CONCEPTUAL FRAMEWORK & ACCOUNTING STANDARDS

Exercise 1

1. Which among the following is an indirect user of accounting information?

A. management of the enterprise
B. taxing authority
C. regulatory agency
D. lenders of the enterprise

2. Financial Accounting is concerned with

A. recording financial transactions
B. summarizing and presenting financial information on financial reports
C. analyzing the financial reports
D. all of these

3. Which of the following is an internal user of a company’s financial

information?
A. Board of Directors
B. Long-term creditors of an enterprise
C. Shareholders of the company
D. Regulatory agencies

4. Which of the following is considered a direct user of accounting information?

A. A regulatory agency
B. Trade association
C. Taxing authority
D. Labor unions

5. As used in the definition of accounting, an economic entity may be

A. a business enterprise
B. an individual
C. a division within a business enterprise
D. any of these

6. The objectives of financial reporting for business enterprise are based on:
A. generally accepted accounting principles
B. reporting on management’s stewardship
C. the need for profit maximization
D. the needs of the users of the information

7. What is the branch of accounting that makes financial information about an

entity accessible to the external users?
A. Auditing
B. Financial accounting
C. Government accounting
D. Management accounting
8. What is the branch of accounting that serves the information needs of
internal users?
A. cost accounting
B. financial accounting
C. government accounting
D. management accounting

9. Which of the following users of accounting information are both an external

user and a direct user?
A. management
B. labor unions
C. creditors
D. regulatory bodies

10. Which of the following are represented in the Financial Reporting Standards
Council?

I. Securities and Exchange Commission

II. Department of Trade and Industry
III. Board of Accountancy
IV. PICPA
V. BIR
VI. SSS

A. I, II, III, IV, V and VI

B. I, II, III, V, and VI
C. II, IV, V, and VI
D. I, III, IV, and V

11. The body authorized by law to promulgate rules and regulations affecting the
practice of accountancy in the Philippines is
A. Accounting Standards Council
B. PICPA
C. BOA
D. Auditing Standards and Practices Council

12. Which of the following are parts of the due process applied by the Financial
Reporting Standards Council in developing a financial reporting standard?

I. Formation of a task force to address the issue.

II. Publication of the exposure draft in the official gazette or newspaper
of general circulation
III. Consideration of comments on the exposure draft.
IV. Approval vote by a majority members of the FRSC members.
 A. I, II, III, and IV
B. I, III, and IV
C. II, III, and IV
D. I, II, and IV

13. The process of establishing financial reporting standards is

A. a democratic process in that a majority of practicing CPAs must vote in
favor of a proposed standard.
B. A legislative process based on set of laws promulgated by the House of
Representatives
C. A social process which incorporates political actions of various interested
user groups as well as professional research and logic
D. Based solely on economic analysis of the effects each standard will have if
it is implemented.

14. The body that authors the IFRS is the

A. ASC
B. FRSC
C. IASB
D. IASC

15. An independent, not-for-profit private sector organization that governs the

activities of the IASB is the
A. IASC
B. IFRS Foundation
C. IFRIC
D. Standards Advisory Council

16. As part of the due process of developing an accounting standard, the FRSC
issued exposure draft fro comment within a period of 60 days, unless a
shorter period is considered appropriate. How long is this shorter period?
A. not less than 50 days
B. not less than 45 days
C. not less than 30 days
D. it depends on the issue being resolved.

17. Based on RA 9298, the FRSC is composed of:

A. 13 members
B. 14 members
C. 15 members
D. 16 members

18. RA 9298 is otherwise known as

A. Revised Accountancy Law
B. Revised Accountancy Act
C. Philippine Accountancy Act of 2004
 D. Code of Professional Ethics for CPAs

19. This is the body created by the BOA in 2006 to assist the Board in carrying
out its power and function to promulgate accounting standards in the
Philippines.
A. PICPA
B. IASC
C. Auditing and Assurance Standards Council
D. FRSC

20. The PFRS consist of

I. Specific PFRS which are adopted from the IFRS
II. PAS, which are adopted from the IAS
III. Philippine interpretations, which are adopted from the
interpretations of the IFRIC and SIC
IV. Interpretations of the PIC

A. I, II, III, and IV

B. I, II, and III only
C. I and II only
D. I only
 EXERCISE 2 – THE NEED FOR FINANCIAL REPORTING

1. Accounting is a service activity and the function is to provide quantitative

information, primarily financial in nature, about economic entities that is
intended to be useful in making economic decision. This definition is given by
A. Accounting Standards Council
B. AICPA Committee on Accounting Terminology
C. American Accounting Association
D. Board of Accountancy

2. All of the following describe accounting except:

A. A service activity
B. An information system
C. A universal language of business
D. An exact science rather an art

3. The important points made in the definition of accounting include all of the
following except:
A. Accounting information is quantitative
B. Accounting information is both quantitative and qualitative
C. Accounting information is financial in nature
D. Accounting information is useful in decision making.

4. This accounting process is the recognition or non-recognition of business

activities as accountable events
A. Identifying
B. Measuring
C. Communicating
D. Reporting

5. What are the events that affect the entity and in which other entities
participate?
A. Internal events
B. External events
C. Current events
D. Obligating events

6. Which is incorrect in relation to an accountable event?

A. An event is accountable when it has an effect on asset, liability or equity.
B. The subject matter of accounting is the measurement of economic
resources and obligations.
C. Only economic activities are emphasized and recognized in accounting.
D. Sociological and psychological matters are quantifiable.
7. What is the measuring component in the definition of accounting?
A. The recognition or non-recognition of business activities is accountable
events.
B. The assigning of peso amounts to the accountable events.
C. The preparation and distribution of accounting reports to users of
accounting information.
D. The preparation of audit report by CPAs.

8. The most common financial attribute used in measuring financial

information is
A. Historical cost
B. Current cost
C. Fair value
D. Value in use

9. The communicating process of accounting includes all of the following,

except:
A. Recording
B. Classifying
C. Summarizing
D. Interpreting

10. What is the overall objective of accounting?

A. To provide information that the managers of an economic entity need to
control the operations.
B. To provide information that the creditors can use in deciding whether to
grant loans to an entity.
C. To measure the periodic income of the economic entity.
D. To provide quantitative financial information about an entity that is
useful in making economic decision.

11. What is the law regulating the practice of Accountancy in the Philippines?
A. RA 9298
B. RA 9198
C. RA 9928
D. RA 9892

12. What is the body authorized bylaw to promulgate rules and regulations
affecting the practice of the Accountancy profession in the Philippines?
A. Board of Accountancy
B. PICPA
C. SEC
D. FRSC

13. What are the three main areas in the practice of the accountancy profession?
A. Public Accounting, private accounting and managerial accounting.
 B. Auditing, taxation and managerial accounting.
C. Financial accounting , managerial accounting and corporate accounting.
D. Public accounting, private accounting and government accounting.

14. Which statement is incorrect in relation to the practice of public

accountancy?
A. Single practitioners for the practice of public accountancy shall be
registered CPAs in the Philippines.
B. Partners of partnerships formed for the practice of public accountancy
shall be registered CPAs in the Philippines.
C. The SEC can register any corporation organized for the practice of public
accountancy.
D. All of these statements are incorrect.

15. CPAs are licensed by

A. The PICPA
B. The SEC
C. The city government
D. State government

16. What is the standard-setting body in the Philippines at the present time?
A. Accounting Standards Council
B. Auditing and Assurance Standard Council
C. Philippine Accounting Standards Board
D. Financial Reporting Standards Council

17. All of the following are represented in the FRSC, except:

A. Board of Accountancy
B. SEC
C. COA
D. DBM

18. The PFRS collectively include:

A. PFRS corresponding to IFRS
B. PAS corresponding to IAS
C. Philippine Interpretations corresponding to IFRIC and SIC Interpretations
and Interpretations developed by PIC
D. All of these are included in the PFRS

19. Accounting standard-setting has been characterized as

A. A political process
B. Using the scientific method
C. Pure deductive reasoning
D. A legal process
20. GAAP is an abbreviation for
A. Generally Authorized Accounting Procedures
B. Generally Applied Accounting Procedures
C. Generally Accepted Auditing Practices
D. Generally Accepted Accounting Principles

21. What is the primary service of CPAs in public practice?

A. Auditing
B. Taxation
C. Managerial Accounting
D. Controllership

22. Accountants employed in entities in various capacity as accounting staff,

chief accountant or controller are said to be engaged in
A. Public accounting
B. Private accounting
C. Government accounting
D. Financial accounting

23. It is the area of the accountancy profession that encompasses the process of
analyzing, classifying, summarizing and communicating all transactions
involving the receipt and disposition of government funds and property and
interpreting the results thereof.
A. Internal auditing
B. External auditing
C. Private accounting
D. Government accounting

24. How many CPD credit units are required for accreditation to practice the
accountancy profession?
A. 120
B. 100
C. 60
D. 15

25. A CPA shall be permanently exempted from renewal of CPA license

A. At the age of 65 years
B. When working abroad
C. When practicing the profession abroad
D. When studying abroad

26. The International Accounting Standards Board was formed

A. To enforce IFRS in foreign countries
B. To develop a single set of high quality IFRS
C. To establish accounting standards for multinational entities
 D. To develop accounting standards for countries that do not have their own
standard-setting bodies.

27. The International Accounting Standards Board

A. Was the predecessor to the IASC
B. Can overrule the USA GAAP when their policies disagree
C. Promotes the use of high-quality and understandable global accounting
standards
D. Has its headquarters in Geneva

28. The IASB declared that the merits of proposed standards are assessed
A. From a position of neutrality (based on quizlet)
B. From a position of materiality
C. Based on possible impact on behavior
D. Based on arguments of lobbyist (rcbc’s answer)

29. The standard-setting process includes in the correct order

A. Exposure draft, research, discussion paper and accounting standard
B. Research, exposure draft, discussion paper and accounting standard
C. Research, discussion paper, exposure draft and accounting standard
D. Discussion paper, research, exposure draft and accounting standard

30. The IASB employs a due process system which

A. Is an efficient system for collecting dues from members
B. Enables interested parties to express their views on issues under
consideration
C. Identifies the accounting issues that are the most important.
D. Requires that all CPAs must receive a copy of IFRS.

31. What is due process in standard-setting by IASB?

A. IASB operates in full view of the public
B. Public hearings are held on the proposed standards.
C. Interested parties can make views known.
D. All of these are part of due process in standard-setting

32. The standards published by IASB are called

A. International Accounting Standards
B. Financial Reporting Standards
C. International Financial Reporting Standards
D. Statement of Financial Accounting Standards

33. What is a possible danger if politics play too big a role in developing IFRS?
A. Financial reporting standards are not truly generally accepted
B. Individuals may influence the standards
C. User groups become active
D. The IASB delegates its authority to elected officials
34. Accounting standard-setting
A. Can be described as a political process which reflects political actions of
various interested user groups as well as a product of research and logic
B. Is based solely on research and empirical findings
C. Is a legalistic process
D. Is democratic in the sense that a majority of accountants must agree with
a standard before it becomes enforceable

35. Financial accounting is concerned with

A. General purpose reports on financial position and financial performance
B. Special reports for inventory management
C. Special reports for income tax computation
D. General purpose reports on changes in share prices

36. Financial accounting can be broadly defined as the area of accounting that
prepares
A. General purpose financial statements to be used by parties internal to the
entity
B. Financial statements to be used by investors
C. General purpose financial statements to be used by parties both internal
and external to the entity
D. Financial statements to be used primarily by management

37. Financial accounting emphasizes reporting to

A. Management
B. Regulatory bodies
C. Internal auditors
D. Creditors and investors

38. Managerial accounting emphasizes

A. Reporting financial information to external users
B. Reporting to the SEC
C. Expertise in data processing
D. Developing accounting information for use within an entity

39. Which statement is true regarding managerial and financial accounting?

A. Managerial accounting is generally more precise
B. Managerial accounting need not follow generally accepted accounting
principles while financial accounting must follow GAAP
C. Managerial accounting has a future focus
D. The emphasis on managerial accounting is relevance and the emphasis on
financial accounting is timeliness.

40. Generally Accepted Accounting Principles

A. Are accounting adaptations based on law
 B. Derive their credibility and authority from legal rulings and court
precedents
C. Derive their credibility and authority from a government regulatory
authority
D. Derive their credibility and authority from general recognition and
acceptance by the accountancy profession

41. Which statements best describe GAAP?

A. The accounting principles have been formulated in the public sector
B. The accounting principles have been developed on the basis of such
factors as usage and practical necessity
C. The accounting principles are the same as laws
D. The accounting principles do not apply to small and medium-sized
entities

42. Proper application of accounting principles is most dependent upon

A. Existence of specific guidelines
B. Oversight of regulatory bodies
C. External audit function
D. Professional judgment of the accountant

43. Once an accounting standard has been established

A. The standard is continually reviewed to see if modification is necessary
B. The standard is not reviewed unless a regulatory authority makes a
complaint
C. The task of reviewing the standard is given to the national accounting
organization
D. The principle of consistency requires that no revisions ever made to the
standard.

44. The primary responsibility for properly applying GAAP lies with
A. External auditor
B. Internal auditor
C. Management
D. National accounting organization
 CFAS - EXERCISE 3
CHAPTER 2 – THE CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
Multiple Choice Questions

1. Which among the following is not purpose of the IASB’s Conceptual

Framework for Financial Reporting?
A. To assist the local standard setting bodies, such as the Financial
Reporting Standards Council, in the adoption of the IFRS.
B. To assist the Board of Accountancy in the regulation of the accounting
profession in the Philippines.
C. To assist the auditors in forming an opinion as to the fairness of the
presentation of the financial statements.
D. To assist the users in interpreting the information presented on the
financial statements.

2. Which of the following is a valid statement regarding the status of the

Conceptual Framework?
A. The Conceptual Framework is an IFRS.
B. The Conceptual Framework is a PFRS.
C. In case of conflict between the IFRS, the IFRS shall prevail.
D. In case of conflict between the IFRS and Conceptual Framework, the
Conceptual Framework shall prevail.

3. The IASB’s Conceptual Framework deals with the

I. Objectives of the financial statements.
II. Qualitative characteristics that make the financial statement useful to
users.
III. Concepts of capital and capital maintenance
IV. Generally accepted accounting principles
A. I and II
B. II and III
C. I, II and III
D. I, II, III and IV

4. The objectives of financial reporting are based on the need

A. to comply with prudence.
B. of the users for accounting information.
C. to report management’s stewardship.
D. for compliance to generally accepted accounting principles.

5. Under the Conceptual Framework for Financial Reporting, who are

considered as the primary users of financial reporting?
A. Internal and external users.
B. Existing investors, lenders and other creditors.
C. Potential investors, lenders and other creditors.
D. Existing and potential investors, lenders and other creditors
6. Which of the following is not an objective of financial statements?
A. To provide information about the financial position of an enterprise.
B. To provide information about the performance of an enterprise.
C. To provide information about the economic decisions of the enterprise.
D. To provide information about the changes in the financial position of an
enterprise.

7. Making the financial information available when a decision is to be made

achieves the characteristics of
A. Timeliness
B. Neutrality
C. Completeness
D. Comparability

8. Adequate disclosure in financial statements to meet the needs and purposes

of their users is a means of attaining the quality of
A. Verifiability
B. Faithful representation
C. Understandability
D. Neutrality

9. What is the underlying concept that supports the immediate recognition of a

loss?
A. Matching
B. Substance over form
C. Prudence
D. Consistency

10. Which of the following is a pervasive constraint on the information that can
be provided by financial reporting?
A. Timeliness
B. Neutrality
C. Cost
D. Materiality

11. Neutrality means that the financial accounting information should

A. Not influence or affect the decisions of users
B. Not be biased or prejudiced
C. Not have undesirable or negative consequences
D. All of the above

12. Continuation of an enterprise in the absence of evidence to the contrary is an

example of the concept of
A. Accounting entity
B. Consistency
C. Going concern
 D. Substance over form

13. Information about enterprise earnings and its components measured under
accrual basis provides a better measure of an enterprise’s performance than
information about cash receipts and payments because
A. Accrual basis recognizes that events affecting enterprise operations
during a period often do not coincide with cash receipts and payments.
B. Accrual basis relates accomplishments and efforts in measuring and
reporting enterprise’s earnings and its components.
C. Accrual basis provides estimates of future earnings.
D. Cash receipts and cash payments information cannot adequately indicate
whether or not an enterprise’s performance is successful.

14. Under a lease where the lessee acquires the benefits of ownership of an asset,
the lessee often recognizes the present value of future rental payments as an
asset even though legal title to the property is not acquired. This is an
example of the application of
A. Form over substance
B. Prudence
C. Substance over form
D. Consistency

15. The going concern concept assumes that

A. Market values of assets are relevant.
B. Long-lived assets are adjusted to current prices.
C. Business firms shall continue to operate indefinitely.
D. Enterprises will curtail their operations in the succeeding period.

16. What concept justifies the use of accruals and deferrals?

A. Going concern
B. Consistency
C. Materiality
D. Timeliness

17. Under the accrual basis of accounting, the effects of transactions and other
events are recorded in the accounting records.
A. When they occur but reported in the financial statements when cash is
received or paid.
B. When cash is received or paid but reported in the financial statements
when they occur.
C. And reported in the financial statements when cash is paid or received.
D. And reported in the financial statements when they occur.
18. Which users of financial statements are interested in information that
enables them to determine whether their loans and interest attaching to
them will be paid when due.
A. Suppliers
B. Investors
C. Lenders
D. Trade creditors

19. The process of determining the monetary amounts at which the elements of
the financial statements are to be recognized and carried in the financial
statements is known as:
A. Measurement
B. Recognition
C. Presentation
D. Maintenance

20. Under the 2018 Conceptual Framework, this is defined as the present value
of the cash inflows or other economic benefits that an entity expects to
derive from the use and eventual disposal of an asset.
A. Present value
B. Realizable value
C. Current cost
D. Value in use

21. Under the Conceptual Framework, the qualitative characteristics that enables
the users to compare the financial statements of an enterprise through time
to identify trends in its financial position and performance is
A. Verifiability
B. Comparability
C. Completeness
D. Understandability

22. Which of the following are among the four (4) enhancing characteristics of
financial information?
A – Comparability
B – Timeliness
C – Relevance
D – Materiality
E – Neutrality

A. A and B
B. A and C
C. B and D
D. B and E
23. Under this concept, capital is regarded as the net assets or equity of an
enterprise
A. Physical concept
B. All-inclusive concept
C. Financial concept
D. Physical capital maintenance concept

24. An item would be considered material and therefore, should be disclosed in

the financial statements if
A. The expected benefits of disclosure exceed the additional costs to provide
the information.
B. The FRSC’s definition of materiality is met.
C. The amount is deemed large enough to make a difference in the decision
or evaluation of the user.
D. The effect on earnings is more than 10%.

25. Which measurement basis adopted by the physical capital maintenance

concept?
A. Historical cost
B. Current cost
C. Realizable value
D. Present value

26. Which of the following does not necessarily contribute to representational

faithfulness of accounting information?
A. Providing information that possesses confirmatory value.
B. Providing complete information within the bounds of materiality and
cost.
C. Providing information that are free from bias.
D. Informing the users of the accounting policies and changes in accounting
policies employed in the preparation of the financial statements.

27. Which of the following relates to relevance?

A. Confirmatory value
B. Representational faithfulness
C. Neutrality
D. Comparability

28. The basic assumption which is the best basis for the classification of assets
and liabilities as current and non-current is the
A. Accounting period
B. Going concern
C. Judgment
D. Materiality
29. What is the underlying concept that supports the recognition of impairment
in value of non-monetary assets held by the enterprise?
A. Substance over form
B. Consistency
C. Prudence
D. Neutrality

30. An expense may result from a/an

A. Decrease in asset from primary operations
B. Decrease in an asset from incidental transactions
C. Increase in liability from incidental transactions
D. Increase in asset from primary operations

31. Under this concept, a profit is earned when the amount of the capital at the
end of the period exceeds the amount of capital at the beginning of the
period, after excluding the effects of transactions with owners.
A. Transaction approach
B. Entity concept
C. Capital maintenance concept
D. Going concern concept

32. It is the process of incorporating in the statement of financial position or

statement of comprehensive income an item that meets the definition of an
element of the financial statements.
A. Recognition
B. Measurement
C. Realization
D. Allocation

33. Which of the following is not a valid statement relating to the accrual basis of
accounting?
A. Revenues are recorded in the period that they are earned rather than in
the period in which the cash is collected.
B. Expenses are recorded in the period that they are incurred rather than in
the period in which cash is paid.
C. Accrual basis results to more complete financial information compared to
the cash basis.
D. Accrual basis emphasizes the timing of cash receipts and cash
disbursements in the recognition of income and expenses.

34. For the information to be useful, there must be a linkage between the
information and the decisions that the users must take. This linkage is
A. Materiality
B. Relevance
C. Reliability
D. Understandability
35. The quality of information that makes it needed and worthy for the purpose
it was prepared is
A. Understandability
B. Relevance
C. Reliability
D. Completeness

36. The major objective of applying consistency in accounting policies is

A. To promote comparability between financial statements of different
enterprises.
B. To promote comparability between financial statements of different
reporting periods.
C. To match the appropriate revenues and expenses in a particular
reporting period.
D. To reflect accurately the transaction or other circumstance that the
information purports to represent.

37. The characteristics of consistency in financial information is best depicted

when
A. The entity gives accountable events the same accounting treatment from
period to period.
B. Expenses are deducted from revenue in the same accounting period.
C. Accounting procedures are adopted that give a consistent rate of return
for the entity.
D. The reported income is consistent from period to period.

38. An information is representationally faithful if it

A. Is current, so users of financial statement can use it to make decisions.
B. Is complete, neutral and free from error.
C. Allows users to make comparisons across financial statements.
D. Is presented the same way period after period.

39. Neutrality provides assurance that the information presented on the

financial statements are
A. Fair (sagot ni rcbc and quizlet)
B. Complete
C. Reliable (sagot ni ma’am abi sa drive)
D. Prudent

40. This enhancing characteristic requires that the users be well-informed and
diligent for information to be useful.
A. Comparability
B. Relevance
C. Reliability
D. Understandability
41. An information that achieves the all encompassing concept of fairness
achieves the characteristic of
A. Completeness
B. Neutrality (RCBC’s ans)
C. Relevance (Ma’am Abi’s ans)
D. Understandability

42. Under the IASB’s Conceptual Framework, the process of reporting an item in
the financial statements of an enterprise is
A. Allocation
B. Matching
C. Measurement
D. Recognition

43. Which process is the assigning of peso amounts to the accountable economic
transactions and events?
A. Communication
B. Summarizing
C. Measurement
D. Identification

44. Which of the following are elements relating to the entity’s financial position?
I. Present economic resource controlled by the entity as a result of past
events.
II. The residual interest in the assets of the entity after deducting all its
liabilities.
III. Outflow or using up of an economic resource or incurrence of an
obligation from delivering or producing goods or rendering services.
IV. Present obligation of an entity to transfer an economic resource as a
result of past events.
A. I, II, III and IV
B. I, II and IV
C. II, III and IV
D. I and III

45. The measurement basis that is most commonly used in practice because of
its objectivity, verifiability and therefore, fairness is the
A. Current cost
B. Fair value
C. Historical cost
D. Fulfillment value

46. Fair value may be observed

I. Directly
II. Indirectly
 A. I only
B. II only
C. Either I or II
D. Neither I or II

47. Which of the following is an exit value?

A. Current cost
B. Historical cost
C. Fair value
D. Amortized cost

48. Which of the following is an entry value?

A. Current cost
B. Fair value
C. Fulfillment value
D. Value in use

49. Fulfillment value is associated with measuring (A) ____________ at

(B)_____________
A B
A. Asset Historical cost
B. Asset Current value
C. Liability Historical cost
D. Liability Current value

50. Which of the following statements relating to initial measurement is not

correct?
A. When an asset or liability is measured at cost, transaction costs are
included in the initial measurement basis to arrive at historical cost.
B. When an asset is acquired through donation, the fair value of the asset at
the date of donation as its “deemed cost”.
C. When an asset or liability is initially measured at fair value, transaction
costs increase the initial measurement basis for that asset or liability.
D. The choice of the initial measurement basis is affected by the nature of
the information that the measurement basis will produce and the
characteristics of asset or liability as well as their contributions to the
entity’s cash flows.
 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