Deck 11: Accounting Principles

Question 1

The conceptual framework will not be able to guide decisions about what to present in the financial statements.

Answer 1

False

Question 2

Capital providers are the main users of financial reporting.

Answer 2

True

Question 3

The main users of financial reporting are the employees of a company.

Answer 3

False

Question 4

To make decisions about allocating capital, users look for information in the financial statements about a company's ability to maintain relationships with key customers.

Question 5

The main objective of financial reporting is to provide useful information for decision making.

Question 6

The cost constraint exists to ensure that the value of the information is more than the cost of providing it.

Question 7

The elements of financial statements are the key ratios which a company will use to manage its business.

Question 8

Under IFRS, a company can never change its accounting policies.

Question 9

An item is material when it is unlikely to influence the decision of a reasonably careful investor or creditor.

Question 10

A conceptual framework ensures we have a coherent set of standards.

Question 11

IFRS will be the standard for all Canadian Companies.

Question 12

The conceptual framework ensures that existing standards and practises are clear and consistent.

Question 13

It is an underlying assumption that financial statements are prepared as if the company is NOT a going concern.

Question 14

If the company is a going concern, the classification of assets and liabilities as current and noncurrent would not matter.

Question 15

An error is considered to be a material error if the error in the accounting information could have an impact on an investor's or creditor's decision.

Question 16

Not every country uses the same conceptual framework or set of accounting standards.

Question 17

Claims on economic resources are defined as assets.

Question 18

Canadian and International standards are based on specific rules for accounting.

Question 19

Going forward, there will be two sets of accounting standards for Canadian for profit companies.

Question 20

If a company is not a going concern, then its assets will be presented at their net realizable value.

Question 21

Confirmatory value helps users forecast future events.

Question 22

Revenue recognition criteria states that revenue is recognized at the same time that a decrease in an asset is recognized or an increase in a liability is recognized for profit generating activities.

Question 23

The enhancing qualitative characteristics, such as comparability and timeliness must be applied first before the characteristic of relevance in order to provide the most usefulness to the decision makers.

Question 24

Timeliness means that accounting information is provided when it is still highly useful for decision-making.

Question 25

Understandability is greater when the information is classified, characterized and presented clearly and concisely.

Question 26

Comparability means that a company uses the same accounting principles and methods from year to year.

Question 27

Accounting information is complete if it includes all information necessary to show the economic reality of the transaction.

Question 28

Accounting information is neutral if it makes a difference in a decision.

Question 29

Full disclosure means that the financial statements must be accompanied by notes to the financial statements.

Question 30

Consistency occurs when companies with similar circumstances use the same accounting principles.

Question 31

Faithful representation means that accounting information reports on the economic reality of a transaction, not its legal form.

Question 32

Information is verifiable if two knowledgeable and independent people would generally agree that it faithfully represents the economic reality.

Question 33

If goods are shipped FOB destination then the selling company can recognize revenue when the goods are shipped.

Question 34

One of the conditions of recognizing revenue from sales of goods is that costs relating to the sale of the goods can be reliably measured.

Question 35

In order for information to be useful in decision making, the information must demonstrate relevance and faithful representation.

Question 36

In the year of a change in an accounting policy, the change and its impact must be disclosed in the notes to the financial statement.

Question 37

Predictive value confirms or corrects prior expectations.

Question 38

Accounting information has relevance if it makes a difference in a decision.

Question 39

The qualitative characteristic which should be first applied is that of relevance.

Question 40

Understandability enables users to have timely information that is useful for decision-makers.

Question 41

Fair value is the amount of cash expected to be collected if the asset is sold.

Question 42

The expense recognition criteria states that expenses are recognized when there is an increase in an asset or decrease in a liability, excluding transactions with owners.

Question 43

The conceptual framework does NOT include

A) the objective of financial reporting.
B) elements of financial statements.
C) recognition and measurement criteria.
D) specific standards to be followed in preparing financial statements.

Question 44

When an asset ceases to have future value it should be expensed.

Question 45

Which statement below is NOT true?

A) The conceptual framework includes specific rules for every situation.
B) The conceptual framework ensures the existing standards and practices are clear and consistent.
C) The conceptual framework provides guidance in responding to new issues and developing new standards.
D) The conceptual framework increases financial statement users' understanding of and confidence in the financial statements.

Question 46

When estimating amounts for accruals, it is NOT important that the estimate is supportable or verifiable because it is just an estimate.

Question 47

When the percentage of completion method is used to recognize revenue, the amount of revenue recognized should NOT be based on the billings issued.

Question 48

Under the contract based approach, a company can recognize revenue when it has transferred a promised good or service to a customer.

Question 49

If it is not possible to determine the future benefits arising from expenditure, then the costs will be capitalized.

Question 50

If a company provides refunds to customers for goods returned then revenue is recognized at the time of the return of the goods.

Question 51

The cost model to report property, plant and equipment is where the carrying value on the balance sheet is the fair value less accumulated depreciation.

Question 52

If goods are shipped FOB shipping point then the selling company cannot recognize the revenue until the goods are received at their destination.

Question 53

The conceptual framework of accounting

A) ensures that existing standards and practices are clear and consistent.
B) makes it possible to respond quickly to new issues.
C) increases the usefulness of the financial information presented in financial reports.
D) all of the above.

Question 54

The organization that is working toward uniformity in accounting practices throughout the world is the

A) World Bank.
B) United Nations.
C) International Accounting Standards Board.
D) National Commission on Fraudulent Financial Reporting.

Question 55

Management bonuses based on profit may encourage management to overstate profits.

Question 56

One of the conditions that must be met for revenue to be recognized is that the amount of the revenue can be reliably measured.

Question 57

Revenue can be recognized before the service has been fully provided.

Question 58

There is a direct association between cost of goods sold and sales revenue.

Question 59

Canadian accountants rely on ______________ to help them apply the conceptual framework to specific situations.

A) the Canadian Business Corporations Act
B) identifiable rules
C) the rules of the Income Tax Act
D) professional judgment

Question 60

The recognition of revenue is based on estimates of a project's progress toward completion in the percentage-of-completion method.

Question 61

If accounting information has confirmatory value, it

A) has been verified by external audit.
B) is prepared on an annual basis.
C) confirms or corrects prior expectations.
D) is neutral in its representations.

Question 62

A company can change to a new accounting principle if management can justify that the new principle results in

A) more relevant and faithful representation of the financial presentation in the statements.
B) a higher profit.
C) a lower profit for tax purposes.
D) less likelihood of clerical errors.

Question 63

In the conceptual framework for IFRS, which one of the following is NOT a qualitative characteristic of useful accounting information?

A) relevance
B) faithful representation
C) conservatism
D) comparability

Question 64

A persuasive constraint that ensures the value of the information provided is greater than the costs of providing it.

A) financial reporting objective constraint
B) cost constraint
C) going concern constraint
D) economic entity constraint

Question 65

Financial statements are designed to provide information about all of the following EXCEPT

A) the economic resources, obligations, and equity of the entity.
B) changes in economic resources, obligations, and equity of the entity.
C) management performance evaluations.
D) economic performance of the entity.

Question 66

The objective of financial reporting is to provide information that is mainly useful to

A) governmental taxing bodies.
B) employees and labour unions.
C) investors and creditors.
D) internal and external auditors.

Question 67

When a private company is reporting under ASPE, and under the going concern assumption, the company will be reporting their equipment assets at

A) original cost.
B) net realizable value.
C) original cost less accumulated depreciation.
D) undepreciated capital cost.

Question 68

Which of the following is a constraint in financial reporting?

A) cost
B) comparability
C) consistency
D) going concern

Question 69

Which of the following is NOT a qualitative characteristic associated with faithful representation?

A) complete
B) comparability
C) neutrality
D) free from material error

Question 70

The overriding criterion in evaluating the accounting information to be presented is

A) fairness.
B) legality.
C) management's goals.
D) decision usefulness.

Question 71

A common application of the cost constraint is
1) recording assets at cost.
2) not disclosing information that is not material and not required in the notes.
3) use of the FIFO cost flow assumption for inventory valuation.

A) 1
B) 2
C) 3
D) 1 and 2

Question 72

Relevant accounting information

A) is information that has been audited.
B) must be reported within one year.
C) has been objectively determined.
D) is information that is capable of making a difference in a decision.

Question 73

In order to assess the financial performance of a company, the financial statements must

A) be prepared on a monthly basis.
B) provide information on management's use of the company's resources.
C) be audited annually.
D) provide information concerning changes in the company's share price.

Question 74

Financial statements are prepared for an economic business unit that is separate and distinct from its owners. This is referred to as

A) the going concern assumption.
B) the objective of financial reporting.
C) a cost constraint.
D) the economic entity concept.

Question 75

If accounting information has predictive value, it is useful in making predictions about

A) the economic environment the company operates in.
B) world events that impact the economy.
C) future interest rates and foreign currency exchange rates.
D) future events of a company.

Question 76

_______________________ play(s) a fundamental role in the efficient functioning of the economy by providing capital (cash) to businesses.

A) Managers
B) Employees
C) Capital providers
D) IASB

Question 77

In order for accounting information to be relevant, it must

A) have very little cost.
B) have predictive or confirmatory value.
C) be comparable.
D) be used by a lot of different firms.

Question 78

Which one of the following is the main objective of financial reporting according to the conceptual framework?

A) to provide information that will increase the value of the company
B) to provide information in assessing future cash flows
C) to provide information about the company's capital providers
D) to provide financial information that is useful to existing and potential investors and creditors in making decisions about a business

Question 79

The costs constraint

A) means that assets and revenues should be estimated at the lower end of their range.
B) means that assets and revenues should be estimated at the higher end of their range.
C) means the value of the information does not cost less than the cost to produce the information.
D) means the information would influence the decisions of a user of the financial information.

Question 80

Not every country uses the same conceptual framework. This lack of uniformity has arisen because

A) there are not enough members in the professional body.
B) no time is available to complete the framework.
C) there are differences in legal and government systems.
D) financial statements do not need to be comparable.