Question 1

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.

Accepted Answer

Confirmatory value in accounting information means it can either confirm or change past expectations based on new evidence or data, making it useful for decision-making.

Question 2

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.

Accepted Answer

The correct choice is A because changing to a new accounting principle is justified if it results in a more relevant and faithful representation of the financial presentation in the statements, according to accounting standards and principles. This ensures the financial statements provide a true and fair view of the company's financial position and performance. Choices B, C, and D are not valid justifications for changing accounting principles under generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS).

Question 3

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

Accepted Answer

Conservatism is not considered a qualitative characteristic of useful accounting information according to the conceptual framework for IFRS. Instead, relevance, faithful representation, and comparability are recognized as qualitative characteristics that make financial information useful.

Question 4

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

Accepted Answer

The cost constraint in accounting ensures that the value of the information provided by financial reporting is greater than the costs associated with gathering, processing, and disseminating that information. This principle helps in making sure that the benefits of providing certain financial information outweigh the associated costs.

Question 5

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.

Accepted Answer

Financial statements are primarily designed to provide information about the economic resources, obligations, equity, changes in these items, and the economic performance of an entity. They are not designed to provide direct information about management performance evaluations, which typically involve more detailed and internal analysis beyond the scope of standard financial statements.

Question 6

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.

Accepted Answer

The primary objective of financial reporting is to provide information that is useful to investors and creditors in making decisions regarding providing resources to the entity. This includes assessing the entity's ability to generate cash flows and the security and timing of generating those cash flows.

Question 7

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.

Accepted Answer

The answer of When a private company is reporting under...

Question 8

Which of the following is a constraint in financial reporting?
A) cost
B) comparability
C) consistency
D) going concern

Accepted Answer

Cost is a constraint in financial reporting because it limits the amount of information that can be provided. The benefits of reporting certain information must outweigh the costs associated with gathering, preparing, and disseminating it.

Question 9

Which of the following is NOT a qualitative characteristic associated with faithful representation?
A) complete
B) comparability
C) neutrality
D) free from material error

Accepted Answer

Comparability is not a characteristic associated with faithful representation. Instead, it is a qualitative characteristic of useful financial information that enables users to identify and understand similarities in and differences among items. Faithful representation involves completeness, neutrality, and freedom from material error.

Question 10

The overriding criterion in evaluating the accounting information to be presented is
A) fairness.
B) legality.
C) management's goals.
D) decision usefulness.

Accepted Answer

The primary criterion for evaluating accounting information is its decision usefulness, meaning it should provide valuable information to users for making informed decisions.

Question 11

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

Accepted Answer

The cost constraint refers to the idea that the cost of providing financial information should not exceed the benefits. Not disclosing immaterial information aligns with this principle, as it avoids unnecessary costs.

Question 12

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.

Accepted Answer

Relevant accounting information is defined as information that is capable of making a difference in a decision. This means it should influence or impact the decision-making process by providing valuable insights or data that can lead to a more informed choice.

Question 13

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.

Accepted Answer

Financial statements are designed to provide information on how management has used the company's resources, which is crucial for assessing the company's financial performance. This includes details on revenue, expenses, assets, liabilities, and equity, among other financial activities.

Question 14

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.

Accepted Answer

The economic entity concept is the accounting principle that the transactions of a business should be separate from those of its owners and other businesses. This concept allows for the preparation of financial statements specifically for the business, distinct from the personal financial information of its owners or any other business entity.

Question 15

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.

Accepted Answer

Accounting information with predictive value helps stakeholders make forecasts or predictions about a company's future financial performance, including revenues, expenses, cash flows, and other financial conditions. It does not directly predict broader economic conditions, world events, or specific financial market rates like interest or exchange rates.

Question 16

_______________________ 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

Accepted Answer

Capital providers play a fundamental role in the efficient functioning of the economy by providing the necessary capital (cash) to businesses, enabling them to operate, expand, and innovate.

Question 17

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.

Accepted Answer

Relevant accounting information is that which can influence economic decisions of users by helping them evaluate past, present, or future events (predictive value) or confirm or correct their past evaluations (confirmatory value).

Question 18

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

Accepted Answer

The main objective of financial reporting, according to the conceptual framework, is to provide financial information that is useful to existing and potential investors, creditors, and other users in making decisions about providing resources to the entity. This encompasses assessing the prospects for future cash flows to the company and making decisions about buying, selling, or holding equity and debt instruments, among other financial decisions.

Question 19

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.

Accepted Answer

The costs constraint means that the value of the information provided in financial reporting should outweigh the cost of producing that information. This principle ensures that the financial reporting process is efficient and cost-effective, providing useful information without incurring unnecessary expenses.

Question 20

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.

Accepted Answer

Different countries have varying legal and government systems, which influence their accounting practices and standards, leading to a lack of uniformity in conceptual frameworks across nations.

Quiz 11: Accounting Principles

If accounting information has confirmatory value, it

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

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

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

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

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

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

Which of the following is a constraint in financial reporting?

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

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

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.

Relevant accounting information

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

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

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

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

In order for accounting information to be relevant, it must

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

The costs constraint

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