Question 1

Which of the following is NOT a component of a conceptual framework for financial reporting?

Accepted Answer

A) accounting's goals and purposes 
B) qualitative characteristics of accounting information 
C) foundational principles 
D) All of the above are components of a conceptual framework.

Question 2

Timeliness is increased by

Accepted Answer

A) quarterly reporting. 
B) comparative financial statements. 
C) representational faithfulness. 
D) annual reporting.

Question 3

Which of the following does NOT represent an essential characteristic of an asset?

Accepted Answer

A) There is some economic benefit to the entity. 
B) The entity is able to transfer the economic benefit if it so chooses. 
C) The entity has control over the economic benefit. 
D) The benefits result from a past transaction or event.

Question 4

Which of the following does NOT relate to the concept of relevance?

Accepted Answer

A) The information must be capable of making a difference in a decision. 
B) Both material and immaterial information is important. 
C) The information has predictive value. 
D) The information has feedback/confirmatory value.

Question 5

Application of the full disclosure principle

Accepted Answer

A) is theoretically desirable but not practical because the costs of complete disclosure exceed the benefits. 
B) is violated when important financial information is buried in the notes to the financial statements. 
C) is demonstrated by the inclusion of information such as information about contingencies. 
D) requires that the financial statements be consistent and comparable.

Question 6

Under GAAP, inflation has been historically ignored due to the

Accepted Answer

A) economic entity assumption. 
B) going concern assumption. 
C) monetary unit assumption. 
D) periodicity assumption.

Question 7

Which statement is correct regarding enhancing qualitative characteristics?

Accepted Answer

A) Full discussion of the information presented is a substitute for comparable information. 
B) Numbers that are easily verifiable with a reasonable degree of accuracy are called soft numbers. 
C) Information must be available before it loses its ability to influence users' decisions. 
D) Financial information must be of sufficient quality and clarity that even uninformed readers can understand it.

Question 8

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

Accepted Answer

A) association of efforts (expense)with accomplishments (revenue) 
B) minimization of income tax liability 
C) immediate recognition of an expense 
D) systematic and rational allocation of cost over the periods benefited

Question 9

Regarding the concept of materiality, what does the current IASB research project hope to accomplish?

Accepted Answer

A) Augment IAS1 with a paragraph that sets out key characteristics of materiality. 
B) Develop a broadly applicable quantitative materiality threshold that all reporting entities will use. 
C) Identify and develop an IAS 25, a distinct section discussing the concept of materiality. 
D) A review of existing standards to identify conflicts, duplication, and overlaps.

Question 10

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) increasing the number of disclosures 
B) changing the timing of when revenues are recognized 
C) increasing the frequency of statements from annually to quarterly 
D) decreasing the useful life of property, plant and equipment from ten years to five

Question 11

Where there is a significant uncertainty with respect to the measurement of an item,

Accepted Answer

A) do not record anything in the financial statements. 
B) recognize the item in the financial statements and disclose the measurement uncertainty in the notes to the financial statements. 
C) do not record anything in the financial statements but disclose the measurement uncertainty in the notes to the financial statements. 
D) record the maximum amount in the financial statements.

Question 12

Representational faithfulness includes

Accepted Answer

A) completeness, neutrality and comparability. 
B) neutrality, completeness, and understandability. 
C) relevance, completeness and freedom from material error. 
D) neutrality, completeness and freedom from material error.

Question 13

Use of an allowance for doubtful accounts is an application of the

Accepted Answer

A) matching principle. 
B) revenue recognition principle. 
C) historical cost principle. 
D) full disclosure principle.

Question 14

Under IFRS, equity does NOT include

Accepted Answer

A) long term leases. 
B) common and/or preferred shares. 
C) accumulated other comprehensive income. 
D) retained earnings.

Question 15

The practice of matching

Accepted Answer

A) dictates that efforts (expenditures)be matched with associated cash flow. 
B) requires arbitrary allocation of an asset's contribution to a revenue stream. 
C) illustrates the cause and effect relationship between money spent to earn revenues and the revenues themselves. 
D) is required by GAAP to approximate an asset's contribution to an entity's periodic cash flow.

Question 16

The operations of a resource company's oil sands operations results in environmental damage.While the extent of the damage cannot be determined at this time, 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 17

Financial reporting is

Accepted Answer

A) independent of the environment in which it operates. 
B) the result of carefully applied professional judgement. 
C) influenced by the decisions of individuals who act in the interest of stakeholders at the expense of themselves. 
D) completely free of bias.

Question 18

Comparability allows any financial statement user to

Accepted Answer

A) make timely decisions. 
B) understand all the information presented. 
C) verify all the data provided. 
D) identify the real similarities and differences in economic phenomena.

Question 19

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

Accepted Answer

A) periodicity assumption. 
B) historical cost principle. 
C) matching principle. 
D) economic entity assumption.

Question 20

During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in accordance with the

Accepted Answer

A) full disclosure principle. 
B) periodicity assumption. 
C) going concern assumption. 
D) economic entity assumption.

Exam 2: Conceptual Framework Underlying Financial Reporting