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Conceptual Framework (Objective of Financial Reporting)
Conceptual Framework (Polytechnic University of the Philippines)
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Problem 2-1 (IFRS)
1. Which statement is true about the 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 a purpose of the 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. All of these can be considered a purpose of the
Conceptual Framework.
3. Which is not a purpose of the Conceptual
Framework?
a. To assist users of financial statements in
interpreting the Standards.
b. To assist preparers of financial statements in
applying the Standards.
c. To assist preparers of financial statements in
developing an accounting policy when a
Standard allows an accounting policy choice.
d. To assist the BOA in promulgating rules and
regulations
affecting
the
accountancy
profession.
4. The Conceptual Framework provides the
foundation for Standards that
a. Contribute to transparency by enhancing
international comparability and quality of
financial information.
b. Strengthen accountability of the people
entrusted with the economic resources of the
entity.
c. Contribute to economic efficiency by helping
investors to identify opportunities and risks
across the world.
d. All of these are the result of Standards
developed based on consistent concepts.
Problem 2-2 (IFRS)
1. 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 an information that is relevant
and faithfully represented.
d. The Conceptual Framework applies only when
the IASB develops new standards.
2. 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.
3. 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.
4. Which is not a purpose of the Conceptual
Framework?
a. To provide definitions 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 IASB in the standard-setting
process.
Problem 2-3 (IAA)
1. In the Conceptual Framework for Financial
Reporting, what provides the “why” of
accounting?
a. Measurement and recognition concept
b. Qualitative characteristic of accounting
information
c. Element of financial statement
d. Objective of financial reporting
2. The underlying theme of the Conceptual
Framework is
a. Decision usefulness
b. Understandability
c. Timeliness
d. Comparability
3. Which is not a purpose of having a Conceptual
Framework?
a. To enable the profession to solve emerging
practical problems more quickly.
b. To provide a foundation from which to build
more useful standards.
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c. To enable the standard-setting body to issue
more useful and consistent pronouncements
over time.
d. To assist regulatory agencies in issuing rules
and regulations for a particular industry.
4. Which of the following is not a benefit associated
with the Conceptual Framework?
a. A Conceptual Framework should increase
users’ 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.
5. 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
users’ understanding and confidence in
financial reporting.
Problem 2-4 (ACP)
1. 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
2. The primary users of financial information include
a. Existing and potential investors
b. Existing and potential lenders and other
creditors
c. User group such as employees, customers,
governments and their agencies, and the
public
d. Existing and potential investors, lenders and
other creditors
3. Which group is not among the externa users from
whom financial statements are prepared?
a. Customers
b. Suppliers
c. Employees
d. All of these are external users of financial
statements.
4. Which of the following is an internal user of
financial information?
a. Board of Directors
b. Shareholder
c. Holder of Bonds
d. Creditor with Long-Term Contract
5. These users require information on risk and return
provided by their investment.
a. Investors
b. Employees
c. Lenders
d. Customers
6. 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
7. 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
8. 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
9. These users are interested in information in order
to regulate the activities of an entity, determine
taxation polices and provide a basis for national
statistics.
a. Governments and their Agencies
b. Major Organization of Users
c. Bureau of Internal Revenue
d. Department of Finance
10. 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. Governments and their Agencies
c. Finance Entities
d. Private Entities
Problem 2-5 (IAA)
1. The overall objective of financial reporting is to
provide information
a. That is useful in decision making.
b. About assets, liabilities, and equity of an
entity.
c. About financial performance during a period.
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d. That allows owners to assess management
performance.
2. 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
3. The primary objective of financial reporting is to
provide useful information to
a. Management
b. Capital providers
c. Regulatory body
d. Government
4. 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.
5. What 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 excludes claims
against the resources.
6. 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.
7. Assessing cash flow prospects in 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 cash flows.
c. Over the long run, trend in revenue and
expenses are generally more meaningful that
trends in cash receipts and disbursements.
d. All of the choices are correct regarding
assessing cash flow prospects.
8. In measuring financial performance, accrual
accounting 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.
9. The most useful information in predicting future
cash flows 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
10. 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.
Problem 2-6 (AICPA)
1. 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
2. Under the Revised Conceptual Framework, which
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 monument
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.
3. Which of the following is not an objective of
financial reporting?
a. To provide information about the entity’s
assets and claims against those assets.
b. To provide information that is useful in
assessing an entity’s resources 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.
4. 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.
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b. Business industries, rather than to 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 to individual
entities or industries.
5. 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. Both entity performance and management
performance.
b. Management performance but not entity
performance.
c. Entity performance but not management
performance.
d. Neither entity performance nor management
performance.
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