Question 1

MAX Auto Repair has implemented a policy that requires all expenditures below $10 to be expensed.This is an application of

Accepted Answer

A)  The full disclosure principle
B)  The matching principle
C)  The materiality constraint
D)  Representational faithfulness C

Question 2

A soundly developed conceptual framework of concepts and objectives should

Accepted Answer

A)  increase financial statement users' understanding of and confidence in financial reporting.
B)  enhance comparability among companies' financial statements.
C)  allow new and emerging practical problems to be more quickly solvable.
D)  all of these. D

Question 3

Fraudulent financial reporting is a business reality.While it cannot be eliminated, the risk of fraudulent reporting can be decreased.Which of the following considerations is least likely to lessen that risk?

Accepted Answer

A)  An independent audit committee
B)  An internal audit function
C)  An increased focus on tying bonuses to short-term company performance
D)  Vigilant management C

Question 4

During a major renovation project of its head office, a worker was seriously injured.While the company believes that it was not at fault, it does include the incident in the notes to its financial statements.This is consistent with which of the following principles:

Accepted Answer

A)  Economic entity
B)  Control
C)  Full disclosure
D)  Periodicity

Question 5

In classifying the elements of financial statements, the primary distinction between revenues and gains is

Accepted Answer

A)  the materiality of the amounts involved.
B)  the likelihood that the transactions involved will recur in the future.
C)  the nature of the activities that gave rise to the transactions involved.
D)  the costs versus the benefits of the alternative methods of disclosing the transactions involved.

Question 6

Valuing assets at their liquidation values rather than their cost is inconsistent with the

Accepted Answer

A)  periodicity assumption.
B)  matching principle.
C)  materiality constraint.
D)  historical cost principle.

Question 7

Management Discussion and Analysis (MD&A) is

Accepted Answer

A)  notes on meetings between management and auditors.
B)  internal documents not released to shareholders.
C)  supplementary information included in the annual report.
D)  supplementary information included in the notes to the financial statements.

Question 8

During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in accordance with which basic accounting concept?

Accepted Answer

A)  Cost/benefit relationship
B)  Periodicity assumption
C)  Conservatism constraint
D)  Matching principle

Question 9

The operations of a resource company's oil sands operations results in environmental damage.While the extent of the damage can not yet be determined, the situation is disclosed in its financial statements.This best demonstrates

Accepted Answer

A)  The application of professional judgement
B)  The full disclosure principle
C)  Representational faithfulness
D)  Good management stewardship

Question 10

Which of the following statements about materiality is not correct?

Accepted Answer

A)  An item must make a difference or it need not be disclosed.
B)  Materiality is a matter of relative size or importance.
C)  An item is material if its inclusion or omission would influence or change the judgement of a reasonable person.
D)  All of these are correct statements about materiality.

Question 11

Under the currently proposed definition of an asset, what is the most important aspect to consider when deciding whether the item should be recognized as an asset?

Accepted Answer

A)  The item represents a present economic resource to which the entity has a right
B)  The item is shown on the balance sheet
C)  The transaction underlying the resource has occurred
D)  The item is measurable

Question 12

The elements of financial statements include investments by owners.These are increases in an entity's net assets resulting from owners'

Accepted Answer

A)  transfers of assets to the entity.
B)  rendering services to the entity.
C)  satisfaction of liabilities of the entity.
D)  all of these.

Question 13

Proponents of historical cost ordinarily maintain that in comparison with all other valuation alternatives for general purpose financial reporting, statements prepared using historical costs are more:

Accepted Answer

A)  reliable.
B)  relevant.
C)  indicative of the entity's purchasing power.
D)  conservative.

Question 14

You want to improve the qualitative characteristics of your firm's financial statements. Which of the following options would most likely improve the timeliness of your company's financial statements?

Accepted Answer

A)  To increase the frequency of issue from annually to quarterly
B)  To increase the number of disclosures
C)  To increase the amortization period for capital assets from 5 to years.
D)  To change the timing of when revenues are recognized

Question 15

Enhancing qualitative characteristics are an essential part of the conceptual framework of accounting.These include, among others, timeliness.Which of the items below would be most indicative of timeliness?

Accepted Answer

A)  The preparation of quarterly financial statements
B)  The preparation of annual financial statements
C)  The large volume of data to be included.
D)  The choice of the best accounting principle

Question 16

Which of the following serves as the justification for the periodic recording of amortization expense?

Accepted Answer

A)  Association of efforts (expense)  with accomplishments (revenue) 
B)  Systematic and rational allocation of cost over the periods benefited
C)  Immediate recognition of an expense
D)  Minimization of income tax liability

Question 17

Representational faithfulness is an ingredient of the primary quality of

Accepted Answer

The answer of Representational faithfulness is an ingredient of the...

Question 18

Generally accepted accounting principles

Accepted Answer

A)  are fundamental truths or axioms that can be derived from laws of nature.
B)  derive their authority from legal court proceedings.
C)  derive their credibility and authority from general recognition and acceptance by the
D)  have been specified in detail in the CICA conceptual framework.

Question 19

To measure the fair value of an asset, an entity should determine

Accepted Answer

A)  The asset's nature, condition and location
B)  The asset's valuation premise
C)  The availability of data
D)  All of the above

Question 20

The adoption of international GAAP can be seen as an application of which of the following quality enhancing characteristics:

Accepted Answer

A)  Verifiability
B)  Comparability
C)  Understandability
D)  Timeliness

Exam 2: Conceptual Framework Underlying Financial Reporting