Deck 2: Conceptual Framework Underlying Financial Accounting

Question 1

A conceptual framework is a coherent system of interrelated objectives and fundamentals that can lead to consistent standards.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

Relevance and reliability are the two primary qualities that make accounting information useful for decision making.

Answer 3

True

Question 4

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

Question 5

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

Question 6

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 7

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

Question 8

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.

Question 9

The IASB has issued a conceptual framework that is broadly consistent with that of the United States.

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

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

Question 12

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

Question 13

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 14

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 15

Decision usefulness is the underlying theme of the conceptual framework.

Question 16

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 17

Timeliness and neutrality are two ingredients of relevance.

Question 18

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

Question 19

Verifiability and predictive value are two ingredients of reliability.

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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 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 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 31

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

Question 32

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

Question 33

One of two assumptions made by the IASB conceptual framework is that the reporting entity is a going concern.

Question 34

Revenues are realizable when assets received or held are readily convertible into cash or claims to cash.

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

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 42

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 43

A soundly developed conceptual framework enables the International Accounting Standards Board (IASB) to
I)Issue more useful and consistent pronouncements over time.
II)More quickly solve new and emerging practical problems by referencing basic theory.

A)I only.
B)II only.
C)Both I and II.
D)Neither I nor II.

Question 44

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

Question 45

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

Question 46

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 47

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

Question 48

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.

Question 49

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

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

Question 50

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 51

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

Question 52

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 53

What is the objective of financial reporting as indicated in the conceptual framework?

A)provide information that is useful to those making investing and credit decisions.
B)provide information that is useful to management.
C)provide information about those investing in the entity.
D)All of the above.

Question 54

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 55

The cost-benefit 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 56

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 57

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 58

Which of the following (a-c) are not true concerning a conceptual framework in account-ing?

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 the above (a-c) are true.

Question 59

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

Question 60

The underlying theme of the conceptual framework is

A)decision usefulness.
B)understandability.
C)reliability.
D)comparability.

Question 61

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 62

The quality of information that gives assurance that it is reasonably free of error and bias

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

Question 63

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 64

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

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

Question 65

What is meant by consistency when discussing financial accounting information?

A)Information that is measured and reported in a similar fashion across points in time.
B)Information is timely.
C)Information is measured similarly across the industry.
D)Information is verifiable.

Question 66

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 67

Which of the following ingredients of fundamental qualities is part of faithful representation?

A)Neutrality.
B)Productive value.
C)Confirmatory value.
D)Timeliness.

Question 68

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

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

Question 69

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 70

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

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

Question 71

Which of the following is an ingredient of relevance?

A)Completeness.
B)Representational faithfulness.
C)Neutrality.
D)Predictive value.

Question 72

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

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

Question 73

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 74

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 75

What is the quality of information that enables users to better forecast future operations?

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

Question 76

Which of the following is an ingredient of faithful representation?

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

Question 77

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.

Question 78

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)Neutrality.
B)Timeliness.
C)Predictive value.
D)Representational faithfulness.

Question 79

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

A)relevance.
B)reliability.
C)consistency.
D)none of these.

Question 80

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)reliability.
C)understandability.
D)materiality.