CONCEPTUAL FRAMEWORK – OBJECTIVE OF FINANCIAL REPORTING

1. Which statement is true about Conceptual Framework for Financial

Reporting?
A. The Conceptual Framework is not a standard.
B. The Conceptual Framework describes the concepts for general purpose
financial reporting
C. In case of conflict, the requirements of the IFRS prevail over the
Conceptual Framework
D. All of these statements are true about the Conceptual Framework

2. Which is not a purpose of the Revised Conceptual Framework?

A. To assist the IASB to develop IFRS based on consistent concepts.
B. To assist preparers to develop consistent accounting policy when no
Standard applies to a particular transaction or when Standard allows a
choice of accounting policy.
C. To assist all parties to understand and interpret the Standards.
D. To assist regulatory agencies in issuing rules and regulations for a
particular industry.

3. The scope of the Revised Conceptual Framework comprises how many

chapters?
A. Five
B. Six
C. Seven
D. Eight

4. The Conceptual Framework provides the foundation for Standard that

A. Contribute to transparency by enhancing international comparability and
quality of financial information.
B. Strengthen accountability of management.
C. Contribute to economic efficiency by helping investors identify
opportunities and risks.
D. All of these are the result of Standards developed based on consistent
concepts.

5. 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 be followed.
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 faithfully represented.
D. The Conceptual Framework applies only when the IASB develops new
standards.
6. The Conceptual Framework is intended to establish
A. GAAP in financial reporting.
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.

7. A Conceptual Framework should

A. Lead to uniformity of financial statements
B. Eliminate alternative accounting principles
C. Guide multinational entities in developing generally accepted auditing
standards
D. Define the basic objectives, terms and concepts of accounting

8. Which is not a purpose of the Conceptual Framework?

A. To provide definition of key terms and fundamental concepts.
B. To provide specific guidelines for resolving situations not covered by
existing accounting standards.
C. To assist accountants in selecting among alternative accounting and
reporting methods.
D. To assist the International Accounting Standards Board in standard-
setting process.

9. In the Conceptual Framework for Financial Reporting, what provides the

“why” of accounting?
A. Measurement and recognition process
B. Qualitative characteristics of accounting information
C. Elements of financial statements
D. Objective of financial reporting

10. The underlying theme of the Conceptual Framework is

A. Decision usefulness
B. Understandability
C. Timeliness
D. Comparability

11. The objective of financial reporting

A. Is the foundation for the Conceptual Framework
B. Includes the qualitative characteristics of useful information
C. Is not found in the Conceptual Framework
D. All of these are correct choices regarding the objective of financial
reporting

12. Which of the following is not a benefit associated with the Conceptual
Framework?
 A. A Conceptual Framework should increase user’s understanding and
confidence in financial reporting.
B. Practical problems should be more quickly solvable.
C. A coherent set of accounting standards should result.
D. Business entities will need far less assistance from accountants.

13. Which statement is not true concerning the Conceptual Framework?

A. The Conceptual Framework should be a basis for standard setting.
B. The Conceptual Framework should allow practical problems to be solved
more quickly.
C. The Conceptual Framework should be based on fundamental truth
derived from the law of nature.
D. The Conceptual Framework should increase user’s understanding and
confidence in financial reporting.

14. Users of financial reports include which of the following?

A. Creditors
B. Creditors and government agencies
C. Creditors and unions
D. Creditors, government agencies and unions

15. The primary users of financial information include

A. Existing and potential lenders and other creditors
B. Existing and potential lenders and other creditors
C. User groups such as employees, customers, government and their
agencies, and the public
D. Existing and potential investors, lenders and other creditors

16. Which group is not among the external users for whom financial statements
are prepared?
A. Customers
B. Suppliers
C. Employees
D. All of these are external users of financial statements

17. Which of the following is an internal user of financial information?

A. Board of Directors
B. Shareholders
C. Holder of bonds
D. Creditor with long-term contract

18. These users require information on risk and return provided by their
investment?
A. Investors
B. Employees
C. Lenders
 D. Customers

19. These users are interested in information about the profitability and
stability of the entity in order to assess the ability of the entity to provide
remuneration, retirement benefits and employment opportunities.
A. Customers
B. The public
C. Government and their agencies
D. Employees

20. 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
B. Borrowers
C. Trade creditors
D. Owners

21. These users are interested in information about the continuance of an entity,
especially when they have a long-term involvement with or are dependent
on the entity.
A. Customers
B. Employees
C. Trade unions
D. Suppliers

22. 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
C. Bureau of Internal Revenue
D. Department of Finance

23. 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

24. 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 allow owners to assess management performance

25. The primary focus of financial reporting has been on meeting the needs of
which of the following groups?
A. Management
B. Existing and potential investors, lenders and other creditors
C. National taxing authorities
D. Independent CPAs

26. The primary objective of financial reporting is to provide useful information

to
A. Management
B. Capital providers
C. Regulatory body
D. Government

27. Which is an objective of financial reporting?

A. To provide information that is useful in making investing and credit
decisions.
B. To provide information that is useful to management.
C. To provide information about the potential users.
D. To provide information about ways to solve internal and external
conflicts about the entity.

28. 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 nonfinancial transactions.
C. To provide information that is useful to assess the amount, timing, and
uncertainty of prospective cash receipts.
D. To provide information that exclude claims against the resources.

29. An objective of financial reporting is to provide

A. Information about the investors in the entity.
B. Information about the liquidation value.
C. Information that is useful in assessing cash flow prospects.
D. Information that will attract new investors.

30. Assessing cash flow prospects is interpreted to mean

A. Cash basis accounting is preferred over accrual basis.
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 the choices are correct regarding assessing cash flow projects.
31. In measuring financial performance, accrual 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.
D. It is one of the implicit assumptions.

32. The most useful information in predicting future cash flow is

A. Information about current cash flows.
B. Current earnings based on accrual accounting.
C. Information regarding the accounting policies used.
D. Information regarding the results obtained by using a wide variety of
accounting policies.

33. 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.

34. The objective of financial reporting is 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.

35. Which statement is not true about financial reporting?

A. Financial reporting shall provide information about entity resources,
claims against those resources and changes in them.
B. Financial reporting shall not provide information useful in evaluating
management stewardship.
C. Financial reporting shall provide information useful in investment, credit
and similar decision.
D. Financial reporting shall provide information useful in assessing cash
flow prospects.

36. 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.

37. Financial reporting pertains to information about

 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 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 and to members of society as consumers, rather
than individual entities or industries.

38. Under the Revised Conceptual Framework, during a period when an entity is
under the direction of a particular management, financial reporting provides
information about
A. Entity performance and management performance.
B. Management performance but not entity performance.
C. Entity performance but not management performance.
D. Neither entity performance not management performance.

QUALITATIVE CHARACTERISTICS

39. What are the attributes that make the information provided in financial
statements useful to readers?
A. Qualitative characteristics of financial information.
B. Quantitative characteristics of financial information.
C. Elements of financial statements.
D. Objectives of financial reporting.

40. Qualitative characteristics

A. Are considered either fundamental or enhancing.
B. Contribute to the decision-usefulness of financial reporting information.
C. Distinguish better information from inferior information for decision-
making purposes.
D. All of the choices are correct.

41. The fundamental qualitative characteristics are

A. Relevance and faithful representation
B. Relevance, faithful representation and materiality
C. Relevance and reliability
D. Faithful representation and materiality

42. Accounting information is considered relevant when it

A. Can be depended on to represent the economic conditions and events
that is intended to represent.
B. Is capable of making a difference in a decision.
C. Is understandable by reasonably informed users of accounting
information.
D. Is verifiable and neutral
43. The ingredients of relevant information are:
A. Predictive value and confirmatory value
B. Predictive value, confirmatory value and timeliness
C. Predictive value, confirmatory value and materiality
D. Predictive value, confirmatory value, timeliness and materiality.

44. What is the quality of information that gives assurance that it is reasonably
free of error and bias?
A. Relevance
B. Faithful representation
C. Verifiability
D. Neutrality

45. To achieve faithful representation, the financial statements

A. Must have predictive and confirmatory value.
B. Must be complete, neutral and reasonably free from error.
C. Are understandable, comparable, verifiable and timely.
D. Must possess all of these.

46. The financial accounting information is directed toward the common needs
of users and is independent of presumptions about a particular needs and
desires of specific users.
A. Relevance
B. Verifiability
C. Neutrality
D. Completeness

47. In the event of conflict between the economic substance of a transaction and
the legal form, the economic substance shall prevail.
A. Form over substance
B. Substance over form
C. Relevance
D. Completeness

48. The enhancing qualitative characteristics of financial information are:

A. Comparability and understandability
B. Verifiability and timeliness
C. Comparability, understandability and verifiability
D. Comparability, understandability, verifiability and timeliness