Question 1

Accounting principles initially drew their authority from acceptance by the business community.

Accepted Answer

Accounting principles were not initially codified by a regulatory authority, but were instead based on customary practices and conventions adopted by businesses. These principles gained authority through widespread acceptance and usage within the business community.

Question 2

Which of the following is not a characteristic used to judge whether an entity is a reporting entity that should prepare general purpose financial reports?
A) The structure of the entity, e.g. whether it is a sole trader or a company
B) Whether ownership and management are separate
C) Whether the entity has economic or political importance
D) The size or indebtedness of the entity

Accepted Answer

The structure of the entity, such as whether it is a sole trader or a company, is not a characteristic used to judge whether an entity should prepare general purpose financial reports. The other three characteristics - ownership and management separation, economic or political importance, and size or indebtedness - are commonly used to determine the reporting entity.

Question 3

AASB stands for Australian Accounting Standards Board.

Accepted Answer

AASB stands for Australian Accounting Standards Board.

Question 4

Due process in standard setting involves public consultation with all interested parties.

Accepted Answer

Due process in standard setting requires public consultation with all interested parties to ensure fairness and inclusivity in the decision-making process. This helps to avoid any bias, conflicts of interest, or discrimination against any particular group or individual.

Question 5

Accounting principles:
A) should be accepted by people and organisations who need financial information to make decisions.
B) explain financial phenomena.
C) are similar to natural laws, like the law of gravity.
D) apply only to large business organisations.

Accepted Answer

Accounting principles are a set of guidelines and rules that should be accepted by people and organisations who need financial information to make decisions. They provide a framework for the preparation and presentation of financial statements that are useful in decision-making. They are not natural laws like the law of gravity and they apply to all types of businesses, not just large ones.

Question 6

Management relies much more on special purpose reports rather than the general-purpose information needed by external users.

Accepted Answer

Management needs more specific information to make decisions and take actions, which is often provided through special purpose reports tailored to their needs rather than the general-purpose financial statements that are primarily intended for external users.

Question 7

Which of the following are NOT potential users of financial reports as identified in SAC 2?
A) Resource providers, including investors, lenders, creditors, suppliers and employees
B) Recipients of goods and services, such as customers
C) Parties performing a review or oversight function, which may include governments, regulatory agencies (such as ATO), labour unions, financial analysts, employer groups and the media
D) Managers, accountants and standard setters

Accepted Answer

The answer of Which of the following are NOT potential...

Question 8

Which of the following parties is NOT a frequent contributor in the consultation phase of the standard setting process?
A) The professional accounting bodies, CPAA and ICAA
B) Academics
C) ASIC
D) Industry groups

Accepted Answer

While ASIC (Australian Securities and Investments Commission) may provide comments or feedback during the consultation phase of the standard setting process, they are not considered a frequent contributor compared to the other options listed. The professional accounting bodies, academics, and industry groups are all known to be active contributors in providing input and feedback during the consultation phase.

Question 9

The basic accounting concepts and principles:
A) explain the difference between managerial and financial accounting.
B) provide financial information 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.
C) are an important way in which management discharges its accountability to investors and other outside users.
D) provide a structure for helping us to judge whether specific rules and methods for calculating and reporting accounting information are consistent with each other.

Accepted Answer

The statement provided applies to the basic accounting concepts and principles which provide a framework for the preparation and presentation of financial statements. These principles and concepts ensure consistency and comparability in financial reporting. They do not directly differentiate between managerial and financial accounting, provide financial information for investors, or discharge accountability to outside users.

Question 10

The authority responsible for enforcing accounting and other corporate rules for companies in Australia is:
A) ASIC.
B) FRC.
C) AASB.
D) both A and C

Accepted Answer

The answer of The authority responsible for enforcing accounting and...

Question 11

Since 2005,the main influence on Australian accounting standards is:
A) U.S. accounting standards.
B) British accounting standards.
C) International accounting standards.
D) All of the above

Accepted Answer

Since 2005, the main influence on Australian accounting standards has been the adoption of International Financial Reporting Standards (IFRS), which are developed by the International Accounting Standards Board (IASB). While both the U.S. and British accounting standards have some similarities to IFRS, they are not the main influence on Australian accounting standards.

Question 12

According to the IASB and adopted by the AASB,the primary objective of financial reporting is to provide information:
A) about the profitability of the business.
B) that is useful for decision making, particularly for investors and lenders.
C) to the federal government.
D) regarding the cash flows of the business.

Accepted Answer

The primary objective of financial reporting, according to the IASB and adopted by the AASB, is to provide information that is useful for decision making, particularly for investors and lenders. This includes information about the financial position, performance, and cash flows of the business. While profitability and cash flows are important components of financial reporting, they are not the primary objective. Providing information to the federal government is not the primary objective of financial reporting, although financial statements may be used for taxation purposes.

Question 13

The Financial Reporting Council (FRC)was established by the federal government to oversee the Australian standard-setting process.

Accepted Answer

The Financial Reporting Council (FRC) was established by the federal government in Australia to oversee the Australian standard-setting process.

Question 14

Inventory has a cost of $475 000 and a current selling price of $435 000.What amount should be reported on the financial statements and what concept or principle applies?
A) $435 000, conservatism
B) $435 000, going concern
C) $475 000, going concern
D) $475 000, cost

Accepted Answer

The concept of conservatism requires that assets be reported at the lower of cost or net realizable value. In this case, the current selling price of $435 000 is lower than the cost of $475 000, so inventory should be reported at $435 000.

Question 15

The objective of financial reporting is to provide useful information to investors,creditors and others to aid in making and evaluating decisions about the allocation of scarce resources.

Accepted Answer

This is the main objective of financial reporting. It aims to provide information that helps users of financial statements make informed decisions about investing, lending, or other resource allocation decisions.

Question 16

The body that is responsible for the issue of accounting standards in Australia is:
A) The Australian Securities and Investments Commission.
B) The Australian Accounting Standards Board.
C) The Institute of Chartered Accountants in Australia.
D) CPA Australia.

Accepted Answer

The Australian Accounting Standards Board (AASB) is responsible for issuing accounting standards in Australia. The AASB is an independent accounting standard-setter, funded by the Australian government. The other options, while all related to accounting in Australia, do not have the specific responsibility of issuing accounting standards.

Question 17

A conceptual framework of accounting is intended to eliminate the need for detailed accounting standards.

Accepted Answer

A conceptual framework provides a basis for developing accounting standards, but detailed accounting standards are still necessary to ensure consistency and specificity in applying the framework.

Question 18

Accounting standards in the USA are issued by:
A) Congress.
B) the Financial Accounting Standards Board.
C) the Securities and Exchange Commission.
D) the Accounting Principles Board.

Accepted Answer

Accounting standards in the USA are issued by the Financial Accounting Standards Board (FASB). The FASB is an independent organization that is responsible for developing and issuing accounting standards, known as Generally Accepted Accounting Principles (GAAP), for public companies and other organizations that follow US accounting standards. While the SEC has oversight authority over the FASB, it does not issue accounting standards itself. Congress and the Accounting Principles Board (APB) are not involved in the current process of setting accounting standards in the USA.

Question 19

SAC 2 is titled:
A) Objective of General Purpose Financial Reporting.
B) Qualitative Characteristics of Financial Information.
C) Definition and Recognition of the Elements of Financial Statements.
D) Definition of the Reporting Entity.

Accepted Answer

The answer of SAC 2 is titled:
A) Objective of General...

Question 20

According to the IASB Framework,accounting information should meet all of the following qualitative characteristics,except:
A) comparability.
B) relevance.
C) reliability.
D) reasonableness.

Accepted Answer

The IASB Framework identifies the qualitative characteristics of accounting information as relevance, reliability, comparability, and understandability. "Reasonableness" is not among these characteristics.

Quiz 17: The Framework of Accounting

Accounting principles initially drew their authority from acceptance by the business community.

Which of the following is not a characteristic used to judge whether an entity is a reporting entity that should prepare general purpose financial reports?

AASB stands for Australian Accounting Standards Board.

Due process in standard setting involves public consultation with all interested parties.

Accounting principles:

Management relies much more on special purpose reports rather than the general-purpose information needed by external users.

Which of the following are NOT potential users of financial reports as identified in SAC 2?

Which of the following parties is NOT a frequent contributor in the consultation phase of the standard setting process?

The basic accounting concepts and principles:

The authority responsible for enforcing accounting and other corporate rules for companies in Australia is:

Since 2005,the main influence on Australian accounting standards is:

According to the IASB and adopted by the AASB,the primary objective of financial reporting is to provide information:

The Financial Reporting Council (FRC)was established by the federal government to oversee the Australian standard-setting process.

Inventory has a cost of $475 000 and a current selling price of $435 000.What amount should be reported on the financial statements and what concept or principle applies?

The objective of financial reporting is to provide useful information to investors,creditors and others to aid in making and evaluating decisions about the allocation of scarce resources.

The body that is responsible for the issue of accounting standards in Australia is:

A conceptual framework of accounting is intended to eliminate the need for detailed accounting standards.

Accounting standards in the USA are issued by:

SAC 2 is titled:

According to the IASB Framework,accounting information should meet all of the following qualitative characteristics,except: