Deck 3: Financial Reporting Concepts

Question 1

Not every country uses the same conceptual framework or set of accounting standards.

Answer 1

True

Question 2

The elements of financial statements are the key ratios that a company will use to manage its business.

Answer 2

False

Question 3

To make decisions about allocating capital, users look for information in the financial statements about a company's ability to maintain relationships with key customers.

Answer 3

False

Question 4

Going forward, there will be two sets of accounting standards for Canadian for-profit companies.

Question 5

Canadian and International standards are based on specific rules for accounting.

Question 6

IFRS will be the standard for all Canadian companies.

Question 7

Claims on economic resources are defined as assets.

Question 8

Accounting information has relevance if it makes a difference in a decision.

Question 9

A conceptual framework ensures we have a coherent set of standards.

Question 10

Revenues are decreases in assets or increases in liabilities that result in a decrease in equity, other than those relating to contributions by owners.

Question 11

The main objective of financial reporting is to provide useful information for decision-making.

Question 12

An error is considered to be a material error if the error in the accounting information could have an impact on an investor's or creditor's decision.

Question 13

Predictive value confirms or corrects prior expectations.

Question 14

Canadian accounting standards are based mainly on principles rather than rules because it is impossible to create a rule for every situation.

Question 15

In order for information to be useful in decision-making, the information must demonstrate relevance and faithful representation.

Question 16

Under IFRS, a company can never change its accounting policies.

Question 17

The conceptual framework ensures that existing standards and practices are clear and consistent.

Question 18

The conceptual framework will not be able to guide decisions about what to present in the financial statements.

Question 19

The main users of financial reporting are the employees of a company.

Question 20

Capital providers are some of the main users of financial reporting.

Question 21

One of the conditions of recognizing revenue from the sale of goods is that costs relating to the sale of the goods can be reliably measured.

Question 22

Revenue recognition criteria state that revenue is recognized at the same time that a decrease in an asset is recognized or an increase in a liability is recognized for profit-generating activities.

Question 23

In the year of a change in an accounting policy, the change and its impact must be disclosed in the notes to the financial statements.

Question 24

The qualitative characteristic that should be first applied is that of relevance.

Question 25

Consistency occurs when companies with similar circumstances use the same accounting principles.

Question 26

Comparability means that a company uses the same accounting principles and methods from year to year.

Question 27

Faithful representation means that accounting information reports on the economic reality of a transaction, not its legal form.

Question 28

The enhancing qualitative characteristics, such as comparability and timeliness, must be applied first before the characteristic of relevance in order to provide the most usefulness to the decision makers.

Question 29

If goods are shipped FOB shipping point, the selling company cannot recognize the revenue until the goods are received at their destination.

Question 30

Timeliness means that accounting information is provided when it is still highly useful for decision-making.

Question 31

Accounting information is neutral if it makes a difference in a decision.

Question 32

Relevance and faithful representation are the two fundamental characteristics that financial information must have in order to be considered useful.

Question 33

Confirmatory value helps users forecast future events.

Question 34

Understandability enables users to have timely information that is useful for decision makers.

Question 35

If goods are shipped FOB destination, the selling company can recognize revenue when the goods are shipped.

Question 36

Understandability is greater when the information is classified, characterized, and presented clearly and concisely.

Question 37

Full disclosure means that the financial statements must be accompanied by notes to the financial statements.

Question 38

Information is verifiable if two knowledgeable and independent people would generally agree that it faithfully represents the economic reality.

Question 39

Accounting information is complete if it includes all information necessary to show the economic reality of the transaction.

Question 40

Using the contract-based approach to revenue recognition, the entity will record revenue at the amount that it expects to receive.

Question 41

Using the earnings approach to revenue recognition, the entity would record a credit to the "refund liability" account for the estimated amount of returned goods.

Question 42

The expense-recognition criteria states that expenses are recognized when there is an increase in an asset or decrease in a liability, excluding transactions with owners.

Question 43

When estimating amounts for accruals, it is not important that the estimate is supportable or verifiable because it is just an estimate.

Question 44

Fair value is the amount of cash expected to be collected if the asset is sold.

Question 45

If a company provides refunds to customers for goods returned, revenue is recognized at the time of the return of the goods.

Question 46

There is a direct association between cost of goods sold and sales revenue.

Question 47

If a company is not a going concern, then its assets will be presented at their net realizable value.

Question 48

An item is material when it is unlikely to influence the decision of a reasonably careful investor or creditor.

Question 49

If the company is a going concern, the classification of assets and liabilities as current and noncurrent would not matter.

Question 50

A contractor fixing an overhead door and replacing several parts including springs and tracks is an example of multiple performance obligations.

Question 51

Management bonuses based on profit may encourage management to overstate profits.

Question 52

When an asset ceases to have future value it should be expensed.

Question 53

The cost model to report property, plant, and equipment is where the carrying value on the balance sheet is the fair value less accumulated depreciation.

Question 54

It is an underlying assumption that financial statements are prepared as if the company is not a going concern.

Question 55

One of the conditions that must be met for revenue to be recognized is that the amount of the revenue can be reliably measured.

Question 56

The cost constraint exists to ensure that the value of the information is more than the cost of providing it.

Question 57

Using the contract-based approach to revenue recognition in right of return situations, the entity would record revenue at the amount that it expects to receive.

Question 58

If it is not possible to determine the future benefits arising from expenditures, then the costs will be capitalized.

Question 59

Under the contract-based approach, a company can recognize revenue when it has transferred a promised good or service to a customer.

Question 60

Revenue can be recognized before the service has been fully provided.

Question 61

Relevant accounting information

A) is information that has been audited.
B) must be reported within one year.
C) has been objectively determined.
D) is information that is capable of making a difference in a decision.

Question 62

Which statement below is not true?

A) The conceptual framework includes specific rules for every situation.
B) The conceptual framework ensures the existing standards and practices are clear and consistent.
C) The conceptual framework provides guidance in responding to new issues and developing new standards.
D) The conceptual framework increases financial statement users' understanding of and confidence in the financial statements.

Question 63

The organization that is working toward uniformity in accounting practices throughout the world is the

A) World Bank.
B) United Nations.
C) International Accounting Standards Board.
D) National Commission on Fraudulent Financial Reporting.

Question 64

If accounting information has predictive value, it is useful in making predictions about

A) the economic environment the company operates in.
B) world events that impact the economy.
C) future interest rates and foreign currency exchange rates.
D) future events of a company.

Question 65

Which one of the following is the main objective of financial reporting according to the conceptual framework?

A) to provide information that will increase the value of the company
B) to provide information in assessing future cash flows
C) to provide information about the company's capital providers
D) to provide financial information that is useful to existing and potential investors and creditors in making decisions about a business

Question 66

The overriding criterion in evaluating the accounting information to be presented is

A) fairness.
B) legality.
C) management's goals.
D) decision usefulness.

Question 67

The objective of financial reporting is to provide information that is mainly useful to

A) governmental taxing bodies.
B) employees and labour unions.
C) investors and creditors.
D) internal and external auditors.

Question 68

If accounting information has confirmatory value, it

A) has been verified by an external audit.
B) is prepared on an annual basis.
C) confirms or corrects prior expectations.
D) is neutral in its representations.

Question 69

Canadian accountants rely on ______ to help them apply the conceptual framework to specific situations.

A) the Canada Business Corporations Act
B) identifiable rules
C) the rules of the Income Tax Act
D) professional judgement

Question 70

In the conceptual framework for IFRS, which one of the following is not a qualitative characteristic of useful accounting information?

A) relevance
B) faithful representation
C) conservatism
D) comparability

Question 71

Which of the following is not a qualitative characteristic associated with faithful representation?

A) complete
B) comparability
C) neutrality
D) free from material error

Question 72

The conceptual framework of accounting

A) ensures that existing standards and practices are clear and consistent.
B) makes it possible to respond quickly to new issues.
C) increases the usefulness of the financial information presented in financial reports.
D) all of the above

Question 73

Financial statements are designed to provide information about all of the following except

A) the economic resources, obligations, and equity of the entity.
B) changes in economic resources, obligations, and equity of the entity.
C) management performance evaluations.
D) economic performance of the entity.

Question 74

A company can change to a new accounting principle if management can justify that the new principle results in

A) more relevant and faithful representation of the financial presentation in the statements.
B) a higher profit.
C) a lower profit for tax purposes.
D) less likelihood of clerical errors.

Question 75

Not every country uses the same conceptual framework. This lack of uniformity has arisen because

A) there are not enough members in the professional body.
B) no time is available to complete the framework.
C) there are differences in legal and governmental systems.
D) financial statements do not need to be comparable.

Question 76

The conceptual framework does not include

A) the objective of financial reporting.
B) elements of financial statements.
C) recognition and measurement criteria.
D) specific standards to be followed in preparing financial statements.

Question 77

______ play(s) a fundamental role in the efficient functioning of the economy by providing capital (cash) to businesses.

A) Managers
B) Employees
C) Capital providers
D) IASB

Question 78

In order to assess the financial performance of a company, the financial statements must

A) be prepared on a monthly basis.
B) provide information on management's use of the company's resources.
C) be audited annually.
D) provide information concerning changes in the company's share price.

Question 79

In order for accounting information to be relevant, it must

A) have very little cost.
B) have predictive or confirmatory value.
C) be comparable.
D) be used by a lot of different firms.

Question 80

Which of the following is a reason for the lack of uniformity in accounting standards between countries?

A) differences in legal systems
B) differences in the process for developing standards
C) differences in governmental requirements
D) all of the above