ACCT 3010 Ch 2 – Flashcards
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A soundly developed conceptual framework enables the FASB to issue more useful and consistent pronouncements over time.
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T
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A conceptual framework is a coherent system of concepts that flow from an objective.
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T
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The first level of the conceptual framework identifies the recognition, measurement, and disclosure concepts used in establishing accounting standards.
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F
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The IASB has issued a conceptual framework and has agreed to develop a common conceptual framework with the FASB.
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T
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Although the FASB has developed a conceptual framework, no Statements of Financial Accounting Concepts have been issued to date.
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F
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The objective of financial reporting is the foundation of the conceptual framework.
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T
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Users of financial statements are assumed to need no knowledge of business and financial accounting matters to understand information contained in financial statements.
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F
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Relevance and faithful representation are the two primary qualities that make accounting information useful for decision making.
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T
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The idea of consistency does not mean that companies cannot switch from one accounting method to another.
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T
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Timeliness and neutrality are two ingredients of relevance.
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F
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Verifiability and predictive value are two ingredients of faithful representation.
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F
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Revenues, gains, and distributions to owners all increase equity.
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F
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Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
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T
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The historical cost principle would be of limited usefulness if not for the going concern assumption.
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T
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The economic entity assumption means that economic activity can be identified with a particular legal entity.
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F
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The expense recognition principle states that debits must equal credits in each transaction.
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F
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Revenues are recognized in the accounting period in which the performance obligation is satisfied.
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T
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Supplementary information may include details or amounts that present a different perspective from that adopted in the financial statements.
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T
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In order to justify requiring a particular measurement or disclosure, the benefits to be derived from it must equal the costs associated with it.
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F
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Prudence or conservatism means when in doubt, choose the solution that will be least likely to overstate liabilities or expenses.
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F
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Generally accepted accounting principles a. are fundamental truths or axioms that can be derived from laws of nature. b. derive their authority from legal court proceedings. c. derive their credibility and authority from general recognition and acceptance by the accounting profession. d. have been specified in detail in the FASB conceptual framework.
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C
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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 solved. d. All of these answer choices are correct.
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D
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Which of the following is not true concerning a conceptual framework in accounting? a. It should be a basis for standard-setting. b. It should allow practical problems to be solved more quickly by reference to it. c. It should be based on fundamental truths that are derived from the laws of nature. d. All of these answer choices are true.
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C
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What is a purpose of having a conceptual framework? a. To enable the profession to more quickly solve emerging practical problems. b. To provide a foundation from which to build more useful standards. c. Neither a nor b. d. To enable the profession to more quickly solve emerging practical problems and to provide a foundation from which to build more useful standards.
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D
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Which of the following is not a benefit associated with the FASB Conceptual Framework Project? a. A conceptual framework should increase financial statement users' understanding of and confidence in financial reporting. b. Practical problems should be more quickly solvable by reference to an existing conceptual framework. c. A coherent set of accounting standards and rules should result. d. Business entities will need far less assistance from accountants because the financial reporting process will be quite easy to apply.
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D
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In the conceptual framework for financial reporting, what provides "the why"--the purpose of accounting? a. Recognition, measurement, and disclosure concepts such as assumptions, principles, and constraints b. Qualitative characteristics of accounting information c. Elements of financial statements d. Objective of financial reporting
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D
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The underlying theme of the conceptual framework is a. decision usefulness. b. understandability. c. faithful representation. d. comparability.
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A
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The objective of general-purpose financial reporting is to provide financial information about a reporting entity to each of the following except a. potential equity investors. b. potential lenders. c. present investors. d. All of these answers are correct.
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D
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What is the primary objective of financial reporting as indicated in the conceptual framework? a. Provide information that is useful to those making investing and credit decisions. b. Provide information that is useful to management. c. Provide information about those investing in the entity. d. All of these answer choices are correct.
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A
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If the LIFO inventory method was used last period, it should be used for the current and following periods because of a. comparability. b. materiality. c. timeliness. d. verifiability.
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A
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What is the following is a characteristic describing the primary quality of relevance? a. Predictive value. b. Materiality. c. Verifiability. d. Understandability.
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A
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Which of the following is a fundamental quality of useful accounting information? a. Comparability. b. Relevance. c. Neutrality. d. Materiality.
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B
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Which of the following is a primary quality of useful accounting information? a. Conservatism. b. Comparability. c. Faithful representation. d. Consistency.
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C
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What is meant by comparability when discussing financial accounting information? a. Information has predictive or confirmatory value. b. Information is reasonably free from error. c. Information that is measured and reported in a similar fashion across companies. d. Information is timely.
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C
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What is meant by consistency when discussing financial accounting information? a. Information that is measured and reported in a similar fashion across points in time. b. Information is timely. c. Information is measured similarly across the industry. d. Information is verifiable.
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A
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Which of the following is an ingredient of relevance? a. Verifiability. b. Neutrality. c. Timeliness. d. Materiality.
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D
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Which of the following is an ingredient of faithful representation? a. Predictive value. b. Materiality. c. Neutrality. d. Confirmatory value.
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C
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Changing the method of inventory valuation should be reported in the financial statements under what qualitative characteristic of accounting information? a. Consistency. b. Verifiability. c. Timeliness. d. Comparability.
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A
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Company A issuing its annual financial reports within one month of the end of the year is an example of which enhancing quality of accounting information? a. Comparability. b. Timeliness. c. Understandability. d. Verifiability.
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B
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What is the quality of information that is capable of making a difference in a decision? a. Faithful representation. b. Materiality. c. Timeliness. d. Relevance.
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D
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Neutrality is an ingredient of which fundamental quality of information? a. Faithful representation. b. Comparability. c. Relevance. d. Understandability.
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A
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If the FIFO inventory method was used last period, it should be used for the current and following periods because of a. relevance. b. neutrality. c. understandability. d. consistency.
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D
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The pervasive criterion by which accounting information can be judged is that of a. decision usefulness. b. freedom from bias. c. timeliness. d. comparability.
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A
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The two fundamental qualities that make accounting information useful for decision making are a. comparability and timeliness. b. materiality and neutrality. c. relevance and faithful representation. d. faithful representation and comparability.
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C
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Accounting information is considered to be 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.
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B
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The quality of information that means the numbers and descriptions match what really existed or happened is a. relevance. b. faithful representation. c. completeness. d. neutrality.
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B
