Deck 7: The Fasbs Conceptual Framework

Question 1

Timeliness and predictive value are the two main aspect of relevance.

Answer 1

False

Question 2

SFAC No. 1 maintains that financial statements should be geared toward specific needs of particular user groups.

Answer 2

False

Question 3

The conceptual framework is an attempt to provide a metatheoretical structure for financial accounting.

Answer 3

True

Question 4

The conceptual framework maintains that accounting reports should become the only relevant source of information about enterprises.

Question 5

With regard to users, SFAC No. 1 established that financial statements should be aimed at a common core of similar information users.

Question 6

The eight (8) statements making up the conceptual framework establish generally accepted accounting principles.

Question 7

The indirect costs of information pertain to gathering, preparation, and dissemination of information.

Question 8

There is a conflict between timeliness and the other aspects of relevance.

Question 9

SFAC No. 5 makes clear that the concepts discussed in the conceptual framework apply to other means of disclosure in addition to financial statements.

Question 10

Relevance and reliability are the primary characteristics that standard setters should be concerned with.

Question 11

According to SFAC No. 4, "earnings" is the indicator of a non-business organization's performance that is comparable to "income" in the profit sector.

Question 12

SFAC No. 5 appears to deny one of the main tenets of the efficient markets hypothesis.

Question 13

The benefits of accounting information pertain to how useful the accounting information is relative to the capital maintenance and accountability objectives.

Question 14

Competitive disadvantage is an indirect cost of published information.

Question 15

The most important new issue brought up in the discussion memorandum that preceded the conceptual framework was predictive ability.

Question 16

The definitions of SFAC No. 6 are virtually identical to those in SFAC No. 3 except that they are extended to non-business organizations.

Question 17

Comprehensive income as defined by SFAC No. 6 includes all changes in equity during a period.

Question 18

The discussion memorandum that preceded the conceptual framework was perhaps the most extensive ever published by the FASB.

Question 19

SFAC No. 1 takes the position that users of financial statements must be assumed to be knowledgeable about financial information and reporting.

Question 20

The quality of understandability is a characteristic influenced by both users and preparers of accounting information.

Question 21

The degree of consensus among measurers is referred to in the conceptual framework as:

A)reliability.
B)relevance.
C)representational faithfulness.
D)understandability.

Question 22

Which of the following is a value judgment found in SFAC No. 1?

A)Accounting reports should become the only relevant source of information about enterprises.
B)Cash basis accounting is extremely useful in assessing and predicting earning power and cash flows of an enterprise.
C)Information is not costless to provide, so benefits of usage should exceed costs of production.
D)Users of accounting information have limited ability regarding financial information and reporting.

Question 23

Which of the following is a pervasive constraint under the "original" qualitative characteristics of accounting, pre-SFAC No. 8? It is an entity-specific constraint post SFAC No. 8.

A)Decision usefulness
B)Understandability
C)Materiality
D)Neutrality

Question 24

The quality of being capable of "making a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct expectations" is referred to in the conceptual framework as:

A)reliability.
B)relevance.
C)representational faithfulness.
D)understandability.

Question 25

Opinion is virtually unanimous that SFAC No. 5 on recognition and measurement is the low point of the conceptual framework.

Question 26

Which statement in the conceptual framework deals with qualitative characteristics of accounting information? Note that SFAC No. 8 replaces this older SFAC.

A)SFAC No. 1
B)SFAC No. 2
C)SFAC No. 3
D)SFAC No. 5

Question 27

The objectives of business financial reporting detailed in the conceptual framework proceeded directly from which of the following documents?

A)The Trueblood Report
B)SATTA
C)APB Statement 4
D)ASOBAT

Question 28

The jurisprudential view of the FASB is concerned with the theory embodied in the conceptual framework.

Question 29

SFAC No. 8 included the true and fair view in the qualitative characteristics of accounting.

Question 30

Under SFAC No. 8, which of the following are aspects of relevance?

A)Comparability and understandability
B)Timeliness and comparability
C)Representational faithfulness and decision usefulness
D)Predictive value and confirmatory value

Question 31

The idea that a measurement should correspond with the phenomenon it is attempting to measure is referred to in the conceptual framework as:

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

Question 32

Which of the following is not true regarding the discussion memorandum that preceded the conceptual framework?

A)It represented the end product of the FASB's deliberations related to the conceptual framework project.
B)The most important new issue brought up in the document was capital maintenance.
C)It brought up three views of financial accounting and financial statements.
D)It presented various definitions for basic accounting terms.

Question 33

Which component of the conceptual framework is perhaps the most difficult to apply in practice?

A)Confirmatory value
B)Understandability
C)Benefits greater than costs
D)Faithful representation

Question 34

"Economic consequences" is not part of the conceptual framework.

Question 35

Which of the following is not true regarding the FASB's conceptual framework?

A)It is supposed to embody a system of interrelated objectives.
B)It is an attempt to provide a metatheoretical structure for financial accounting.
C)It establishes generally accepted accounting principles.
D)It includes seven statements of financial accounting concepts.

Question 36

Which statement in the conceptual framework is concerned with the objectives of business financial reporting? Note that SFAC 8 replaces this SFAC.

A)SFAC No. 1
B)SFAC No. 2
C)SFAC No. 3
D)SFAC No. 5

Question 37

The qualitative characteristics of accounting on which the conceptual framework is centered come under the general heading of:

A)relevance.
B)materiality.
C)representational faithfulness.
D)decision usefulness.

Question 38

Codification is a justification of the standard-setting process itself rather than of the individual standards that result from that process.

Question 39

The qualitative characteristics of accounting information detailed in the conceptual framework proceeded directly from which of the following documents?

A)The Trueblood Report
B)SATTA
C)APB Statement 4
D)ASOBAT

Question 40

Timeliness is an enhancing qualitative characteristic of information about economic phenomenon.

Question 41

SFAC designated which of the following as the term to indicate the comprehensive or total change in net assets occurring during the period as a result of operations?

A)Income
B)Earnings
C)Revenue
D)Profits

Question 42

Do the SFACs that constitute the conceptual framework establish generally accepted accounting principles? What are the benefits and limitations of this approach?

Question 43

Which of the following is not a true statement?

A)SFAC No. 3 defines 10 elements of financial statements.
B)SFAC No. 3 is a resolution of the definitions presented in the discussion memorandum for the conceptual framework project.
C)SFAC No. 3 was amended by SFAC No. 6.
D)SFAC No. 3 discusses in detail the three views of financial accounting mentioned in the discussion memorandum.

Question 44

Respond to the following:
a.How is net income different from earnings in SFAC No. 5?
b.What is comprehensive income?

Question 45

Which qualitative characteristic pertains wholly to the attitude of board members as opposed to being more directly concerned with specific aspects of information contained in the financial statements?

A)Representational faithfulness
B)Verifiability
C)Consistency
D)Neutrality

Question 46

Discuss the criticisms that of SFAC No. 6?

Question 47

Which of the following is a true statement?

A)SFAC No. 5 makes clear that the concepts discussed in the conceptual framework apply to other means of disclosure in addition to financial statements.
B)SFAC No. 5 appears to deny one of the main tenets of the efficient markets hypothesis, that disclosure outside of the body of financial statements is as effective as disclosure within statements themselves.
C)SFAC No. 5 made a clear attempt to resolve the issues of recognition and measurement.
D)SFAC No. 5 was successful because it addressed measurement prior to discussing recognition.

Question 48

Explain the main key points regarding asset and liability measurement made in SFAC No. 7.

Question 49

Pre-SFAC No. 8, the three components of reliability are:

A)predictive value, feedback value, timeliness.
B)verifiability, neutrality, representational faithfulness.
C)verifiability, predictive value, feedback value.
D)relevance, comparability, materiality.

Question 50

Which of the following is not part of the conceptual framework?

A)Conservatism
B)Economic consequences
C)Consistency
D)None of the above are in the conceptual framework

Question 51

Which of the following is not true regarding SFAC No. 7?

A)SFAC No. 7 requires that estimated future cash flows be used for asset measurement in certain circumstances.
B)SFAC No. 7 concerns specific measurement issues rather than conceptual-type issues.
C)SFAC No. 7 applies only to initial recognition and not subsequent revaluations.
D)SFAC No. 7 is divided into two parts: asset measurement and income measurement.

Question 52

Which of the following is a true statement regarding feedback value?

A)It concerns confirming or correcting decision-makers' earlier expectations.
B)It refers to assessing where the firm presently stands.
C)It is closely related to accountability.
D)All of the above.

Question 53

Define the elements of financial statements identified in SFAC No. 3 and SFAC No. 6.

Question 54

Explain the hierarchy of accounting qualities identified in SFAC No. 2.

Question 55

Which of the following concepts was referred to as a convention in SFAC No. 2?

A)Consistency
B)Materiality
C)Comparability
D)Conservatism

Question 56

Why might SFAC No. 5 be considered a "failure"?

Question 57

Which of the following is a true statement?

A)The eight SFACs that comprise the conceptual framework were not evolutionary because they were derived from previous documents such as the Trueblood Report and ASOBAT.
B)The definitions of SFAC No. 6 were basically a restatement of the definitions of APB Statement 4.
C)The Achilles' heel of the document is SFAC No. 5, which reaffirmed historical cost as the basic measurement system.
D)The key document in the series of SFACs that comprise the conceptual framework is SFAC No. 1.

Question 58

Which of the following is a true statement?

A)Predictive value refers to usefulness of inputs for predictions rather than being an actual prediction itself.
B)Timeliness complements rather than conflicts with the other aspects of relevance because information is more complete and accurate if it is timely.
C)The conceptual framework stressed predictive value rather than the importance of decision-making by outside users.
D)Timeliness and predictive value are the two main aspects of relevance.