Deck 2: Financial Reporting Theory

Question 1

The FASB has taken the conceptual framework to a higher level than the IASB.

Answer 1

False

Question 2

The conceptual framework indicates that the primary users of financial information are the investors,lenders,and managers.

Answer 2

False

Question 3

A purpose of the conceptual framework is to override accounting standards.

Answer 3

False

Question 4

A key relationship among the conceptual framework components is the direct effect of financial reporting standards on the elements of the financial statement.

Question 5

Ronaldo Woods is a student getting his degree in business administration.He does not like his accounting class very much,and doesn't understand why he needs to study accounting - stating "I'm never going to be an accountant - why do I need to know this?" Explain to Ronaldo why it is important for business students to learn about accounting and give examples.

Question 6

The conceptual framework assists with ________.

A)the development of a set of standards which provide absolute answers for accounting questions
B)the development of a set of standards for auditors to use when looking for material misstatements or fraud
C)the development of a set of standards which ensure that financial reports meet the needs of investors and creditors
D)All of the above

Question 7

Who are the primary users of financial information? Discuss how FASB and IASB take them into account.

Question 8

The conceptual framework indicates that the primary users of financial information are the investors,lenders,and other creditors.

Question 9

A purpose of IASB's conceptual framework is to assist preparers,auditors,and users of financial statements.

Question 10

The primary purpose of financial reporting is to provide information that is useful to a company's ________.

A)suppliers
B)managers
C)regulators
D)employees

Question 11

The FASB's decisions are often based on an investor's need to form an opinion about a company's future cash flows.

Question 12

What is the primary challenge for financial reporting?

A)to stay relevant to the needs of investors
B)to stay relevant to the needs of lenders and creditors
C)to stay relevant to the needs of other financial statement users
D)both A & B
E)all of the above

Question 13

The conceptual framework defines the objective of financial reporting as providing financial information that is useful in making decisions about resource allocation.

Question 14

Which of the following types of information is not a focus of the primary objective of financial reporting?

A)information that helps a banker decide to provide a loan
B)information that helps a manager assess the efficiency and effectiveness of operations
C)information that helps a supplier evaluate amount and timing of cash flows of its customers
D)information that helps an investor form an opinion about a company's future cash flows

Question 15

Publicly traded U.S.companies are required to comply with IFRS.

Question 16

A purpose of FASB's conceptual framework is to assist preparers,auditors,and users of financial statements.

Question 17

Which of the following is not considered to be a primary user of financial information for which financial reporting standards are designed?

A)supplier
B)investor
C)regulator
D)lender

Question 18

U.S.GAAP and IFRS set forth the same objective of financial reporting in their respective conceptual frameworks.

Question 19

A key relationship among the conceptual framework components is the impact the objective of financial reporting has on the qualitative characteristics that are considered to make accounting information useful.

Question 20

Currently the FASB and IASB have two separate conceptual frameworks which are partially converged.

Question 21

The IASB and FASB share the goal that standards will be based on an agreed set of fundamental ________.

A)practices
B)constraints
C)standards
D)concepts

Question 22

What is the purpose of the conceptual framework?

Question 23

Information that is not material is never relevant.

Question 24

Information is relevant if it reliably depicts the substance of an economic event.

Question 25

When developing new standards,the standard setters must first determine ________.

A)which elements of the financial statements are affected by the proposed standard
B)if the proposed standard possesses the qualitative characteristics that make accounting information useful
C)if the proposed standard meets the objective of financial reporting
D)which recognition and measurement concepts are used to support the proposed standard

Question 26

Discuss how standard setters use the conceptual framework in developing new standards.

Question 27

The two types of qualitative characteristics are fundamental characteristics and elective characteristics.

Question 28

The primary purpose of the conceptual framework is to provide guidance to ________.

A)preparers of financial statements
B)auditors
C)standard setters
D)CEOs

Question 29

In the conceptual framework,what are the two types of qualitative characteristics of financial reporting?

A)fundamental and enhancing
B)point-in-time and period-of-time
C)recognition and measurement
D)elements and principles

Question 30

________ are identical under U.S.GAAP and IFRS.

A)Elements and Recognition
B)Presentation and Disclosure
C)Objective and Qualitative Characteristics
D)Subjective and Quantitative Characteristics

Question 31

List the three primary components of the conceptual framework for financial reporting and the two subcomponents of each component.

Question 32

Which of the following best characterizes the current situation concerning revisions to the conceptual framework?

A)The FASB is considering revisions to their conceptual framework but IASB is not.
B)The IASB is considering revisions to the conceptual framework but FASB is not.
C)The FASB and the IASB are working independently on their conceptual frameworks.
D)The FASB and the IASB are working cooperatively on a single conceptual framework.

Question 33

In the conceptual framework,what are the two types of elements of financial reporting?

A)fundamental and enhancing
B)point-in-time and period-of-time
C)recognition and measurement
D)elements and principles

Question 34

Information exhibits the characteristic of faithful representation if it is complete,neutral,and free from error.

Question 35

When developing a new proposed accounting standard,after FASB has determined that the proposed standard meets the objective of financial reporting,the next step in the development process is to ________.

A)determine which elements of the financial statements are affected by the proposed standard
B)consider whether the proposed standard possesses the qualitative characteristics that make accounting information useful
C)weigh constraints on issuing the new standard,which may deter requiring the new standards
D)identify recognition and measurement concepts used to support the proposed standard

Question 36

List three active phases in the FASB conceptual framework project.

Question 37

All of the following are primary components of the conceptual framework for financial reporting except ________.

A)qualitative characteristics
B)standards
C)principles of recognition and measurement
D)elements

Question 38

Which of the following is not a purpose of FASB's conceptual framework?

A)aid in development of new standards
B)support understanding of accounting standards
C)assist with revision of accounting standards
D)override existing accounting standards

Question 39

Information has predictive value if it provides feedback about prior evaluations.

Question 40

The role of qualitative characteristics in the conceptual framework is to increase the decision usefulness of financial information.

Question 41

The two fundamental characteristics of financial information are ________.

A)comparability and understandability
B)relevance and timeliness
C)reliability and faithful representation
D)faithful representation and relevance

Question 42

Financial statements should provide all financial information that is relevant and faithfully representative within the limitations of the ________ constraint.

A)benefit
B)materiality
C)usefulness
D)cost

Question 43

Information that is not accurate can be considered faithfully representative.

Question 44

TLR Studio reported earnings per share of $2.11.This surpassed the average analyst forecast of $2.06.This information has ________ to users of financial information.

A)confirmatory value
B)comparable value
C)consistent value
D)both A & C

Question 45

Verifiability is a characteristic of faithful representation.

Question 46

Which of the following is a characteristic of faithful representation?

A)timely
B)comparable
C)material
D)complete

Question 47

Poseidon Corp is aware that a large portion of receivables may become uncollectible because the customer is in talks for bankruptcy.By choosing not to disclose this information,the information provided in the statements ________.

A)is not verifiable
B)does not faithfully represent the firm's financial position
C)both A & B
D)neither A nor B

Question 48

The attribute ________ relates to information that is relevant.

A)comparative value
B)predictive value
C)neutrality
D)verifiability

Question 49

All of the following are enhancing characteristics except ________.

A)understandability
B)verifiability
C)consistency
D)comparability

Question 50

Baxter Company issues its annual financial reports within one month of the end of the year.This is an example of which enhancing quality of accounting information?

A)confirmatory value
B)relevance
C)verifiability
D)timeliness

Question 51

Which of the following is not a characteristic of relevance?

A)confirmatory value
B)materiality
C)free from error
D)predictive value

Question 52

The most important characteristic of accounting information is whether it is ________.

A)free from error
B)material
C)relevant
D)useful

Question 53

Relevance is an enhancing characteristic of financial information.

Question 54

Materiality cannot always be expressed quantitatively but sometimes requires judgment.

Question 55

Black Gold Gem Co omitted the fact that a mine has been depleted ahead of estimates.Because of this omission,the financial information provided to users ________.

A)is not free from error
B)does not faithfully represent the firm's financial position
C)both A & B
D)neither A nor B

Question 56

________ means that a group of reasonably informed financial statement users are able to reach a consensus decision that reported information is a faithful representation of an underlying economic event.

A)Comparability
B)Verifiability
C)Understandability
D)Freedom from error

Question 57

Do you agree or disagree with the following statement: "Financial statements that are free from error are accurate." Explain your answer.

Question 58

What are the attributes of relevant information?

A)predictive value,timeliness,free from error
B)materiality,predictive value,and confirmatory value
C)comparability,verifiability,and predictive value
D)complete,neutral,free from error

Question 59

________ characteristics distinguish useful financial information from information that is not useful.

A)Representative
B)Relevant
C)Fundamental
D)Quantitative

Question 60

________ indicates whether financial information depicts an economic event in a way that is complete,neutral,and free from error.

A)Relevance
B)Faithful representation
C)Verifiability
D)Truthfulness

Question 61

IFRS and U.S.GAAP both identify assets as ________ elements.

A)phase-in-time
B)period-of-time
C)point-in-time
D)piece-of-time

Question 62

Under U.S.GAAP,________ is an example of a period-of-time element and appears on the ________.

A)accounts receivable,balance sheet
B)depreciation expense,statement of shareholders' equity
C)salary payable,balance sheet
D)sales revenue,income statement

Question 63

According to the FASB's conceptual framework,gains include increases in equity from which of the following activities?

A)
B)
C)
D)

Question 64

According to IFRS,period-of-time elements include income,expenses,performance,and transactions with owners.

Question 65

The IFRS element capital maintenance is identical to the GAAP element comprehensive income.

Question 66

Complete the following table - identify which enhancing characteristic is indicated in each independent scenario and whether it was satisfied or violated.

Question 67

U.S.GAAP and IFRS identify the same three period-of-time elements.

Question 68

According to IFRS,there are two types of capital maintenance adjustments: financial and physical.

Question 69

U.S.GAAP and IFRS identify the same three point-in-time elements.

Question 70

Caesar & Company is planning a major expansion,and is in negotiations with their bank for a loan.The bank requested that Caesar & Co provide them with financial statements as soon as possible after the end of the year.Caesar & Co has several suppliers that are slow to submit invoices,so they are considering making estimates for the amounts associated with those liabilities in order to expedite the preparation of the financial statements for the bank.Discuss the qualitative characteristics that they need to consider.

Question 71

What is the cost constraint and how does it affect financial reporting?

Question 72

According to U.S.GAAP,period-of-time elements include investments by owners,revenues,comprehensive income,and others.

Question 73

________ elements appear on the balance sheet.

A)Period-of-time
B)Point-in-time
C)Piece-of-time
D)Phase-in-time

Question 74

According to IFRS,point-in-time elements include assets,liabilities,and equity.

Question 75

What is the term that describes the building blocks of the financial statements?

A)fundamental characteristics
B)enhancing characteristics
C)elements
D)assets

Question 76

Complete the following table - identify which fundamental characteristic and which attribute are indicated in each independent scenario.

Question 77

Under U.S.GAAP,comprehensive income includes which of the following?

A)
B)
C)
D)

Question 78

Comprehensive income is the residual interest in the assets of an entity that remains after deducting its liabilities.

Question 79

IFRS does not treat transactions with owners as separate elements.

Question 80

Elements are categorized by whether they are relevant or faithfully representative.