Deck 2: The Conceptual Framework: Purpose, reporting Entity, the Objective of Financial Reporting, and Qualitative Characteristics

Question 1

The IASB Framework defines the objective of general purpose financial reporting as:

A) to provide about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity
B) to decide whether the reporting entity is achieving its objectives in accordance with Generally Accepted Accounting Principles
C) to give a true and fair view of the financial position and performance of the entity
D) None of the above

Answer 1

A

Question 2

Which components of the conceptual framework were withdrawn upon adoption of the IASB conceptual framework?

A) SAC 1 and SAC 2
B) Statements on Financial Accounting Concepts
C) SAC 3 and SAC 4
D) All of the above

Answer 2

C

Question 3

From 1 January 2005 the Australian conceptual framework includes:

A) SAC 1-2 and the IASB conceptual framework
B) SAC 1-4 and the IASB conceptual framework
C) the IASB conceptual framework
D) none of the above

Answer 3

A

Question 4

Which of the following is not a fundamental issue when an accountant faces a new type of transaction?

A) recognition
B) measurement
C) disclosure
D) issuance

Question 5

Describe the various factors in determining the existence of dependent users of financial statements.

Question 6

Which factor(s)is/are identified in SAC1 to assist in determining whether an entity has users dependent on general purpose financial reports?

A) Type of accounting system
B) Classes of issued shares
C) Separation of management and ownership
D) All of the above

Question 7

What is not a key characteristic concerning users of general purpose financial statements?

A) The users do not necessarily have to be known to the entity
B) The users are internal to the entity
C) The users lack the power to demand that the entity provides them with specific information
D) All of the above are key characteristics

Question 8

In establishing reporting requirements,the Corporations Act distinguishes between:

A) large and small proprietary companies
B) service and non-service entities
C) legal and non-legal entities
D) reporting and non-reporting entities

Question 9

The major beneficiary from the development of a conceptual framework is expected to be:

A) governments
B) preparers of financial reports
C) accounting standard setters
D) managers

Question 10

Which statement is incorrect?

A) APB statement No. 4. 'Basic-Concepts and Accounting Principles Underlying Financial Statements of Business Enterprises' was the US profession's first conceptual framework
B) The trend in accounting over many years has been to reduce disclosure in published reports
C) The double-entry bookkeeping system was developed in Italy during the 13^th and 14^th centuries
D) In earlier times many present-day transactions were not contemplated by accountants

Question 11

SAC1 defines an entity which has users who are dependent on general purpose financial reports as a/an:

A) accounting entity
B) reporting entity
C) company entity
D) legal entity

Question 12

Which of the following is not one of the major potential benefits of a conceptual framework for accounting standards setters?

A) Improve the communication process
B) More consistent and logical accounting standards
C) Savings in auditing costs
D) Improved accountability

Question 13

Assisting the users to assess the amount,timing and uncertainty associated with an entity's future
Cash flows is a decision common to:

A) the not-for-profit sector
B) auditors
C) standards setters
D) for-profit sector

Question 14

Which term defines a 'financial report intended to meet the information needs common to users who are unable to command the preparation of reports tailored so as to satisfy,specifically,all of the information needs'.

A) Balance Sheet
B) Auditor's Report
C) General Purpose Financial Statements
D) Management Discussion and Analysis

Question 15

When deciding whether an entity is a reporting entity reference should be made to:

A) relevant legislation rather than SAC1
B) SAC1 rather than relevant legislation
C) ASX listing rules rather than Australian Accounting Standards
D) Australian Accounting Standards rather than ASX listing rules

Question 16

According to a study from the 1980's,what are the three components of the objective of accounting?

A) Relevance, control, and reliability
B) Faithful representation, control, and fair value
C) Accountability, decision usefulness, and control
D) Accountability, relevance, and decision usefulness

Question 17

Financial statements prepared by non-reporting entities are known as:

A) Entity financial statements
B) Special purpose financial statements
C) Quarterly mandated financial reports
D) General purpose financial statements

Question 18

List and briefly explain the four fundamental issues that accountants address when developing the appropriate accounting policy for a new type of transaction.

Question 19

Distinguish between general purpose and special purpose financial statements.Give examples of each type of report.

Question 20

The elements of financial statements,as outlined in the conceptual framework,are:

A) assets, liabilities, equity, income, expenses
B) balance sheet, income statement, cash flow statement
C) materiality, comparability, relevance, reliability
D) historical cost, current cost, net market value, constant purchasing power

Question 21

Which considerations are considered basic constraints on the preparation and presentation of financial information?

A) Relevance and reliability
B) Timeliness and faithful representation
C) Costs and benefits
D) Understandability and Verifiability

Question 22

Which qualitative characteristic of financial information focuses on the inclusion of relevant information?

A) Faithful representation
B) Materiality
C) Comparability
D) Cost constraint

Question 23

Which fundamental qualitative characteristic best describes the capability of financial information making a difference in decisions made by users?

A) Faithful representation
B) Relevance
C) Reliability
D) Comparability

Question 24

Which of the following is a characteristic of financial information as suggested by the American Accounting Association?

A) Faithful Representation
B) Reliability
C) Relevance
D) Consistency

Question 25

Explain the differences between verifiability and understandability of financial information.

Question 26

What is one difficulty encountered with asking users of financial information what they want?

A) Cost-benefit constraint
B) Lack of available information
C) The decision making process is not the same for all decision makers.
D) Choice of information sources

Question 27

What are the two aspects related to the timeliness of financial information?

A) Relevance and comparability
B) Frequency and timing
C) Faithful representation and frequency
D) Timing and relevance

Question 28

Which term best illustrates the assurance that financial information faithfully represents the economic phenomena it purports to represent?

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