Conceptual Framework - Test Bank | 9th Edition

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Chapter 02 Testbank

1. When an AASB standard conflicts with the Conceptual Framework, the former prevails.

True   False

2. In Australia the first Statement of Accounting Concept, released as part of the Australian Conceptual Framework Project (SAC 1 Definition of the Reporting Entity), was released in 1990.

True   False

3. Conceptual frameworks can be classified as normative theories of accounting as they provide guidance (prescription) to people involved in preparing general purpose financial statements.

True   False

4. IASB stands for International Assessment Standards Board.

True   False

5. A normative theory of accounting prescribes a particular accounting practice.

True   False

6. Bowen Pty Ltd is a small proprietary company with seven directors. Four of the seven directors own 75% of the ordinary shares and the remaining shares are owned by family members of the directors. The company also has 15 trade creditors and an open line of credit with one state bank. Is Bowen Pty Ltd a reporting entity and hence required to prepare general purpose financial reports?

A. Yes, because dependent users of financial reports exist

B. Yes, because there are trade creditors who are external users

C. No, because it is a small proprietary firm

D. No, because there are no obvious users who are unable to command the preparation of information from the entity

7. Which of the following are considered in the AASB Framework as primary qualitative characteristics?

A. Relevance, faithful representation, materiality and comparability

B. Relevance, faithful representation, timeliness and understandability

C. Relevance, faithful representation, understandability and comparability

D. Materiality, faithful representation, understandability and comparability

8. The Conceptual Framework identifies two aspects to financial information that are 'relevant'. These are:

A. verifiability and understandability

B. predictability and verifiability

C. neutrality and verifiability

D. prudence and neutrality

9. The IASB Conceptual Framework for Financial Reporting (as released in 2010), removed ‘stewardship’. It was reinstated in 2018. Stewardship in this context relates to:

A. how closely the information provided in the financial report reflects the concerns of the reporting entity’s management.

B. whether the information is comparable, verifiable, timely and understandable.

C. the relevance of performance, financial position, funding and investing, and compliance.

D. how efficiently and effectively the reporting entity’s management has discharged its responsibilities to use the entity’s economic resources.

10. Blaxland Ltd filed a lawsuit against D-Mart Machineries for failure to comply with the specifications of the factory equipment that they ordered and received. The solicitors for Blaxland Ltd strongly believe that the company will receive $50 000 to $100 000 if they win the case. Which action is consistent with the Conceptual Framework?

A. Blaxland Ltd should recognise a receivable of $75 000, the expected value of the gain.

B. Blaxland Ltd should recognise a receivable of $50 000, a conservative estimate of the gain.

C. Blaxland Ltd should not recognise the receivable until it is probable that they have won the case.

D. Blaxland Ltd should not recognise the receivable because while the solicitor is expecting to win the case, the receivable cannot be estimated reliably.

11. In accordance with the IASB Conceptual Framework, which of the following is consistent with the definition of expenses?

A. Decreases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to distributions to holders of equity claims.

B. Decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to control of equity claims.

C. Decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims.

D. All of the given answers are correct.

12. Which of the following is not among the primary users of general purpose financial reports?

A. Investors

B. Lenders

C. Creditors

D. Artificial intelligence

13. __________ is defined in the Conceptual Framework as ‘a present obligation of the entity to transfer an economic resource as a result of past events’.

A. Asset

B. Liability

C. Income

D. Expense

14. Which among the following is not a current value measurement?

A. Fair value

B. Value in use (for assets), or fulfilment value (for liabilities)

C. Current cost

D. Historical cost

15. In Australia, work on the Australian Conceptual Framework commenced in the ______.

A. 1950s

B. 1960s

C. 1970s

D. 1980s

16. Accounting standards should be more _______________, because they are developed from an orderly set of agreed concepts.

A. appealing

B. inconsistent

C. consistent and logical

D. available

17. The first component to be addressed in the Conceptual Framework of Financial Reporting is __________.

A. definition of general purpose financial reporting

B. elements of financial statements

C. measurement basics and techniques

D. what information shall be disclosed and how it shall be presented to users

18. What is the next step after defining the general purpose financial reporting in the building blocks of the Conceptual Framework for Financial Reporting?

A. Definition of the reporting entity

B. Objectives of general purpose financial reports

C. Underlying assumptions

D. Recognition criteria

19. Accounting standard AASB 1053 Application of Tiers of Australian Accounting Standards defines a__________ as ‘an entity in respect of which it is reasonable to expect the existence of users who rely on the entity’s general purpose financial statements for information that will be useful to them for making and evaluating decisions about the allocation of resources. It can be a single entity or a group comprising a parent and all of its subsidiaries’.

A. non reporting entity

B. reasonable entity

C. reporting entity

D. resource entity

20. The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential ______________ in making decisions about providing resources to the entity.

A. investors

B. lenders

C. other creditors

D. All of the given answers are correct.

21. _________________are developed on the basis that readers have reasonable knowledge about financial accounting and financial reporting.

A. Accounting standards

B. Production standards

C. Marketing standards

D. Human resource standards

22. The Conceptual Framework, when it was released in 2018, grouped existing measurement bases into two broad categories: historical cost and _________.

A. current value

B. fair value

C. fulfilment value

D. current cost

23. The financial information included within the financial statements reflects only the financial performance of the entity as determined by applying the guidance and rules incorporated within the Conceptual Framework and within applicable accounting standards: they do not provide a means of assessing the ___________ performance of the entity.

A. legal

B. technological

C. social or environmental

D. political

24. The Corporate Report (issued in 1975 by the Accounting Standards Steering Committee of the Institute of Chartered Accountants in England and Wales) considered the ________ as a key audience of corporate financial reports.

A. employees

B. public

C. marketers

D. banks

25. A normative theory of accounting provides prescription about what accounting methods an organisation should _____.

A. adopt

B. not adopt

C. remove

D. avoid

26. The global financial crisis (GFC) of 2007–2009 generated a great deal of discussion about the potential deficiencies in financial accounting practices used in many countries, particularly within_______.

A. Australia

B. the USA

C. England

D. Japan

27. Discuss the benefits of a conceptual framework.

______________________________________________________________________________

28. With the past convergence project between IASB and FASB explain why there is a need for a revised Conceptual Framework.

______________________________________________________________________________

29. Discuss the need to know about the Conceptual Framework for Financial Reporting.

______________________________________________________________________________

30. How is the Conceptual Framework different from an accounting standard? Discuss.

______________________________________________________________________________

31. Discuss briefly the order of building blocks in the Conceptual Framework.

______________________________________________________________________________

32. When is an entity deemed to be a reporting entity?

______________________________________________________________________________

33. Who are the primary users of general purpose financial reports? Discuss.

______________________________________________________________________________

34. What are the objectives of general purpose financial reporting?

______________________________________________________________________________

35. List any two qualitative characteristics that financial information should possess.

______________________________________________________________________________

36. According to the Conceptual Framework (released in 2010 and 2018), what was proposed as a general expectation with respect to the user groups?

______________________________________________________________________________

37. The Conceptual Framework, when it was released in 2018, grouped existing measurement bases into two broad categories. What are they?

______________________________________________________________________________

38. Briefly differentiate between positive theory and normative theory.

______________________________________________________________________________

39. Identify and discuss the fundamental qualitative characteristics of financial information identified in the IASB Conceptual Framework for Financial Reporting.

______________________________________________________________________________

Chapter 02 Testbank