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2 - Conceptual Framework: Financial Reporting and Assumptions
Terms in this set (73)
The Conceptual Framework deals with all of the following, except
a. The objective of financial reporting
b. The qualitative characteristics of useful financial information
c. The definition, recognition and measurement of the elements of financial statements
d. Supplementary information
Which of the following statements is true concerning the Conceptual Framework for Financial Reporting?
a. It is not a reporting standard and does not define standard for any particular measurement or disclosure issue.
b. It is concerned with general purpose fin statements including consolidated fin statements.
c. Nothing in the framework overrides any specific PFRS.
d. All are true.
Which is not a purpose of the Conceptual Framework?
a. to assist FRSC in developing accounting standards that will represent Philippine GAAP
b. to assist FRSC in the review and adoption of existing international accounting standards
c. to assist auditors in forming an opinion as to whether fin statements conform with Phil. GAAP
d. to assist BOA in promulgating rules and regulations affecting the practice of public accountancy
Which is a basic purpose of the Conceptual Framework?
a. to assist users of fin statements in interpreting the information contained in the financial statements
b. to provide information to those interested in the work of FRSC in the formulation of PFRS
c. to assist preparers of fin statements in applyng accounting standards
d. All of these
This is a complete, comprehensive and single document promulgated by IASB establishing the concepts that underlie financial reporting.
a. Conceptual Framework for Financial Reporting
b. Conceptual Framework for Financial Statements
c. Conceptual Framework for Business Entities
d. Conceptual Framework
What is the authoritative status of the Conceptual Framework?
a. The Conceptual Framework has the highest level of authority.
b. In the absence of a standard or an interpretation that specifically applies to a transaction, the Conceptual Framework shall prevail.
c. In the absence of a standard or an interpretation that specifically applies to a transaction, management shall consider the applicability of the Conceptual Framework in developing and applying an accounting policy that results in information that is relevant and reliable.
d. The Conceptual Framework applies only when the IASB develops new or revised standards.
As regards the relationship between IFRS and the Conceptual Framework, which of the following is true?
I. The Conceptual Framework is a reporting standard.
II. In case of conflict, the requirements of the Conceptual Framework prevail over those of the relevant IFRS.
a. I only
b. II only
The Conceptual Framework is intended to establish
b. The meaning of "present fairly in accordance with GAAP"
c. The objectives and concepts for use in developing standards of financial accounting and reporting
d. The hierarchy of sources of GAAP
The Conceptual Framework should
a. Lead to uniformity of financial statements among entities within the same industry
b. Eliminate alternative accounting principles
c. Guide MNCs in developing generally accepted auditing standards
d. Define the basic objective, terms and concepts of accounting
Which is not a purpose of the Conceptual Framework?
a. Provide definitions of key terms and concepts
b. Provide specific guidelines for resolving situations not covered by existing accounting standards
c. Assist accountants in selecting among alternative accounting and reporting methods
d. Assist IASB in the standard-setting process
b. (this is a purpose of the Philippine Interpretations)
In the Conceptual Framework for Financial reporting, what provides the "why" of accounting?
a. Measurement and recognition concept
b. Qualitative characteristic of accounting information
c. Element of financial statement
d. Objective of financial reporting
The underlying theme of the Conceptual Framework is
a. Decision usefulness
What is a benefit of having a Conceptual Framework?
a. To enable the accountancy profession to more quickly solve emerging practical problems.
b. To provide information from which to build more useful standards.
c. To enable standard setting body to issue more useful and consistent pronouncements over time.
d. All of these.
Which of the following is not a benefit associated with the Conceptual Framework?
a. A Conceptual Framework should increase financial statement users' understanding and confidence in financial reporting.
b. Practical problems should be more quickly solvable by reference to an existing Conceptual Framework.
c. A coherent set of accounting standards and rules should result.
d. Business entities will need far less assistance from accountants because the financial reporting process will be quite easy to apply.
Which is an important characteristic of the Conceptual Framework?
I. To enable the accountancy profession to more quickly solve emerging practical problems.
II. To provide a foundation from which to build more useful financial accounting standards.
a. I only
b. II only
Which of the following is not true concerning the Conceptual Framework?
I. It should be a basis for standard setting.
II. The Conceptual Framework should allow practical problems to be solved more quickly.
III. It should be based on fundamental truth derived from the law of nature.
a. II only
b. III only
c. II and III only
d. I and II only
A soundly Conceptual Framework should
I. Increase financial statements users' understanding and confidence in financial reporting
II. Enhance comparability of financial statements across entities.
III. Allow new and emerging practical problems to be solved more quickly.
a. I only
b. I and II only
c. I and III only
d. I, II, III
The primary users of financial statements include
a. Existing and potential investors
b. Existing and potential lenders and other creditors
c. User group such as employees, customers, governments and their agencies, and the public
d. Existing and potential investors, lenders, and other creditors
The users of financial reports include
b. Creditors and government agencies
c. Creditors and unions
d. Creditors, government agencies and unions
Which of the following is an internal user of financial information?
d. Creditor with a long-term contract
These users require information on risk and return on investment
These users are interested in information about the profitability and stability of an entity in order to assess the ability of the entity to provide remuneration, retirement benefits and employment opportunities.
b. The public
c. Government and their agencies
These users are interested in information about the continuance of an entity when they have a long-term involvement with or are dependent on the entity.
c. Trade unions
These users are interested in information in order to regulate the activities of an entity, determine taxation policies and provide a basis for national statistics.
a. Government and their agencies
b. Major organization of users
d. Department of Finance
These users need information on trends and recent developments where an entity makes a substantial contribution to the local economy providing employment and using local suppliers.
a. The public
b. Government and their agencies
c. Finance entities
d. Private entities
Which of the following in relation to information needs is true?
I. Information that meets the need of specified primary users is likely to meet the needs of other users, such as employees, customers, government and their agencies, and the public.
II. The management is also interested in financial information but it need not rely on general purpose financial reports because it can access additional information internally.
a. I only
b. II only
These users are interested in information that enables them to assess whether their loans, the related interest thereon, and other amounts owing to them will be paid when due.
a. Lenders and other creditors
c. Trade creditors
What is the objective of financial reporting?
a. To provide information about the financial position and financial performance of an entity
b. To To provide information about an entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity
c. To prepare a statement of financial position, a statement of comprehensive income and a statement of cash flows
d. To prepare financial statements in accordance with all applicable standards and interpretations
The overall objective of financial reporting is to provide information
a. That is useful for decision making
b. About assets, liabilities and equity of an entity
c. About financial performance during a period
d. That allows owners to assess management performance
Which is an objective of financial reporting?
a. to provide information that is useful to management in making decisions
b. to provide information that clearly portrays non-financial transactions
c. to provide information that is useful to assess the amounts, timing and uncertainty of of prospective cash receipts
d. to provide information that excludes claims against the resources
One objective of financial reporting is to provide
a. Information about the investors in the entity
b. Information about the liquidation value of the resources held by the entity
c. Information that is useful in assessing cash flow prospects
d. Information that will attract new investors
An objective of financial reporting is "assessing cash flow prospects" which is interpreted to mean
a. Cash basis accounting is preferred over accrual basis of accounting.
b. Information about the financial effects of cash receipts and cash payments is generally considered the best indicator of ability to generate favorable cash flows.
c. Over the long run, trends in revenue and expenses are generally more meaningful than trends in cash receipts and disbursements.
d. All of these.
Which of the following best describes "financial performance"?
a. The revenue, expenses and net income or loss for a period
b. The assets, liabilities and equity
c. The total assets minus total liabilities
d. The total cash inflows minus total cash outflows
In measuring financial performance, accrual accounting is used because
a. Cash flows are considered less important.
b. It provides a better indication of ability to generate cash flows than cash basis.
c. It recognizes revenue when cash is received and expenses when cash is paid.
d. It is one of the implicit assumptions.
The most useful information to existing and potential investors, lenders and other creditors in predicting future cash flow is
a. Information about cash flows
b. Current earnings based on accrual accounting
c. Information regarding the accounting policies used by management
d. Information regarding the results obtained by using a wide variety of accounting policies
The accrual basis of accounting is most useful for
a. Determining the amount of income tax liability
b. Predicting the short-term financial performance.
c. Predicting the long-term financial performance.
d. Determining the amount of dividends to be declared.
The primary focus of financial reporting has been on meeting the needs of which of the following groups?
b. Existing and potential investors, lenders and other creditors
c. National and local taxing authorities
d. Independent CPAs
Which of the following best describes the term "financial position"?
a. The net income and expenses
b. The net of financial assets less liabilities
c. The potential to contribute to the flow of cash and cash equivalents
d. The assets, liabilities and equity
The objectives of financial reporting are based on
a. The need for conservatism
b. Reporting on management stewardship
c. Generally accepted accounting principles
d. The needs of the users of the information
Which of the following statements is not a major objective of financial reporting?
a. It shall provide information about entity resources, claims against those resources and changes in them.
b. It shall provide information useful in evaluating management stewardship.
c. It shall provide information useful in investment, credit and similar decision.
d. It shall provide information useful in assessing cash flow prospects.
Which of the following is not an objective of financial reporting?
a. To provide information about an entity's assets and claims against those assets
b. To provide information that is useful in assessing an entity's sources and uses of cash
c. To provide information that is useful in lending and investing decisions
d. To provide information about the liquidation value of an entity
The information provided by financial reporting pertains to
a. Individual business entities, rather than to industries or an economy as a whole or to members of society as consumers
b. Business industries, rather than to individual entities or an economy as a whole or to members of society as consumers
c. Individual business entities, industries and an economy as a whole, rather than to members of society as consumers
d. An economy as a whole or to members of society as consumers, rather than to Individual business entities or industries
During a period when an entity is under the direction of a particular management, financial reporting will directly provide information about
a. Both entity performance and management performance
b. Management performance but not entity performance
c. Entity performance but not management performance
d. Neither entity performance nor management performance
Which best describes the term "going concern"?
a. Current liabilities exceed current assets.
b. Ability of the entity to continue in operation for the foreseeable future
c. Potential to contribute to the flow of cash and cash equivalents to the entity
What is an implication of the going concern assumption?
a. The historical cost principle is credible.
b. Depreciation and amortization policies are justifiable and appropriate.
c. The current and non-current classification of assets and liabilities is justifiable and significant.
d. All of these.
The relatively stable economic, political and social environment supports
d. Going concern
Which of the following is not a basic assumption underlying financial accounting?
a. Economic entity assumption
b. Going concern assumption
c. Periodicity assumption
d. Historical cost assumption
Which basic assumption may not be followed when an entity in bankruptcy reports financial results?
a. Economic entity
b. Going concern
c. Monetary unit
The economic entity assumption
a. Is applicable to unincorporated businesses
b. Recognizes the legal aspects of business organizations
c. Requires periodic income measurement
d. Is applicable to all forms of business organizations
What is being violated if an entity provides financial reports in connection with a new product introduction?
a. Economic entity
c. Monetary unit
Which underlying assumption serves as the basis for preparing financial statements at regular artificial points in time?
a. Accounting entity
b. Going concern
d. Stable monetary unit
Which basic accounting assumption is threatened by the existence of severe inflation in the economy?
a. Monetary unit
c. Going concern
d. Economic entity
Inflation is ignored in accounting due to
a. economic entity
b. going concern
c. monetary unit
d. time period
The concept of accounting entity is applicable
a. Only to the legal aspect of business organizations
b. Only to the economic aspects of business organizations
c. Only to business organizations
d. Whenever accounting is involved
When a parent and subsidiary relationship exists, consolidated financial statements are prepared in recognition of
a. legal entity
b. economic entity
c. stable monetary unit
d. time period
The valuation of a promise to receive cash in the future at present value is valid because of what accounting concept?
b. time period
c. going concern
d. monetary unit
What is the accounting concept that justifies the usage of accruals and deferrals?
a. going concern
d. stable monetary unit
During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in accordance with what basic accounting concept?
c. unit of measure
IDENTIFY UNDERLYING ASSUMPTION INVOLVED: The operations of a saving bank are being evaluated by the BSP. During the investigation, the BSP has determined that numerous loans made by top management were unwise and have seriously endangered the future of the saving bank.
IDENTIFY UNDERLYING ASSUMPTION INVOLVED: The parent entity in Manila has a subsidiary in Japan. The financial statements of the subsidiary are translated to pesos for consolidation with financial statements of the parent entity at year end.
IDENTIFY UNDERLYING ASSUMPTION INVOLVED: A machinery was imported from USA at a certain cost five years ago. Because of inflation, the machinery has now a current replacement cost which is very much higher than the historical cost. Management would like to report the machinery at current replacement cost.
IDENTIFY UNDERLYING ASSUMPTION INVOLVED: An entity has experience a drastic reduction n revenue by reason of a long dry spell in the area where the entity grows its tobacco.
The management decided to wait until next year and present financial statements for a two-year period rather than prepare now the traditional 12-month financial statements.
IDENTIFY UNDERLYING ASSUMPTION INVOLVED: A subsidiary was exhibiting poor financial performance for the current year. In an effort to increase the subsidiary's reported income, the parent entity purchased goods from the subsidiary at twice the normal markup.
IDENTIFY ASSUMPTION CLEARLY VIOLATED: An entity decided to publish fin statements only in the years when it had good news to report.
IDENTIFY ASSUMPTION CLEARLY VIOLATED: An entity reported inventory, PPE and intangible assets at current value at year-end.
IDENTIFY ASSUMPTION CLEARLY VIOLATED: An electronics entity owned by a proprietor reported the cost of the proprietor's swimming pool as an asset of the entity.
IDENTIFY ASSUMPTION CLEARLY VIOLATED: An entity prepared financial statements adjusted for changes in purchasing power.
IDENTIFY ASSUMPTION CLEARLY VIOLATED: A mining entity kept no accounting records after starting business. The entity is waiting until the mine is exhausted to determine the success or failure of business.
IDENTIFY ASSUMPTION DESCRIBED: An entity reported financial statements in nominal pesos that have mixed rather than uniform amount of purchasing power.
IDENTIFY ASSUMPTION DESCRIBED: A MNC published a complete set of financial statements at least once a year, regardless of whether the financial results were good or bad.
IDENTIFY ASSUMPTION DESCRIBED: The pesos of today can buy as much goods and services as the pesos five years ago.
IDENTIFY ASSUMPTION DESCRIBED: An accounting entity is viewed as continuing in operation in the absence of the evidence of the contrary.
IDENTIFY ASSUMPTION DESCRIBED: An accounting practitioner mixed personal accounting records with the records of the accounting practice.
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