ACC 3300 CHAPTER 2

Which of the following statements is true regarding the conceptual frameworks developed by FASB and IASB?

Both have similar measurement principles based on historical cost and fair value.

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.

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

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

- It allows the profession to quickly solve new and emerging issues. - It increases financial statement users' understanding of and confidence in financial reporting. - It enables standard setters to issue more useful and consistent pronouncements over time.

Under IFRS

- companies may apply fair value to natural resources. - the existing conceptual framework is very similar to the conceptual framework under GAAP. - the monetary unit assumption is used, however since every country has its own currency the unit of measure will vary depending on the country in which the company is incorporated.

A conceptual framework establishes the concepts that provide guidance on

- identifying the boundaries of financial reporting. - selecting the transactions, other events, and circumstances to be represented, - how transactions, events and circumstances should be recognized and measured.

Companies and their auditors generally have adopted a 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

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

Assets, Liabilities, and Equity

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

neutrality

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

FALSE

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

FIRST

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

Fair value is a market-based measure.

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

Materiality

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

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

In the United States, inflation/deflation is ignored in accounting under which of the following assumptions?

Monetary unit assumption.

All of the following are ingredients of relevance except:

Neutrality

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.

Enhancing qualities of accounting information include:

comparability and verifiability.

The change in equity (net assets) of an entity 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 be/have

confirmatory or predictive value

When a company changes accounting principles, it financial statements lack ______________.

consistency

The objective of general-purpose financial reporting in the conceptual framework is

decision usefulness

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

Preparation of merged financial statements when a parent-subsidiary relationship exists does not violate the

economic entity assumption.

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

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

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

gain

Depreciation and amortization policies are justifiable and appropriate only if we assume some permanence to the company because of the:

going concern assumption.

In 2010, the FASB and IASB agreed on

the objective of financial reporting and a common set of desired qualitative characteristics.

Generally, revenues are recognized when the:

the performance obligation is satisfied

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

true