conceptual Framework, an ingredient of a fundamental qualitative characteristic is understandability.

Question 36

Materiality is one of the basic assumptions of accounting used by the International Accounting Standards Board (IASB).

Question 37

Periodicity is one of the basic assumptions of accounting used by the International Accounting Standards Board (IASB).

Question 38

Supplementary information may include details or amounts that present a different perspective from that adopted in the financial statements.

Question 39

The International Accounting Standards Board's (IASB) definition of retained earnings is "the residual interest in the assets of the entity after deducting all its liabilities."

Question 40

In the International Accounting Standards Board's (IASB's) Conceptual Framework, qualitative characteristics are considered either relevant or prudent.

Question 41

The International Accounting Standards Board's (IASB) rule for materiality is any item under 5% of net income is considered immaterial.

Question 42

The second level in the International Accounting Standards Board's (IASB's) Conceptual Framework

A) Identifies the objective of financial reporting.
B) Identifies recognition, measurement, and disclosure concepts used in establishing and applying accounting standards.
C) Provides the elements of financial statements.
D) Includes assumptions, principles, and constraints.

Question 43

Under International Financial Reporting Standards (IFRS) notes to the financial statements must qualify as an element.

Question 44

Under International Financial Reporting Standards (IFRS) companies need not report immaterial items within the body of the financial statements, but must disclose them in the notes or supplementary information that accompany the financial statements.

Question 45

The International Accounting Standards Board's (IASB's) Conceptual Framework includes all of the following except:

A) Objective of financial reporting.
B) Supplementary information
C) Elements of financial statements.
D) Qualitative characteristics of accounting information.

Question 46

Under International Financial Reporting Standards (IFRS) product costs are charged off in the immediate period and period costs may be carried into future periods.

Question 47

The International Accounting Standards Board has given companies the option of using fair value to report financial liabilities.

Question 48

In the conceptual framework for financial reporting, what provides "the why"-the purpose of accounting?

A) Recognition, measurement, and disclosure concepts such as assumptions, principles, and constraints
B) Qualitative characteristics of accounting information
C) Elements of financial statements
D) Objective of financial reporting

Question 49

The conceptual framework underlying U.S. GAAP is similar to that underlying IFRS.

Question 50

The objective of financial reporting in the International Accounting Standards Board's (IASB's) Conceptual Framework

A) Is the foundation for the Framework.
B) Includes the qualitative characteristics that make accounting information useful.
C) Is found on the third level of the Framework.
D) All of the choices are correct regarding the objective of financial reporting.

Question 51

The cost constraint included in the International Accounting Standards Board's conceptual framework states that financial information should be free from cost to users of the information.

Question 52

Under International Financial Reporting Standards (IFRS) supplementary information may be information that is high in relevance but low in reliability.

Question 53

An implicit assumption of the International Accounting Standards Board's (IASB's) Conceptual Framework is that

A) Information must be decision-useful to all potential users of financial reporting.
B) General-purpose financial reporting is the primary source of information for users of financial reporting.
C) Users need reasonable knowledge of business and financial accounting matters to understand the information contained in financial statements.
D) All of the choices are correct.

Question 54

The overriding criterion by which accounting information can be judged is that of

A) usefulness for decision making.
B) freedom from bias.
C) timeliness.
D) comparability.

Question 55

Under International Financial Reporting Standards (IFRS) companies must consider both quantitative and qualitative factors in determining whether an item is material.

Question 56

A soundly developed conceptual framework of concepts and objectives should

A) increase financial statement users' understanding of and confidence in financial reporting.
B) enhance comparability among companies' financial statements.
C) allow new and emerging practical problems to be more quickly solved.
D) all of these answers are correct.

Question 57

The International Accounting Standards Board's (IASB) conceptual framework includes the concept of prudence or conservatism which means when in doubt, choose the solution that will be least likely to overstate assets or income and/or understate liabilities or expenses.

Question 58

What is the objective of general-purpose financial reporting?

A) to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions in their capacity as capital providers.
B) to provide companies with the option to select information that favors one set of interested parties over another.
C) to provide users with financial information that implies total freedom from error.
D) to provide a metric for financial information used to determine when the boundary between two or more entities should be disregarded and the entities considered to be a licensing arrangement.

Question 59

Which of the following is not true concerning a conceptual framework in accounting?

A) It should be a basis for standard-setting.
B) It should allow practical problems to be solved more quickly by reference to it.
C) It should be based on fundamental truths that are derived from the laws of nature.
D) All of these answers are correct.

Question 60

The underlying theme of the conceptual framework is

A) decision usefulness.
B) understandability.
C) faithful representation.
D) comparability.

Question 61

Which of the following is a fundamental quality of useful accounting information?

A) Comparability.
B) Relevance.
C) Neutrality.
D) Materiality.

Question 62

Which of the following is a fundamental quality of useful accounting information?

A) Conservatism.
B) Comparability.
C) Faithful representation.
D) Consistency.

Question 63

The two fundamental qualities that make accounting information useful for decision making are

A) comparability and timeliness.
B) materiality and neutrality.
C) relevance and faithful representation.
D) faithful representation and comparability.

Question 64

Which of the following is an ingredient of relevance?

A) Verifiability.
B) Timeliness.
C) Predictive value.
D) Neutrality.

Question 65

What is meant by comparability when discussing financial accounting information?

A) Information has predictive or feedback value.
B) Information is reasonably free from error.
C) Information that is measured and reported in a similar fashion across companies.
D) Information is timely.

Question 66

Which of the following is an ingredient of faithful representation?

A) Predictive value.
B) Materiality.
C) Neutrality.
D) Confirmatory value.

Question 67

Neutrality is an ingredient of which fundamental quality of information?

A) Faithful representation.
B) Comparability.
C) Relevance.
D) Understandability.

Question 68

When information about two different enterprises has been prepared and presented in a similar manner, the information exhibits the characteristic of

A) relevance.
B) faithful representation.
C) consistency.
D) none of these.

Question 69

The quality of information that means the numbers and descriptions match what really existed or happened is

A) relevance.
B) faithful representation.
C) completeness.
D) neutrality.

Question 70

The second level of the International Accounting Standards Board's (IASB's) Conceptual Framework

A) provides conceptual building blocks that explain the qualitative characteristics of accounting information.
B) defines the elements of financial statements.
C) serves as a bridge between the "why" of accounting and the "how" of accounting.
D) all of the choices are correct.

Question 71

Financial information does not demonstrate consistency when

A) firms in the same industry use different accounting methods to account for the same type of transaction.
B) a company changes its estimate of the salvage value of a fixed asset.
C) a company fails to adjust its financial statements for changes in the value of the measuring unit.
D) none of these.

Question 72

In the International Accounting Standards Board's (IASB's) Conceptual Framework, qualitative characteristics

A) Are considered either fundamental or enhancing.
B) Contribute to the decision-usefulness of financial reporting information.
C) Distinguish better information from inferior information for decision-making purposes.
D) All of the choices are correct.

Question 73

Accounting information is considered to be relevant when it

A) can be depended on to represent the economic conditions and events that it is intended to represent.
B) is capable of making a difference in a decision.
C) is understandable by reasonably informed users of accounting information.
D) is verifiable and neutral.

Question 74

What is the quality of information that is capable of making a difference in a decision?

A) Faithful representation.
B) Materiality.
C) Timeliness.
D) Relevance.

Question 75

Company A issuing its annual financial reports within one month of the end of the year is an example of which enhancing quality of accounting information?

A) Comparability.
B) Timeliness.
C) Understandability.
D) Verifiability.

Question 76

Decision makers vary widely in the types of decisions they make, the methods of decision making they employ, the information they already possess or can obtain from other sources, and their ability to process information. Consequently, for information to be useful there must be a linkage between these users and the decisions they make. This link is

A) relevance.
B) faithful representation.
C) understandability.
D) materiality.

Question 77

Changing the method of inventory valuation should be reported in the financial statements under what qualitative characteristic of accounting information?

A) Consistency.
B) Verifiability.
C) Timeliness.
D) Comparability.

Question 78

What is meant by consistency when discussing financial accounting information?

A) Information presented by a company that applies the same accounting treatment to similar events, from period to period.
B) Information is timely.
C) Information that is classified, characterized, and presented clearly and concisely.
D) Information is verifiable.

Question 79

In the International Accounting Standards Board's (IASB's) Conceptual Framework, an ingredient of a fundamental qualitative characteristic is

A) Neutrality.
B) Verifiability.
C) Timeliness.
D) Understandability.

Question 80

In the International Accounting Standards Board's (IASB's) Conceptual Framework, an enhancing qualitative characteristic is

A) Predictive value.
B) Free from error.
C) Timeliness.
D) Confirmatory value.