Deck 17: Regulation and the Conceptual Framework

Question 1

Which of these is a fundamental purpose of accounting standards? Improving:
I) accountants' ethics.
Ii) social accountability.
Iii) share price.
Iv) resource allocation.

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

Answer 1

C

Question 2

Which statement concerning the Urgent Issues Group (UIG) is untrue?

A) It was established to give a quick solution to problems that confront accounting practitioners.
B) It was dissolved in 2012.
C) It issued draft accounting standards.
D) The publication dealing with the GST has been retained and issued by the AASB.

Answer 2

C

Question 3

The accounting standard setting body in the USA is the:

A) SEC.
B) FASB.
C) IASB.
D) ASB.

Answer 3

B

Question 4

In 2009 which group was set-up in the Asia-Oceania region as part of the establishment of global accounting standards?

A) Group of 100
B) OSRB
C) AOSSG
D) AOUSB

Question 5

An entity where it is reasonable to expect the existence of users who depend on general-purpose financial reports for information for decision making is known as a:

A) company.
B) reporting entity.
C) public entity.
D) disclosing entity.

Question 6

Which of these has not been a significant influence on the development of modern accounting principles?

A) Globalisation
B) Global warming
C) The rise of the multinational corporation
D) Series of company failures

Question 7

Select the incorrect statement concerning accounting standards.

A) They guide the preparation of reliable financial reports.
B) They evolve with changes in business requirements.
C) They improve the comparability of financial reports.
D) They only apply to companies.

Question 8

In relation to the conceptual framework, SAC stands for:

A) sensible accounting constructs.
B) standard auditing controls.
C) statements of accounting concepts.
D) statements from accounting committees.

Question 9

The major reason for the existence of generally accepted accounting principles is to:

A) force accountants to all act in the same way.
B) increase business profits.
C) improve the standard of accounting information for decision-making.
D) make accountants legally liable for errors.

Question 10

Though the AASB has developed a set of accounting standards which when applied allow entities to assert that their financial statements comply with IASB standards, there are a number of ways in which Australian standards differ from international standards. How many of these are such a way?
I) The AASB has continued to issue accounting standards where no IASB equivalent exists,e.g. AASB 1031 Materiality.
Ii) Some Australian standards require more information to be disclosed than the equivalent IASB standard.
Iii) Australian standards contain, where applicable, extra paragraphs relevant to entities in the public and not-for-profit sectors.

A) 0
B) 1
C) 2
D) 3

Question 11

GAAP stands for:

A) generally accepted accounting principles.
B) government approved accounting policy.
C) generally accepted accounting practices.
D) good auditing and accountancy practices.

Question 12

Which is the body responsible for administering company law in Australia?

A) Australian Securities Exchange
B) Australian Securities and Investments Commission
C) Australian Accounting Standards Board
D) The Australian Federal Government

Question 13

Under SAC 1, which entity is the least likely to have users dependent on general-purpose financial reports?

A) A small proprietary company whose shareholders also run the business.
B) A company which is listed on the stock exchange.
C) A company with a large number of shareholders.
D) A company which issues debentures to the public.

Question 14

The primary reasons for developing a conceptual framework is to:

A) enable regulators to develop accounting standards that are consistent and logically formulated.
B) provide guidance to accountants in areas where no standard exists.
C) reduce the number of accounting standards needed.
D) provide an alternative view to the accounting standards.

Question 15

When did Australia adopt the IASB's international accounting standards?

A) 2001
B) 2003
C) 2005
D) 2008

Question 16

Which of these Australian accounting standards has no IASB equivalent?

A) AASB101 Presentation of Financial Statements
B) AASB 110 Events After the Reporting Period
C) AASB 1031 Materiality
D) AASB 136 Impairment of Assets

Question 17

Which is the correct historical order for the development of these accounting standards?

A) AAS series, AASB series, SACs
B) AASB series, AAS series, SACs
C) SACs, AASB series, AAS series
D) AAS series, SACs, AASB series

Question 18

The body whose role it is to act as overseer and advisor to the AASB is the:

A) Financial Reporting Council.
B) Australian Accounting Research Foundation.
C) The Accounting Professional and Ethical Standards Board.
D) Australian Securities and Investments Commission.

Question 19

Currently which body has the role of supervising real-time trading on the Australian Stock Exchange and enforcing laws against misconduct?

A) The Australian Securities Exchange
B) The Australian Accounting Standards Board
C) The Financial Reporting Council
D) The Australian Securities and Investments Commission

Question 20

The body in Australia which issues legally enforceable accounting standards that apply to companies is:

A) Financial Accounting Standards Board.
B) Australian Accounting Standards Board.
C) CPA Australia.
D) Australian Securities and Investments Commission.

Question 21

Materiality:

A) means exercising due care and caution.
B) provides a cut-off point in determining whether information is relevant.
C) is linked to the qualitative characteristic of faithful representation.
D) means attention to detail.

Question 22

Which of these statements about the objective of general purpose financial reports (GPFRs) as contained in the IASB's Conceptual Framework is correct?

A) The entity perspective has been adopted when defining the objectives of GPFRs.
B) The primary users of GPFRs are seen as being a diverse group including shareholders, creditors, regulators, members of the public, etc.
C) GPFRs will generally satisfy user's needs for information.
D) The IASB's Conceptual Framework deliberately emphasises sustainability as an objective of GPFRs.

Question 23

Accounting information that is supported by adequate evidence is more likely to meet the Conceptual Framework's criteria of:

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

Question 24

Which of these is not an aspect of the Conceptual Framework's constraint of timeliness?

A) Preparing financial reports for a 12 month period.
B) The delay in publication of the financial reports after the end of the financial period.
C) The frequency of the reporting period.
D) Having information available in time to influence decisions.

Question 25

The IASB's Conceptual Framework identifies which of these groups as the prime users of financial reports?

A) Investors and their advisors
B) Present and potential investors and creditors
C) Governments, regulatory bodies and parties performing an overseeing function
D) The public and consumers of goods and services

Question 26

In order to decide if an item is material accountants must use:

A) professional judgement.
B) a set of rules.
C) a text book.
D) discipline.

Question 27

Which statement relating to comparability is true?

A) It requires an entity, as far as possible, to use the same accounting method from year to year.
B) It means a company can never change an accounting method.
C) It means all firms in the same industry should use the same accounting methods.
D) It means the same depreciation method must be employed for all classes of non-current assets.

Question 28

Under the Conceptual Framework's qualitative characteristics, information that is able to influence economic decision making is described as:

A) verifiable.
B) relevant.
C) understandable.
D) material.

Question 29

An entity where it is reasonable to expect the existence of users dependant on general- purpose financial reports for information to use in economic decision making is known as a:

A) public company.
B) large business.
C) reporting entity.
D) non-reporting entity.

Question 30

Which of these is one of the recent changes to the list of qualitative characteristics in the Conceptual Framework?

A) The removal of relevance from the list.
B) The addition of verifiability as an additional characteristic.
C) The additional of understandability to the list.
D) The removal of comparability from the list.

Question 31

The test to determine whether information which is otherwise relevant and faithfully represented, can be omitted, misstated or not disclosed separately without adversely affecting economic decision-making, is known as:

A) materiality.
B) comparability.
C) understandability.
D) consistency.

Question 32

What are the qualitative characteristics for financial reporting contained in the Conceptual Framework?

A) Relevance, reliability, materiality, consistency, verifiability, understandability
B) Understandability, timeliness, relevance, readability, timeliness, reliability
C) Relevance, faithful representation, comparability, understandability, verifiability, timeliness
D) Uniformity, relevance, reliability, consistency, faithful representation

Question 33

Which of these is not an indicator listed in SAC 1 to help assess the existence of a reporting entity?

A) A high degree of separation between management and owners.
B) Sales greater than $1 million.
C) Control over large amounts of resources and/or a large amount of borrowings.
D) Economic or political importance.

Question 34

Which of the following is the true statement about general purpose financial reports (GPFRs)?

A) The IASB's Conceptual Framework and SAC 4 have different definitions of GPFRs.
B) There is no clear definition of GPFRs in the IASB's Conceptual Framework.
C) The IASB's Conceptual Framework and SAC2 have the same definition of GPFRs.
D) Neither the IASB's Conceptual Framework or SAC 2 contain a definition of GPFRs.

Question 35

Which statement relating to the Conceptual Framework's concept of understandability that is not true?

A) Information about complex matters should be included in the reports if it is considered relevant.
B) It is expected that users of financial statements will be willing to study the information with reasonable diligence.
C) In preparing financial statements it should be assumed that users possess very little knowledge accounting.
D) Every attempt should be made to communicate information in the most effective manner.

Question 36

Changing from straight line to reducing balance depreciation in one year, then back to straight line in the next, and then back again to reducing balance, is a violation of the qualitative characteristic of:

A) relevance.
B) materiality.
C) comparability.
D) timeliness.

Question 37

In the current Conceptual Framework the qualitative characteristic of reliability has been replaced by the characteristic of:

A) trustworthiness.
B) truth and fairness.
C) honesty.
D) faithful representation.

Question 38

Which of these is not a cost of financial reporting?

A) Costs of preparing the annual report.
B) Costs of adhering to accounting standards.
C) Loss of competitive position as a result of the disclosure of financial information outside the business.
D) Cost of budgeting within the organisation.

Question 39

The Conceptual Framework states that an important implication of the qualitative characteristic of comparability is that:

A) it will be used to assess the representational faithfulness of the financial reports.
B) users will be informed of the accounting policies used in the preparation of the financial reports.
C) it will be used to predict outcomes of past, present or future events.
D) if there is a choice of accounting methods one method should be chosen and then applied throughout the life of the entity.

Question 40

According to the Conceptual Framework information that is free from material error and bias has greater:

A) relevance.
B) decision marking usefulness.
C) faithful representativeness.
D) ness.

Question 41

A characteristic of equity as specified in the Conceptual Framework is it:

A) ranks before liabilities as a claim on assets.
B) must be controlled by the entity.
C) is a residual.
D) is a present obligation.

Question 42

Which of these pairs of qualitative characteristics are most likely to be in conflict?

A) Comparability and verifiability
B) Understandability and comparability
C) Relevance and faithful representation
D) Understandability and relevance

Question 43

According to the Conceptual Framework which statement concerning the recognition of liabilities is not true?

A) All liabilities that meet the definition of a liability should be recognised in the accounting records.
B) A recognition criteria is that it is probable that a sacrifice of future economic benefits will be required.
C) A recognition criteria is that the amount of the liability must be able to be measured reliably.
D) Liabilities that do not satisfy the recognition criteria can be recognised in the notes attached to the accounts.

Question 44

Under IAS 18/AASB 118 interest income should be recognised:

A) proportionately over time, as the interest is earned.
B) at the point of sale.
C) when the contract for the loan is signed.
D) at the end of the loan period.

Question 45

Under the Conceptual Framework, 'increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants', is the definition of:

A) contributions.
B) income.
C) equity.
D) expense.

Question 46

The simplification of complex transactions in external financial reports without sacrificing relevance or faithful representation promotes the qualitative characteristic of:

A) timeliness.
B) relevance.
C) materiality.
D) understandability.

Question 47

In the Conceptual Framework, materiality is an aspect of:

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

Question 48

Which of these is not an expense recognition criteria in the Conceptual Framework?
I The probability of a decrease in economic benefits
II Reliability of measurement
III Matching costs with revenue

A) 0
B) I
C) II
D) III

Question 49

Under the Conceptual Framework income includes both:

A) gains and losses.
B) revenue and gains.
C) returns and profits.
D) takings and outgoings.

Question 50

Recognition in accounting means:

A) that information is useful for decision making.
B) that information is acknowledged in the reports.
C) the incorporation of assets, liabilities, income and expenses into the financial statements.
D) that the meaning of information can be comprehended by users.

Question 51

Under the Conceptual Framework there are ____ recognition criteria for each of assets, liabilities, income and expenses

A) one
B) two
C) three
D) four

Question 52

Under the Conceptual Framework, which of these is not a characteristic of a liability?

A) It must result from a past transaction or event.
B) It must be a legal debt.
C) It is expected to result in an outflow of economic resources.
D) It must be a present obligation of the entity.

Question 53

Which of these is not a characteristic of equity as specified in the Conceptual Framework?

A) It ranks after liabilities as a claim on assets.
B) It must be controlled by the entity.
C) It is diminished by unprofitable operations.
D) It cannot be calculated independently of assets and liabilities.

Question 54

According to the Conceptual Framework faithful representation does not include which of the following?

A) Neutrality
B) Timeliness
C) Freedom from material error
D) Completeness

Question 55

In the current Conceptual Framework the qualitative characteristic of _________________ has been replaced by faithful representation and verifiability.

A) relevance
B) reliability
C) comparability
D) understandability

Question 56

A deposit received by an entity in advance of goods or services being supplied is initially classified as:

A) an asset.
B) a liability.
C) income.
D) an expense.

Question 57

According to the Conceptual Framework which of these is not an essential characteristic of an asset?

A) There must be future economic benefits.
B) It must have a re-sale value.
C) The entity must have control over the future economic benefits.
D) The event giving rise to the entity's control over the resource must have occurred.

Question 58

Under IAS 20/AASB 120, Accounting for Government Grants, it is true that:

A) government grants relating to assets are to be credited directly to equity.
B) a government grant relating to an asset may be presented as a reduction in the carrying amount of the asset concerned.
C) a government grant relating to income may be credited directly to equity or recognised as income systematically over the periods necessary to match them with the related costs.
D) subsidies for agricultural activities are discussed in the appendix to IAS 20/AASB 120.

Question 59

The accounting standards dealing with income are:

A) IAS 8/AASB 108.
B) IAS 4/AASB 104.
C) IAS 24/AASB 224.
D) IAS 18/AASB 118.

Question 60

The statement that is not correct concerning the definition of expenses in the Conceptual Framework is which of the following?

A) An expense arises whenever the economic benefits in an asset are consumed or lost.
B) The definition of expenses does not encompass items that have traditionally been reported in the financial statements as losses.
C) An expense must result in a decrease in equity.
D) The definition of expenses is expressed in terms of changes in assets, liabilities and equity.

Question 61

The capital maintenance concept underlying the traditional historical cost system is maintaining intact:

A) the purchasing power of equity at the beginning of the period.
B) the realisable value of equity at the beginning of the period.
C) the current value of equity at the beginning of the period.
D) the dollar value of equity at the beginning of the period.

Question 62

In accounting in Australia the most common measurement basis used is:

A) historical cost.
B) realisable value.
C) present value.
D) current value.

Question 63

The AASB has examined a number of different accounting measurement systems that may be used in the future as alternatives to the historical cost system. Which of these is not one of those systems?

A) General price level accounting
B) Future value accounting
C) Relative current value accounting
D) Current value accounting

Question 64

The concept of capital where capital is seen as the operating capability of the assets is:

A) financial capital.
B) physical capital.
C) operational capital.
D) purchasing power capital.