ACCT 3304 Chapter 2

For information to be relevant, it must have both predictive value and confirmatory value.

False

An increase in net assets arising from peripheral or incidental transactions is called a(n)

gain.

Which level of the conceptual framework is devoted to elements of financial statements and the qualitative characteristics?

2nd

The conceptual framework for financial reporting consists of how many levels?

3

Companies and their auditors have adopted a general rule of thumb that anything under _____ of net income is considered not material.

5%

The conceptual framework contains how many Statements of Financial Accounting Concepts that relate to financial reporting for business enterprises?

7

Both GAAP and IFRS are increasing the use of fair value to report assets, but at this point GAAP has adopted it more broadly.

False

Which of the following elements of financial statements describes amounts of resources and claims to resources at a moment in time?

Equity.

Which of the following statements about the fair value principle is true?

Fair value is a market-based measure.

In order to justify requiring a particular measurement or disclosure, the costs perceived to be associated with it must exceed the benefits perceived to be associated with it.

False

Information that has been measured and reported in a similar manner for different enterprises is considered consistent.

False

The difficulty in cost-benefit analysis is that the benefits are usually evident and easily measurable, while the costs are not always evident or measurable.

False

The existing conceptual frameworks underlying IFRS and GAAP are strikingly different and the FASB and IASB will likely change many aspects of each of the frameworks in order to create a common conceptual framework.

False

The fundamental quality of faithful representation ensures that financial statements are totally free from error.

False

The historical cost of a liability cannot be established, so companies use the present value of cash flows to value liabilities.

False

The objective of the conceptual framework is to provide financial information about the reporting entity primarily to company management and other internal users.

False

The periodicity assumption specifies that the most appropriate time periods for financial reporting are weekly, bi-monthly, and yearly.

False

A conceptual framework is necessary for which of the following reasons?

It allows the profession to quickly solve new and emerging issues. It enables standard setters to issue more useful and consistent pronouncements over time. It increases financial statement users' understanding of and confidence in financial reporting. (All of these answer choices are correct)

In the conceptual framework for financial reporting, what provides "the how" - the implementation of accounting?

Measurement and recognition concepts such as assumptions, principles, and constraints.

To be recognized in the main body of financial statements, an item should

Meet the definition of a basic element. Be relevant and reliable. Be measurable with sufficient certainty. (All of these answer choices are correct)

With regard to fair value, which of the following measurements is considered the least subjective?

Observable inputs that reflect quoted prices for identical assets or liabilities.

Which level of the conceptual framework is devoted to the "why" - the purpose of accounting?

Second

Which of the following statements is true regarding the convergence project by the FASB and IASB?

The IASB framework makes two assumptions.

A contract is an agreement between two parties that creates enforceable rights or obligations.

True

Enhancing qualities of accounting information include:

comparability and verifiability.

The change in net assets during a period from transactions and other events and circumstances from non-owner sources is called

comprehensive income.

In order to be relevant, financial information must have

confirmatory or predictive value.

When a company's financial statements lack ____________, the auditor generally refers to it in an explanatory paragraph of the audit report.

consistency.

The underlying theme of the conceptual framework is

decision usefulness.

Generally accepted accounting principles

derive their credibility and authority from general recognition and acceptance by the accounting profession.

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

economic entity assumption.

The assumption that implies that the economic activities of an enterprise can be identified with a particular unit of accountability is the:

economic entity assumption.

Depreciation and amortization policies are justifiable and appropriate because of the:

going concern assumption.

Which of the following is not among the ingredients of the fundamental quality of faithful representation?

materiality.

All of the following are ingredients of relevance except:

neutrality.

Enhancing qualities of accounting information include all of the following except:

neutrality.

Generally, revenues are recognized when the:

performance obligation is satisfied.

Under IFRS

the existing conceptual framework is very similar to the conceptual framework under GAAP.

Under current GAAP, inflation is ignored in accounting due to

the monetary unit assumption.

In 2010, the FASB and IASB completed the first phase of a jointly created conceptual framework and in this phase they agreed on

the objective of financial reporting.