Deck 6: Normative Theories of Accounting: The Case of Conceptual Framework Projects

Question 1

What is the objective of financial reporting,as stated in the IASB Framework for the Preparation and Presentation of Financial Reports,and consistent with the Australian SAC 2: Objectives of Financial Reporting?

A) Stewardship
B) Accountability
C) Decision usefulness
D) All of the given options are correct.

Answer 1

C

Question 2

Which of the following is not a characteristic of an asset,according to the IASB Conceptual Framework?

A) There is an expected future economic benefit.
B) The entity must have ownership over the resource giving rise to the future economic benefits.
C) The transaction or event giving rise to the ownership over future economic benefits must have occurred.
D) The reporting entity must have control over the resource to benefit from it, or to deny or regulate the access of others to the benefit.

Answer 2

B

Question 3

Which of the following is true in relation to expenses,according to the IASB Conceptual Framework?

A) Expenses are restricted to transactions and events relating to 'ongoing major or central operations'.
B) There is no reference to matching of revenue and expenses in the Conceptual Framework.
C) Expenses would not include losses that were not under the control of the entity, such as uninsured losses of assets from flood.
D) None of the given options are correct.

Answer 3

B

Question 4

According to the IASB definition of 'income',which of the following is not included?

A) Non-reciprocal transfers such as grants, bequests or liabilities forgiven
B) Gains and losses from the sale of assets
C) Enhancement of assets
D) Dividends received

Question 5

Which of the following is not a characteristic of a liability,according to the IASB Conceptual Framework?

A) A future deposition or transfer of economic benefits to others will occur.
B) A past transaction or event is to have created the obligation.
C) There must be a legal obligation.
D) None of the given options are correct.

Question 6

Which of the following appears to be most influential in developing the objectives of financial reporting as well as a number of other concepts that have been used as a basis for most conceptual framework projects?

A) Accounting Principles Board (APB) Statement No 4 (1970)
B) The Trueblood Report (1973)
C) The Corporate Report (UK) (1976)
D) The Stamp Report (1980)

Question 7

The objective of general purpose financial reporting is stated in most conceptual frameworks as providing decision-useful information to users of financial reports.Which of the following is not regarded as a legitimate user of financial reports according to the IASB Conceptual Framework?

A) Users without some proficiency in financial accounting
B) Recipients of goods and services
C) Special interest groups in the general public
D) All of the given options are correct.

Question 8

Which of the following is a characteristic of reliability?

A) It influences economic decisions.
B) It represents faithfully what it purports to represent.
C) It provides predictive value and feedback to confirm or correct earlier expectations.
D) None of the given options are correct.

Question 9

On what criteria is a 'reporting entity',as defined in SAC 1,dependent?

A) Whether there are users that are dependent on the reports to make or evaluate resource decisions
B) Professional judgment providing some guidelines to help make a decision
C) Whether there are users that are dependent on the reports to make or evaluate resource decisions, and professional judgement provides some guidelines to help make a decision
D) The Corporations Law based on measures of gross revenue, dollar value of assets and the number of employees

Question 10

Which of the following cannot be concluded from an overview of the history of the development of conceptual framework projects?

A) A number of countries have successfully completed conceptual framework projects.
B) Those responsible for them have either been reluctant to promote significant changes, or the changes suggested have not been accepted.
C) Conceptual framework projects have been reluctant to prescribe a particular valuation or measurement approach.
D) The conceptual framework is a continuous and evolving project.

Question 11

What is the definition of a 'conceptual framework'?

A) A conceptual framework is a set of prescriptions of what accounting should be.
B) A conceptual framework is a structured positive theory of accounting.
C) A conceptual framework is a coherent system of objectives and fundamentals that are expected to lead to consistent standards.
D) A conceptual framework is a group of independent concepts on specific accounting issues, that are grouped together to provide a single reference.

Question 12

The components,or building blocks,in the IASB Framework for the Preparation and Presentation of Financial Statements do not include:

A) The definition of 'financial reporting'
B) Definition of users and their needs
C) Underlying assumptions
D) Accounting standards

Question 13

Since 1 January 2005,the Australian Accounting Standards Board's conceptual framework consists of:

A) The IASB's Framework for the Preparation and Presentation of Financial Statements
B) SAC 1: Definition of the Reporting Entity
C) SAC 2: Objectives of General Purpose Financial Reporting
D) All of the given options are correct.

Question 14

Which of the following is a qualitative characteristic of financial information in general purpose financial reports,if they are to be useful?

A) Understandability
B) Comparability
C) Reliability
D) All of the given options are correct.

Question 15

Which of the following represents a contradiction,rather than a trade-off that needs to be balanced?

A) Information may be reliable, but the time taken to ensure its reliability may result in it being potentially irrelevant.
B) Determining whether the benefits derived from information are greater than the costs to produce it.
C) The argument for neutrality and faithful representation; but standard-setters consider the economic consequences of standards.
D) Information may be relevant, but the data may be so unreliable that it could be potentially misleading.

Question 16

Which of the following describes the accounting process?

A) Technical
B) Political
C) Procedural
D) Objective

Question 17

What is the purpose of developing a conceptual framework?

A) To provide a coherent structure to accounting practice which had developed in an ad hoc way.
B) To guide standard-setters to develop standards based on the same concepts and principles, rather than in a piecemeal approach.
C) To guide users where there is no accounting standard covering an issue.
D) All of the given options are correct.

Question 18

Which of the following will satisfy the definition of a 'constructive liability',as outlined in the IASB Conceptual Framework?

A) A decision by management to carry out maintenance over the next two years
B) A public offer to repair a defective good, even if it is out of warranty
C) A parent company's guarantee to meet the debts of a subsidiary entity if the subsidiary itself cannot pay them
D) All of the given options are correct.

Question 19

Which of the following was particularly concerned with addressing the rights of the community,in terms of access to financial information about entities?

A) Accounting Principles Board (APB) Statement No 4 (1970)
B) The Trueblood Report (1973)
C) The Corporate Report (UK) (1976)
D) The FASB Conceptual Framework Project

Question 20

Which characteristic of information,when omitted or misstated,could influence economic decisions taken by users on the basis of financial statements?

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

Question 21

Conceptual frameworks provide prescription so they are considered to be:

A) Normative theories of accounting
B) Positive theories of accounting
C) Decision usefulness theory of accounting
D) None of the given options are correct.

Question 22

Which of the following is not a perceived advantage in developing a conceptual framework project?

A) Standard-setters will be less accountable for their decisions.
B) Setting accounting standards will be more economical, despite the resources needed to develop the conceptual framework and standards.
C) It will result in a reduced number of accounting standards where issues are covered by the conceptual framework.
D) It will provide a defence and enhance the legitimacy of the accounting profession.

Question 23

According to the IASB,a conceptual framework:

A) Is a coherent system of concepts that flow from an objective
B) Provides guidance on identifying the boundaries of financial reporting in selecting the transactions, other events and circumstances to be represented
C) Outlines how transactions should be recognised and measured (or disclosed)
D) All of the given options are correct.

Question 24

Which of the following is a characteristic of relevance?

A) It influences economic decisions.
B) It represents faithfully what it purports to represent.
C) It provides predictive value and feedback to confirm or correct earlier expectations.
D) None of the given options is correct.

Question 25

Which of the following is correct about the concept of 'control' in the recognition of assets?

A) Control relates to the capacity of a reporting entity to benefit from an asset and to deny or regulate the access of others to the benefit.
B) The capacity to control would not normally stem from legal rights.
C) Control is not required before an asset can be shown within the body of an entity's balance sheet (statement of financial position).
D) Controlled assets are always owned.

Question 26

Over time,a number of objectives have been attributed to information provided within financial statements.Which of the following is not an objective of financial statements?

A) To enable outsiders to assess the stewardship of management.
B) To provide information to users that is useful for making and evaluating decisions about the allocation of scarce resources.
C) To enable reporting entities to demonstrate accountability between the entity and those parties to which the entity is deemed to be accountable.
D) To help managers to maximise their own wealth and the wealth of the organisation.

Question 27

In Australia,according to SAC 2 'Objective of General-Purpose Financial Reporting',the primary user groups(s)of general purpose financial reports are:

A) Resource providers
B) Recipients of goods and services
C) Parties performing a review or oversight function
D) All of the given options are correct.

Question 28

Factors that may indicate a reporting entity include:

A) Separation of management from those with an economic interest in the entity
B) The economic or political importance/influence of the entity to/on other parties
C) The financial characteristics of the entity
D) All of the given options are correct.

Question 29

Which of the following is an enhancing qualitative characteristics identified by the IASB Conceptual Framework?

A) Comparability and faithful representation
B) Relevance and timeliness
C) Timeliness and verifiability
D) Understandability and reliability

Question 30

Which of the following is true about conceptual frameworks?

A) They lead to decreased international compatibility of accounting standards.
B) Communication between standard-setters and their constituents would be diminished.
C) Smaller organisations may feel overburdened by reporting requirements.
D) Standard-setters would be less accountable for their decisions.

Question 31

What does the political legitimacy argument,as outlined by Hines (1991),suggest?

A) The accounting profession consists of experts in technical knowledge of accounting and should therefore be given authority to regulate accounting.
B) The accounting profession used the development of the conceptual framework as a strategy to promote their self-regulation interests.
C) The conceptual framework provides the authority to resolve technical issues with authority and legitimacy.
D) As users are politically involved in developing the conceptual framework, the outcome has political legitimacy.

Question 32

Which of the following measurement methods is not explicitly recognised in the IASB Conceptual Framework,although it is recognised in the FASB Framework?

A) Current market value
B) Current replacement cost
C) Net realisable value
D) Present value