Deck 2: The Pursuit of the Conceptual Framework

Question 1

Which of the following is not one of DR Scott's hierarchy of accounting postulates and principles?

A) Orientation postulate.
B) The principles of truth and fairness.
C) The materiality principle
D) The principles of adaptability and consistency.

Answer 1

C

Question 2

What is the objective of financial reporting?

A) Provide information that is useful to management in making decisions.
B) Provide information that clearly portrays nonfinancial transactions.
C) Provide information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors.
D) Provide information that excludes claims to the resources.

Answer 2

C

Question 3

Which of the following is not an approach to accounting theory as categorized by Statement on Accounting Theory and Theory Acceptance?

A) Classical,
B) Neoclassical
C) Decision usefulness
D) Information economics.

Answer 3

B

Question 4

Which of the following is not a topic being currently studied by the FASB as in conjunction with its effort on Chapter 8 of SFAC No. 8?

A) Fair value measurement
B) Defined benefit pension plans
C) Leases
D) Income taxes

Question 5

Which of the following economists most influenced the views of DR Scott?

A) Thorstein Veblen
B) John Hicks
C) Karl Marx
D) John Smith

Question 6

Who was the author of Accounting Research Study No. 1, The Basic Postulates of Accounting?

A) Robert Sprouse
B) Maurice Moonitz
C) Alvin Jennings\
D) Thomas Hatfield

Question 7

If the FASB's proposed definition of materiality as a legal concept is adopted the most likely outcome is

A) It will have little impact on the number of items classified as material
B) It will lower the threshold for recognizing event and transactions as material
C) It will raise the threshold for recognizing event and transactions as material
D) Its impact cannot be determined

Question 8

An item is considered material if

A) It doesn't cost a lot of money.
B) It is of a tangible good.
C) It is likely to influence the decision of an investor or creditor.
D) The cost of reporting the item is greater than its benefits

Question 9

Under Statement of Financial Accounting Concepts No. 8, which of the following is an ingredient of the primary quality of faithful representation?

A) Understandability
B) Completeness
C) Predictive value
D) Materiality

Question 10

Which of the following organizations published the monograph titled A Tentative Statement of Accounting Principles Affecting Annual Corporate Reports?

A) SEC
B) AAA
C) AIA
D) NAA

Question 11

Under Statement of Financial Accounting Concepts No. 8, confirmatory value is an ingredient of the primary quality of Relevance Faithful representation

A) No No
B) No Yes
C) Yes Yes
D) Yes No

Question 12

The purpose of Statements of Financial Accounting Concepts is to

A) Form a conceptual framework for solving existing and emerging problems.
B) Determine the need for FASB involvement in an emerging issue.
C) Establish GAAP.
D) Modify or extend an existing FASB Accounting Standards Update.

Question 13

What is meant by consistency when discussing financial accounting information?

A) Information that is measured and reported in a similar fashion across points in time.
B) Information is timely.
C) Information is measured similarly across the industry.
D) Information is verifiable

Question 14

Under Statement of Financial Accounting Concepts No. 8, the ability through consensus of measures to ensure that information represents what it purports to represent is an example of the concept of

A) Relevance
B) Verifiability
C) Faithful representation
D) Feedback value

Question 15

Which of the following organizations published the monograph titled A Statement of Accounting Principles?

A) SEC
B) AAA
C) AIA
D) NAA

Question 16

Under Statement of Financial Accounting Concepts No. 8, which of the following relates to both relevance and faithful representation?

A) Timeliness
B) Materiality
C) Predictive value
D) Neutrality

Question 17

Under Statement of Financial Accounting Concepts No. 8, which of the following is not a qualitative characteristic associated with faithful representation?

A) Completeness
B) Free from error
C) Neutrality
D) Predictive value

Question 18

What is meant by comparability when discussing financial accounting information?

A) Information has predictive or confirmatory value.
B) Information is reasonably free from error.
C) Information that is measured and reported in a similar fashion across companies.
D) Information is timely.

Question 19

Which of the following is considered a constraint by Statement of Financial Accounting Concepts No. 8?

A) Cost
B) Conservatism
C) Timeliness
D) Verifiability

Question 20

Under Statement of Financial Accounting Concepts No. 8, which of the following is an ingredient of the primary quality of relevance?

A) Neutrality
B) Materiality
C) Understandability
D) Verifiability

Question 21

Discuss the contribution DR Scott to the development of accounting theory.

Question 22

How did ASOBAT define accounting and what two new ideas arose from this monograph?

Question 23

According to SFAC No. 5, what should a full set of financial statements for a period show?

Question 24

Discuss how the FASB and the IASC acted to improve comparability under the Norwalk Agreement.

Question 25

Discuss accounting Research Study No. 1.

Question 26

What were the approaches to accounting theory identified by SATTA?

Question 27

Discuss the contributions of Paton and Canning to the development of accounting theory.
A. Paton and John
B. Canning. Paton's work, based on his doctoral dissertation, was among the first to express the view that all changes in the value of assets and liabilities should be reflected in the financial statements, and that such changes should be measured on a current value basis.
He also maintained that all returns to investors (both dividends and interest) were distributions of income, and consequently he espoused the entity concept rather than the prevailing proprietary concept. An additional contribution of this work was an outline of what Paton believed to be the basic assumptions or postulates underlying the accounting process. Paton's basic assumptions and postulates can be viewed as the first step in the development of the conceptual framework of accounting. Canning's work suggested a framework for asset valuations and measurement based on future expectations as well as a model to match revenues and expenses. At this time, the balance sheet was viewed as the principal financial statement, and the concept of capital maintenance was just emerging.

Question 28

Discuss the qualitative characteristics of accounting information as outlined in SFAC No. 8

Question 29

Discuss the issue of principles based vs. rule-based accounting standards.

Question 30

Define the following terms:
a. Comprehensive income
Comprehensive income is the change in equity (net assets) of an entity during a period from transactions and events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
b. Relevance
Relevant accounting information can make 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 prior expectations. Relevant information has predictive value, feedback value, and timeliness.
c. Faithful representation
Faithful representation has three characteristics: completeness, neutrality, and free from error. Although perfection is difficult or even impossible to achieve, the objective is to maximize those qualities to the extent possible. A complete depiction should include all information necessary for a user to understand the phenomenon being depicted. For some items, a complete depiction also might entail explanations of significant facts about the quality and nature of the items, factors, and circumstances that might affect their quality and nature and the process used to determine the numerical depiction. A neutral depiction is without bias in the selection or presentation of financial information. A neutral depiction is not slanted, weighted, emphasized, deemphasized, or otherwise manipulated to increase the probability that financial information will be received favorably or unfavorably by users. Neutral information does not mean information with no purpose or no influence on behavior. On the contrary, relevant financial information is, by definition, capable of making a difference in users' decisions. Free from error means there are no errors or omissions in the description of the phenomenon, and the process used to produce the reported information has been selected and applied with no errors in the process. Information that is free from error will result in a more faithful representation of financial results.

Question 31

Discuss DR Scott's hierarchy of postulates and principles.
a. Orientation Postulate. -Accounting is based on a broad consideration of the current social, political, and economic environment.
b. The Pervasive Principle of Justice. -The second level in Scott's conceptual framework was justice, which was seen as developing accounting rules that offer equitable treatment to all users of financial statements.
c. The Principles of Truth and Fairness. -Scott's third level contained the principles of truth and fairness. Truth was seen as an accurate portrayal of the information presented. Fairness was viewed as containing the attributes of objectivity, freedom from bias, and impartiality.
d. The Principles of Adaptability and Consistency. -The fourth level of the hierarchy contained two subordinate principles, adaptability and consistency. Adaptability was viewed as necessary because society and economic conditions change; consequently, accounting must also change. However, Scott indicated a need to balance adaptability with consistency by stating that accounting rules should not be changed to serve the temporary purposes of management.

Question 32

According to Kuhn, how dies scientific progress occur?

Question 33

Facilitating social functions and controls

Question 34

What two approaches to present value were discussed in SFAS No. 7?

Question 35

Determining how to summarize and report the results of events, transactions, and circumstances.

Question 36

What is the purpose of the conceptual framework?

Question 37

Discuss the contributions of the works by Sanders Hatfield and More, and Paton and Littleton to accounting theory.
A.
C. Littleton, An Introduction to Corporate Accounting Standards. While this study continued to embrace the use of historical cost, its major contribution was the further articulation of the entity theory. It also described the matching concept, whereby management's accomplishments (revenue) and efforts (expenses) could be evaluated by investors. This monograph was later cited as developing a theory that has been used in many subsequent authoritative pronouncements.

Question 38

Discuss the Statement of Financial Accounting Concepts No. 8-Conceptual Framework for Financial Reporting: Chapter 8: "Notes to Financial Statements."
a. Provides a decision-making framework for the FASB to follow when determining required disclosures in standards-level projects
b. Summarizes the types of information and certain limitations on that information that should be considered by the Board for determining the information to be included in the notes to the financial statements
c. Includes a list of decision questions to assist the Board and the FASB staff in developing potential disclosure requirements