Financial Accounting Vol. 1, Chpt. 3

Contingent loss

(according to conservatism) is recognized as a "provision" if the loss is probable and the amount can be reliably measured; potential loss that is dependent upon some future event occurring or not occurring

Contingent gain

(according to conservatism) potential gain not recognized but disclosed only

False, Adequate disclosure does not mean disclosure of just any data.

True or false: Adequate disclosure means disclosure of any data.

False, Comparability is not enhanced by making unlike things look alike or making like things look different.

True or false: Comparability is enhanced by making unlike things look alike or making like things look different.

True, because it would be inconsistent with neutrality.

True or false: Conservatism is not included in the Conceptual Framework.

False, Consistency does not mean that no change in accounting method can be made.

True or false: Consistency means that no change in accounting method can be made.

True, Financial reports are prepared for users who have a reasonable knowledge of business and economic activities and who review and analyze the information diligently.

True or false: Financial statements cannot realistically be understandable to everyone.

False, Free from error does not mean perfectly accurate in all respects.

True or false: Free from error does means perfectly accurate in all respects.

TRUE, Information that does not bear on an economic decision is useless

True or false: Information that does not bear on an economic decision is useless.

False, It is inappropriate for an entity to leave its accounting policies unchanged when better and acceptable alternatives exist. However, this diminishes comparability.

True or false: It is appropriate for an entity to leave its accounting policies unchanged when better and acceptable alternatives exist.

False, Materiality is a subquality of relevance.

True or false: Materiality is not a subquality of relevance.

True, Materiality of an item depends on relative size rather than absolute size.

True or false: Materiality of an item depends on relative size rather than absolute size.

False, they are not separate. Faithful representation inherently represents the substance of an economic transaction or phenomenon rather than, merely representing the legal form.

True or false: Substance over form is a separate component of faithful representation.

True, To be neutral is to be fair.

True or false: To be neutral is to be fair.

Principle of consistency

a characteristic implicit in Comparability; "accounting methods and practices should be applied on a uniform basis from period to period"

Cost

a pervasive constraint on the information that can be provided by financial reporting

Materiality

a practical rule in accounting which dictates that strict adherence to GAAP is not required when the items are not significant enough to affect the evaluation, decision and fairness of the financial statements

Doctrine of convenience

another term for Materiality

Cost constraint

arises when it is excessively expensive to report certain information in the financial statements

Relevance

capacity of the information to influence a decision

Fundamental qualitative characteristics

characteristics that relate to the content or substance of financial information

Enhancing qualitative characteristics

characteristics that relate to the presentation or form of the financial information; intended to increase the usefulness of the financial information

Conservatism

expressed as, "in case of doubt, record any loss and do not record any gain"

Nature of item

factor of materiality that may be inherently material because of its effect on economic decisions

Relative size and nature

factors of materiality

Predictive value

if financial information can be used as an input to processes employed by users to predict future outcome

Confirmatory value

if financial information provides feedback about previous evaluations

Completeness, neutrality and free from error

ingredients of faithful representation

Neutrality

means "without bias" in the preparation or presentation of financial information

Verifiability

means that different knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation; in short, "it implies consensus"; financial information must be supported by evidence

Timeliness

means that financial information must be available or communicated early enough when a decision is to be made

Faithful representation

means that financial reports represent economic phenomena or transactions in words and numbers; descriptions and figures must match what really existed or happened; actual effects of transactions shall be properly accounted for

Free from error

means that there are no errors or omissions in the description of the phenomenon or transaction, and the process used to produce the reported information has been selected and applied with no errors in the process

Standard of adequate disclosure

principle that means that all significant and relevant information leading to the preparation of financial statements shall be clearly reported; disclosure of any financial facts significant enough to influence the judgement of informed users

Notes to financial statements

provides necessary disclosures required by PFRS for financial statements to be complete; provide narrative description or disaggregation about items that do not qualify for recognition

Qualitative characteristics

qualities or attributes that make financial accounting information useful to users

Understandability

requires that financial information must be comprehensible or intelligible if it is to be most useful

Completeness

result of the adequate disclosure standard; requires that relevant information should be presented in a way that facilitates understanding and avoids erroneous implication

Relative size of item

size in relation to the total group to which the item belongs to; what is material for one entity may be immaterial for another, e.g. a 100k error may be material for a small entity but immaterial for a multinational entity

Dimensional Comparability/ Intercomparability

terms for Comparability between and across entities; comparisons between two or more entities engaged in the same industry

Horizontal Comparability/ Intracomparability

terms for Comparability within an entity; comparisons within a single entity from one accounting period to the next

Comparability

the ability to bring together for the purpose of noting points of likeness and difference

Prudence

the desire to exercise care and caution when dealing with the uncertainties in the measurement process such that assets or income are not overstated and liabilities or expenses are not understated

Verifiability, Comparability, Understandability, Timeliness

the enhancing qualitative characteristics

Substance over form

transactions are accounted in accordance with their substance and reality and not merely their legal form

Relevance and Faithful representation

two fundamental qualitative characteristics

Predictive value and Confirmatory value

two ingredients of relevance

Direct verification

verifying an amount or other representation through direct observation, for example, by counting cash

Indirect verification

verifying by the checking inputs to a model, formula or other technique and recalculating the inputs using the same methodology