Deck 4: Theory Underpinning Accounting Standards

Question 1

The corporate collapses in 2001-2002 in the United States:

A)Increased the emphasis on principles-based standards
B)Increased the emphasis on rules-based standards
C)Had no effect on whether standards were rule-based or principles-based
D)Led to a reduction in the number of standards issued because of a perception of 'standards overload'

Answer 1

A

Question 2

In relation to IAS 8 the two statements that are correct are:
I When making judgements reference shall be made firstly to the Framework and secondly to standards and interpretations dealing with similar and related issues
II When making judgements reference shall be made firstly to standards and interpretations dealing with similar and related issues and secondly to the Framework
III Material in the Framework is binding on preparers of financial statements
IV Material in the Framework is not binding on preparers of financial statements

A)i)and iii)
B)ii)and iii)
C)ii)and iv)
D)i)and iv)

Answer 2

B

Question 3

The decision theory process occurs in which of the following sequences?

A)Overall theory of accounting,prediction model of user,individual accounting system,decision model of user
B)Overall theory of accounting,individual accounting system,prediction model of user,decision model of user
C)Overall theory of accounting,individual accounting system,decision model of user,prediction model of user
D)Overall theory of accounting,prediction model of user,decision model of user,individual accounting system

Answer 3

B

Question 4

One of the benefits of a conceptual framework,put forward by Australian standard setters,is that preparers and auditors would find it easier to understand the financial reporting requirements they face.

Question 5

Taxation rules are not a source of authority in accounting.

Question 6

Both the IASB and the FASB frameworks consider the main objective of financial reporting is to communicate financial information to users.The information is to be selected on the basis of its usefulness in the economic decision-making process.This objective is seen to be achieved by reporting information that is:
I Useful in making economic decisions
II Useful in assessing cash flow prospects
III About enterprise resources,claims to those resources and changes in them

A)i,ii
B)i,iii
C)ii,iii
D)i,ii,iii

Question 7

In Australia,in the latter years of the 1990's,more progress was made on developing the conceptual framework than in promulgating individual accounting standards.

Question 8

The IASB's concept statement encompasses special and general-purpose financial reporting.

Question 9

In the IASB Framework the qualitative characteristic of reliability is defined as the ability to influence the economic decisions of users by helping them to evaluate past,present or future events or confirm or correct their past evaluations.

Question 10

Which of these is not one of the benefits of a conceptual framework?

A)Reporting requirements will be more consistent and logical
B)It may allow firms to reduce their reported profit
C)The need for specific accounting standards should be reduced
D)Standard setting boards will be more accountable for their actions

Question 11

Gerboth views conceptual frameworks as policy documents based on the professional values and self-interest of accountants

Question 12

Surveys have shown that a majority of company managers and security industry officials favour a conceptual framework that would result in significant changes in financial reporting.

Question 13

A disadvantage of a conceptual framework is:

A)It will be easier to avoid reporting requirements
B)It will be more expensive to prepare individual accounting standards
C)It will increase political interference in the standard setting process
D)None of the above are disadvantages

Question 14

In the 1990's there was a shift away from consideration of audit risk and a shift towards a greater emphasis on substantive testing.

Question 15

One of the key concepts of the auditing theory of Mautz and Sharaf is auditor independence.

Question 16

To be relevant accounting information should have which of these characteristics?

A)The transaction or other event relating to the accounting information should have occurred
B)It must assist in making predictions about future situations or must help confirm past predictions of users
C)The financial information should faithfully represent transactions and events without bias or undue error
D)To be relevant accounting information should have all of the above characteristics

Question 17

A conceptual framework of accounting is a structured theory of accounting.Which of these issues would be dealt with at the operational level of the framework?

A)The scope and objective of financial reporting
B)The qualitative characteristics of financial reporting
C)The elements of financial reporting
D)The basis of recognition and measurement of the elements.

Question 18

Since its conceptual framework was first published in 1989 no new standards have been issued by the IASB that conflict with the Framework.

Question 19

Which of these is not a reason why inconsistencies have arisen between the Framework and IAS 139 Financial Instruments: Recognition and Measurement?

A)The complexity of the standard
B)Areas where the Framework provides inadequate guidance
C)The lack of any possible solutions to issues dealt with by the standard that would be consistent with the Framework
D)All of the above

Question 20

The IASB Framework includes four principal qualitative characteristics,understandability,relevance,reliability and comparability.

Question 21

Discuss the effects on accounting reporting of the movement in the early 1960's from a stewardship objective to a decision-usefulness objective.

Question 22

Discuss the strengths and weaknesses of principles-based accounting standards compared to rule-based standards.

Question 23

The statement in respect of the IASB/FASB convergence project established in 2002 that is incorrect is:

A)A project to develop a joint conceptual framework has been added to the agenda
B)The project will focus on changes in the environment since the IASB and the FASB each issued their original frameworks
C)Work on several phases of the project will be carried out concurrently
D)Private sector and not-for-profit sector issues will be considered simultaneously.

Question 24

Under the IASB Framework exposure draft,the qualitative characteristic:

A)Reliability has been replaced with faithful representation
B)Reliability has been replaced with trustworthiness
C)Timeliness has been replaced with exactness
D)Relevance has been replaced with significance

Question 25

The four principal qualitative characteristics recognised by the IASB Framework are:

A)Materiality,relevance,timeliness,cost versus benefit
B)Relevance,materiality,reliability,comparability
C)Understandability,relevance,reliability,comparability
D)Understandability,cost versus benefit,relevance and reliability

Question 26

The constraints on financial reporting identified under the IASB Framework are:

A)Cost versus benefit and materiality
B)Timeliness and neutrality
C)Understandability and materiality
D)Understandability and cost versus benefit

Question 27

In June 2009,in relation to the IASB/FASB joint conceptual framework project,one exposure draft relating to the objectives and qualitative characteristics has been issued.Which of these is not a key issue raised by the exposure draft?

A)The entity vs proprietorship perspective
B)Measurement of assets
C)The primary user group of general-purpose financial reports
D)The objective of financial reporting,particularly the place of stewardship.

Question 28

The group proposed by the IASB and the FASB as the primary user group for general purpose financial reporting is:

A)Lenders
B)Equity investors
C)The public
D)Present and potential capital providers

Question 29

In June 2009,in relation to the IASB/FASB joint conceptual framework project,one exposure draft relating to the objectives and qualitative characteristics has been issued.Which of these statements concerning the reception of the exposure draft is true?

A)Most respondents agreed with designating present and potential capital providers as the primary user group for general purpose financial reporting
B)Most respondents agreed that not designating stewardship as a separate objective was unimportant
C)Most respondents agreed with the list of qualitative characteristics included in the exposure draft.
D)Most respondents agreed that financial reports should be prepared from the proprietorship perspective

Question 30

The IASB Framework includes four principal qualitative characteristics,understandability,relevance,reliability and comparability (paragraphs 24-42).Explain the meaning of each of these characteristics and discuss the changes in the list of characteristics that is proposed by the Framework exposure draft.

Question 31

The point that is not a reason why auditors began to have a greater focus on auditing business risk in the 1990's is:

A)The release of the 1992 report Internal Control - Integrated Framework,by the Committee of Sponsoring organisations (COSO)
B)It was a justification to increase audit fees for clients
C)Gaps in clients' internal controls provided an opportunity for auditors to sell non-audit services.
D)None of these,i.e.all are reasons as to why auditors began to have a greater focus on auditing business risk in the 1990's

Question 32

Is a conceptual framework necessary? Discuss the arguments for and against having a conceptual framework for accounting.

Question 33

Explain the difference between business risk auditing and traditional substantive auditing.What have been some of the benefits and criticisms of a greater emphasis on business risk auditing?

Question 34

A disadvantage of rules-based standards for users of the standards is:

A)They may reduce the opportunities for earnings management
B)They increase comparability of accounting information
C)They allow for specific structuring of transactions to work around the rules
D)All of the above are disadvantages.

Question 35

Which of these is not a criticism of conceptual framework projects?

A)The logic is circular
B)The definition of the elements provide no guidance to practising accountants
C)There is no prior agreement on objectives
D)The measurement of the elements of financial reporting is too highly specified

Question 36

Stating that Australia and New Zealand follow a 'sector neutral' approach to standard setting means that:

A)Issues relating to the for-profit and the not-for-profit sectors are considered simultaneously with the view to applying the same standards to both sectors
B)Issues relating to the for-profit sector are considered before later applying the same principles to the not-for-profit sector
C)Issues relating to the not-for-profit sector are considered before later applying the same principles to the for-profit sector
D)Issues for-profit and not-for-profit sectors are considered simultaneously but with the purpose of drawing up separate standards for each sector.