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In the conceptual framework for financial reporting, what provides "the why"-the purpose of accounting?


A) Recognition, measurement, and disclosure concepts such as assumptions, principles, and constraints
B) Qualitative characteristics of accounting information
C) Elements of financial statements
D) Objective of financial reporting

E) C) and D)
F) A) and C)

Correct Answer

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What is meant by comparability when discussing financial accounting information?


A) Information has predictive or feedback value.
B) Information is reasonably free from error.
C) Information that is measured and reported in a similar fashion across companies.
D) Information is timely.

E) A) and D)
F) All of the above

Correct Answer

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Which basic assumption is illustrated when a firm reports financial results on an annual basis?


A) Economic entity assumption.
B) Going concern assumption.
C) Periodicity assumption.
D) Monetary unit assumption.

E) All of the above
F) A) and B)

Correct Answer

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During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in accordance with which basic accounting concept?


A) Cost constraint
B) Periodicity assumption
C) Conservation
D) Expense recognition principle

E) A) and D)
F) All of the above

Correct Answer

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Which of the following is a constraint in presenting financial information?


A) Cost.
B) Full disclosure.
C) Relevance.
D) Consistency.

E) A) and D)
F) A) and C)

Correct Answer

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The quality of information that means the numbers and descriptions match what really existed or happened is


A) relevance.
B) faithful representation.
C) completeness.
D) neutrality.

E) A) and B)
F) A) and C)

Correct Answer

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Which of the following is an ingredient of faithful representation?


A) Predictive value.
B) Materiality.
C) Neutrality.
D) Confirmatory value.

E) All of the above
F) A) and B)

Correct Answer

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The International Accounting Standards Board's (IASB) conceptual framework


A) Includes the concept of prudence or conservatism which means when in doubt, choose the solution that will be least likely to overstate assets or income and/or understate liabilities or expenses.
B) Excludes the concept of prudence or conservatism because it is inconsistent with neutrality, which encompasses freedom from bias.
C) Includes the concept of prudence or conservatism which means when in doubt, choose the solution that will be least likely to understate assets or income and/or overstate liabilities or expenses.
D) Includes the concept of prudence or conservatism as a desirable, but not required, quality of financial reporting information.

E) All of the above
F) B) and D)

Correct Answer

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Under current IFRS, inflation is ignored in accounting due to the


A) economic entity assumption.
B) going concern assumption.
C) monetary unit assumption.
D) periodicity assumption.

E) A) and D)
F) None of the above

Correct Answer

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Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an example of the


A) economic entity assumption.
B) relevance characteristic.
C) comparability characteristic.
D) neutrality characteristic.

E) B) and C)
F) C) and D)

Correct Answer

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The basic principles of accounting used by the International Accounting Standards Board include all of the following except:


A) Measurement
B) Full disclosure
C) Revenue recognition
D) Going concern

E) B) and C)
F) B) and D)

Correct Answer

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The objective of financial reporting in the International Accounting Standards Board's (IASB's) Conceptual Framework


A) Is the foundation for the Framework.
B) Includes the qualitative characteristics that make accounting information useful.
C) Is found on the third level of the Framework.
D) All of the choices are correct regarding the objective of financial reporting.

E) B) and C)
F) A) and D)

Correct Answer

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Under International Financial Reporting Standards (IFRS) notes to the financial statements must qualify as an element.

A) True
B) False

Correct Answer

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The International Accounting Standards Board's (IASB) conceptual framework includes a materiality constraint. Which of the following is true regarding this constraint?


A) The IASB's rule for materiality is any item under 5% of net income is considered immaterial.
B) Materiality factors into both internal and external accounting decisions.
C) An item is immaterial if its inclusion or omission would influence or change the judgment of a reasonable person.
D) All of the choices are correct.

E) All of the above
F) A) and B)

Correct Answer

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Decision makers vary widely in the types of decisions they make, the methods of decision making they employ, the information they already possess or can obtain from other sources, and their ability to process information. Consequently, for information to be useful there must be a linkage between these users and the decisions they make. This link is


A) relevance.
B) faithful representation.
C) understandability.
D) materiality.

E) B) and C)
F) C) and D)

Correct Answer

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Which of the following is an ingredient of relevance?


A) Verifiability.
B) Timeliness.
C) Predictive value.
D) Neutrality.

E) A) and D)
F) B) and C)

Correct Answer

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To be a faithful representation as described by the International Accounting Standards Board's (IASB's) Conceptual Framework, information must be all of the following except:


A) Complete.
B) Free from error.
C) Confirmatory.
D) Neutral.

E) None of the above
F) A) and C)

Correct Answer

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Under International Financial Reporting Standards (IFRS) notes to the financial statements


A) Must be quantifiable.
B) Must qualify as an element.
C) Amplify or explain items presented in the main body of the financial statements.
D) All of the choices are correct regarding notes to the financial statements.

E) B) and C)
F) A) and B)

Correct Answer

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Application of the full disclosure principle


A) is theoretically desirable but not practical because the costs of complete disclosure exceed the benefits.
B) is violated when important financial information is buried in the notes to the financial statements.
C) is demonstrated by the use of supplementary information explaining the effects of financing arrangements.
D) requires that the financial statements be consistent and comparable.

E) B) and D)
F) B) and C)

Correct Answer

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Under International Financial Reporting Standards (IFRS) revenue is recognized


A) At the time cash is collected.
B) During production.
C) At the end of production.
D) When the performance obligation is satisfied.

E) None of the above
F) B) and C)

Correct Answer

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