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Conceptual Framework for Financial Reporting

QUIZ:
1. A soundly developed conceptual framework of concepts and objectives should
a. increase financial statement users' understanding of and confidence in financial reporting.
b. enhance comparability among companies' financial statements.
c. allow new and emerging practical problems to be more quickly soluble.
d. all of these.

2. A Standard sometimes contains requirements that depart from the Conceptual Framework. In such cases,
a. the requirements of the Conceptual Framework will prevail over those of the Standard.
b. the departure is explained in the ‘Basis for Conclusions’ on that Standard.
c. the entity’s management shall formulate its own accounting policy and disregards both the
requirements of the Conceptual Framework and the Standard.
d. A Standard should never depart from the Conceptual Framework.

3. The overall objective of financial reporting is to provide information

a. about an entity's assets, liabilities, and equity.
b. about an entity's financial performance during a period.
c. that is useful to primary users in making economic decisions about providing resources to the
entity.
d. that allows owners to assess management's performance.

4. The two primary qualities that make accounting information useful for decision making are
a. comparability and consistency.
b. materiality and timeliness.
c. relevance and reliability.
d. faithful representation and relevance.

5. According to the Conceptual Framework, predictive value relates to

Relevance Faithful representation
a. Yes Yes
b. No Yes
c. Yes No
d. No No

6. Which of the following is considered a qualitative factor in making materiality judgments?

a. the context of an item in relation to the current economic state of the environment where the entity
operates.
b. 10% of profit or loss, in absolute terms
c. 5% of total revenues
d. 1% of total assets

7. Which of the following statements about materiality is not correct?

a. An item must make a difference; otherwise, it need not be reported.
b. Materiality is affected by an item’s relative size and/or importance.
c. An item is material if its inclusion or omission would influence or change the judgment of a
reasonable person.
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d. All of these are correct statements about materiality.

8. The Filipino adage “Aanhin mo pa ang damo pag patay na ang kabayo” relates to which of the
following qualitative characteristics?
a. Relevance
b. Timeliness
c. Faithful representation
d. Comparability

9. When information about two different entities has been prepared and presented in a similar manner,
the information exhibits the characteristic of
a. relevance.
b. reliability.
c. consistency.
d. comparability.

10. According to the Conceptual Framework, physical count of inventory is an example of

a. direct verification.
b. indirect verification.
c. timeliness.
d. relevance.

11. Information is considered relevant when it

a. can be depended on to represent the economic conditions and events that it 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.

12. The quality of information that gives assurance that it is reasonably free of error and bias and provides
a true, correct and complete depiction of what it purports to represent is
a. relevance.
b. faithful representation.
c. verifiability.
d. neutrality.

13. Information is neutral if it

a. provides benefits which are at least equal to the costs of its preparation.
b. can be compared with similar information.
c. has no impact on a decision maker.
d. is free from bias toward a predetermined result.

14. Decision makers vary widely in the types of decisions they make, the methods of decision making they
employ, the information they already possess or can obtain from other sources, and their ability to
process information. Consequently, for information to be useful there must be a linkage between these
users and the decisions they make. This link is
a. relevance.
b. reliability.
c. understandability.
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d. materiality.

15. Which of the following is considered a pervasive constraint by the Conceptual Framework?
a. Cost constraint
b. Verifiability
c. Conservatism
d. Cost restraint

16. Which of the following is not an element that is directly related to the measurement of an entity’s
financial position?
a. assets
b. liabilities
c. equity
d. income

17. The revised Conceptual Framework defines an asset as

a. a resource controlled by the entity as a result of past events and from which future economic
benefits are expected to flow to the entity.
b. a present economic resource controlled by the entity as a result of past events. An economic
resource is a right that has the potential to produce economic benefits.
c. a physical object that can produce economic benefits for the entity.
d. All of these.

18. Which of the following is most likely to result in the recognition of a liability?
a. Customers become entitled to rebates for their past purchases.
b. Intention to acquire inventories in a future period.
c. Entering into a purchase contract for future delivery.
d. Agreeing on an irrevocable future commitment that is not burdensome at present.

19. Which of the following is not an indication of an economic resource’s potential to produce economic
benefits for the entity?
a. The resource cannot be used in the entity’s operations but has a resale value.
b. The resource has no use to the entity but it can be exchanged for another resource with another
party.
c. The entity does not intend to sell or use the resource but instead distribute it to the owners as
dividends.
d. The economic benefits from the resource were already consumed by the entity.

20. Which of the following correctly reflects the Conceptual Framework definitions of income and expenses?
Income Expenses
a. Increase in assets Increase in liabilities
b. Decrease in assets Decrease in liabilities
c. Owner contributions Owner distributions
d. Decrease in equity Increase in equity

“Do not be wise in your own eyes; fear the LORD and shun evil. “ (Proverbs 3:7)
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