Question 1

The purpose of the notes to the financial statements is to:
A) explain any resources and obligations not recognised in the Statement of Financial Position
B) provide information meeting the disclosure requirements under national laws or regulations.
C) disclose risks and uncertainties affecting the entity.
D) all of the above.

Accepted Answer

The notes to the financial statements serve to explain any resources and obligations that are not recognised in the Statement of Financial Position, provide information meeting required disclosures under national laws or regulations, and disclose risks and uncertainties affecting the entity. Therefore, all three options are correct, and the best choice is D.

Question 2

Which of the following statements is CORRECT?
A) IAS 8 Accounting Policies, Changes in Accounting Estimates, and Errors requires that The Framework be followed in the absence of a specific standard or interpretation.
B) IAS 8 Accounting Policies, Changes in Accounting Estimates, and Errors recommends, but does not require The Framework to be followed in the absence of a specific standard or interpretation.
C) The Framework is used solely by the IASB when considering new accounting issues.
D) The Framework is non-binding guidance which does not have to be followed by preparers of financial statements.

Accepted Answer

IAS 8 requires that The Framework be followed in the absence of a specific standard or interpretation. Therefore, statement A is correct. Statement B is incorrect because IAS 8 requires The Framework to be followed, not just recommends it. Statement C is incorrect because The Framework is used by all entities in the preparation of financial statements, not just the IASB. Statement D is incorrect because The Framework is binding guidance that is to be followed in the absence of specific standards or interpretations.

Question 3

Which of the following statements is INCORRECT?
A) The Framework identifies the qualitative characteristics that make information in financial statements useful.
B) The Framework defines principles for accounting recognition, measurement and disclosure.
C) The Framework defines the objective of financial statements.
D) The Framework defines the basic elements of financial statements and the concepts for recognizing and measuring them in financial statements.

Accepted Answer

The Framework actually provides a foundation for developing accounting standards, including the principles for recognition, measurement and disclosure. It does not provide specific principles itself.

Question 4

Which of the following statements is INCORRECT?
A) Information about the variability of profits helps in forecasting future cash flows from an entity's existing resources.
B) Performance of an entity is determined solely through examination of the Statement of Profit or Loss and Other Comprehensive Income of an entity.
C) An entity's Statement of Cash Flows provides insight into changes in assets and liability balances during an accounting period.
D) The Statement of Financial Position presents information relating to economic resources, the financial structure of an entity, liquidity and solvency and capacity to adapt to changes in an entity's environment.

Accepted Answer

The performance of an entity is determined through examination of various financial statements, including the Statement of Profit or Loss and Other Comprehensive Income, the Statement of Financial Position, and the Statement of Cash Flows. Therefore, statement B is incorrect.

Question 5

The going concern assumption underlying the preparation of financial statements is also know as:
A) the continuity assumption
B) the matching principle
C) the prudence principle
D) the historical cost measurement basis

Accepted Answer

The going concern assumption assumes that the company will continue to operate in the foreseeable future. This assumption underlies the preparation of financial statements, as it allows for the use of historical cost measurement, accrual accounting, and the matching principle. The other options listed are accounting principles, but they are not directly related to the going concern assumption.

Question 6

Which category of user is most likely to be interested primarily in the Statement of Profit or Loss and Other Comprehensive Income of an entity?
A) suppliers and trade creditors
B) shareholders
C) employees
D) lending institutions

Accepted Answer

Shareholders are the owners of the company and are most interested in the profitability of the entity. The Statement of Profit or Loss and Other Comprehensive Income provides information on the revenue, expenses, gains and losses of the company, which directly affects the company's profitability and the value of the shareholder's investment.

Question 7

An asset is defined in the conceptual framework as:
A) a resource controlled by the entity as a result of past events
B) a resource controlled by the entity as a result of future events and from which possible future economic benefits may flow to the entity.
C) a resource controlled by the entity from which future economic benefits are expected to flow to the entity.
D) a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.

Accepted Answer

An asset, according to the conceptual framework, is defined as a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. This definition emphasizes control due to past events and the expectation of receiving future economic benefits.

Question 8

General Purpose Financial Statements:
A) are only necessary for users who do not have the power to obtain information in addition to that contained within the General Purpose Financial Statement.
B) provide all the information that users may need to make economic decisions.
C) focus on disclosing information relevant to assessing the ability of an entity to generate future cash flows.
D) meet the information needs that are common to all users.

Accepted Answer

General Purpose Financial Statements aim to meet the information needs that are common to all users, such as shareholders, creditors, investors, and other stakeholders. These statements provide information about the financial position, performance, and cash flows of an entity, which is crucial for making economic decisions. The statements do not provide all the information that users may need, but they disclose information that is relevant to assessing the entity's ability to generate future cash flows. Therefore, option D is the correct choice.

Question 9

The IASB conceptual framework for financial reporting describes the basic concepts that underlie financial statements and defines:
A) the principles for measurement;
B) disclosure principles;
C) the elements of financial statements
D) accounting recognition criteria.

Accepted Answer

The IASB conceptual framework for financial reporting defines the elements of financial statements including assets, liabilities, equity, income, and expenses. However, it does not define specific principles for measurement or disclosure, nor does it provide accounting recognition criteria.

Question 10

The fundamental qualitative characteristics that make financial information useful for decision-making are:
$\begin{array}{lllll}&I&II&III&IV\
\text { comparability } & \text { Yes } & \text { Yes } & \text { No } & \text { No } \
\text { relevance } & \text { Yes } & \text { Yes } & \text { No } & \text { Yes } \
\text { understandability } & \text { Yes } & \text { No } & \text { No } & \text { No } \
\text { faithful representation } & \text { Yes } & \text { No } & \text { No } & \text { Yes }
\end{array}$
A) I;
B) II;
C) III;
D) IV.

Accepted Answer

The answer of The fundamental qualitative characteristics that make financial...

Question 11

Which of the following bodies report to the IFRS Foundation?
A) The IASB and AASB
B) The IASB, AASB and the IFRS Advisory Council
C) The IASB and the FASB
D) The IASB and the IFRS Advisory Council

Accepted Answer

The International Financial Reporting Standards (IFRS) Foundation oversees the International Accounting Standards Board (IASB) and the IFRS Advisory Council. The Australian Accounting Standards Board (AASB) and the Financial Accounting Standards Board (FASB) operate independently of the IFRS Foundation, with the AASB aligning Australian standards with IFRS and the FASB setting standards in the United States.

Question 12

The enhancing qualitative characteristics that make financial information useful for decision-making are:$\begin{array}{lllll}&I&II&III&IV\
\text { comparability } & \text { Yes } & \text { Yes } & \text { No } & \text { No } \
\text { relevance } & \text { Yes } & \text { Yes } & \text { No } & \text { Yes } \
\text { understandability } & \text { Yes } & \text { No } & \text { No } & \text { No } \
\text { faithful representation } & \text { Yes } & \text { No } & \text { No } & \text { Yes }
\end{array}$
A) I;
B) II;
C) III;
D) IV.

Accepted Answer

The enhancing qualitative characteristics of financial information include comparability, relevance, understandability, and faithful representation, which are all present in option I.

Question 13

The qualitative qualitative characteristics that make information in financial statements useful to investors identified within The Framework are:
A) Relevance, faithful representation, timeliness and comparability
B) Relevance and faithful representation
C) Relevance, faithful representation, comparability, verifiability, timeliness and understandability
D) Comparability, verifiability, timeliness and understandability

Accepted Answer

The qualitative characteristics that make information in financial statements useful to investors identified within The Framework are relevance, faithful representation, comparability, verifiability, timeliness, and understandability. Option A only includes relevance, faithful representation, timeliness and comparability, while Option B only includes relevance and faithful representation. Option D only includes comparability, verifiability, timeliness, and understandability, hence the best choice is C which includes all the characteristics described in The Framework.

Question 14

If management intends to liquidate the entity's operations, financial statements are prepared on the basis of
A) Historical cost
B) Historical cost with a note that the entity is about to liquidate
C) Expected liquidation values
D) Financial statements do not have to be prepared.

Accepted Answer

When an entity intends to liquidate its operations, financial statements are prepared on the basis of expected liquidation values. This is because the entity is no longer a going concern and its assets are expected to be sold off in the near future, rather than continuing to be used in the entity's operations. Historical cost may not represent the current value of the assets, and historical cost with a note is not sufficient to fully disclose the impact of liquidation on the financial statements. Financial statements must still be prepared to meet reporting requirements.

Question 15

Which of the following statements is INCORRECT in relation to the preparation of financial statements?
A) General Purpose Financial Statements must be prepared in accordance with accounting standards.
B) General Purpose Financial Statements are reports intended to meet the information needs common to users who are unable to command the preparation of reports tailored so as to specifically meet all their information needs.
C) The sole objective of a General Purpose Financial Statement is to serve an economic decision making objective.
D) The objective of a General Purpose Financial Statement is to provide information useful to users for making and evaluating decisions about the allocation of scarce resources.

Accepted Answer

While providing information to serve an economic decision making objective is an important objective of financial statements, it is not the sole objective. Other objectives include providing information about the entity's financial position, performance, cash flows, and changes in equity, as well as complying with legal and regulatory requirements.

Question 16

Information that is able to confirm or correct past evaluations that have been made by users of financial information is an example of information that satisfies which of the following characteristics of financial information identified in The Framework?
A) Understandability
B) Relevance
C) Verifiability
D) Comparability

Accepted Answer

Relevance is a key characteristic of financial information, as it makes the information capable of making a difference in decision-making processes. Information that can confirm or correct past evaluations directly influences financial decisions, making it relevant.

Question 17

The Framework focuses on:
A) privately owned business entities only.
B) business entities only, including private and state owned business entities.
C) business entities, although the concepts may be applied to other types of entities, such as not-for profit entities.
D) all types of entities, including business entities, government and not-for profit entities.

Accepted Answer

The answer of The Framework focuses on:
A) privately owned business...

Question 18

A liability is defined in conceptual framework as:
A) possible obligation of the entity, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
B) a possible obligation of the entity expected to arise from future events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
C) a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
D) a present obligation of the entity arising from past events, the settlement of which is expected to result in an inflow to the entity of resources embodying economic benefits.

Accepted Answer

According to the conceptual framework, a liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. Therefore, option C is the correct choice. Option A describes a possible obligation, which does not necessarily meet the definition of a liability. Option B describes a future obligation, which also does not meet the definition of a liability. Option D describes a present obligation that will result in an inflow to the entity, which is not the definition of a liability either.

Question 19

Which of the following income and expense items is NOT recorded initially directly in equity?
A) The impairment of goodwill in accordance with IAS 36 Impairment of Assets, where the entity is confident that the factors giving rise to the impairment will reverse in a future period.
B) An increase in the fair values of land & buildings, where the revaluation method is used to account for land & buildings in accordance with IAS 16 Property, Plant and Equipment.
C) Foreign currency translation adjustments arising on the translation of a foreign operations financial statements from their functional currency in accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates.
D) None of the above.

Accepted Answer

The impairment of goodwill is recorded initially in the income statement as an expense, not directly in equity. This expense reduces the entity's net income and therefore reduces equity indirectly. The other options listed, B and C, are both examples of items that are initially recorded directly in equity.

Question 20

Which of the following statements is INCORRECT?
A) The International Accounting Standards Board was replaced by the International Standards Committee in 2001.
B) The International Accounting Standards Board is funded by the IASC Foundation.
C) The responsibility for issuing International Financial Reporting Standards lies with the International Accounting Standards Board.
D) Members of the International Accounting Standards Board are appointed by the IFRS Foundation.

Accepted Answer

The International Accounting Standards Board (IASB) was not replaced by the International Standards Committee in 2001. In fact, the IASB was created in 2001 as a successor to the International Accounting Standards Committee (IASC).

Quiz 1: The Iasb and Its Conceptual Framework

The purpose of the notes to the financial statements is to:

Which of the following statements is CORRECT?

Which of the following statements is INCORRECT?

Which of the following statements is INCORRECT?

The going concern assumption underlying the preparation of financial statements is also know as:

Which category of user is most likely to be interested primarily in the Statement of Profit or Loss and Other Comprehensive Income of an entity?

An asset is defined in the conceptual framework as:

General Purpose Financial Statements:

The IASB conceptual framework for financial reporting describes the basic concepts that underlie financial statements and defines:

Which of the following bodies report to the IFRS Foundation?

The qualitative qualitative characteristics that make information in financial statements useful to investors identified within The Framework are:

If management intends to liquidate the entity's operations, financial statements are prepared on the basis of

Which of the following statements is INCORRECT in relation to the preparation of financial statements?

Information that is able to confirm or correct past evaluations that have been made by users of financial information is an example of information that satisfies which of the following characteristics of financial information identified in The Framework?

The Framework focuses on:

A liability is defined in conceptual framework as:

Which of the following income and expense items is NOT recorded initially directly in equity?

Which of the following statements is INCORRECT?