Regulation and Framework | Test Bank with Answers – 11th - Financial Accounting 11e | Test Bank with Answer Key by John Hoggett by John Hoggett, Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield. DOCX document preview.
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Testbank
to accompany
Accounting
11th edition
by
Hoggett et al.
© John Wiley & Sons Australia, Ltd 2020
Chapter 10: Regulation and the Conceptual Framework
Multiple-choice questions
1. In relation to the conceptual framework, SAC stands for:
a. Sensible Accounting Constructs.
b. Statements of Accounting Concepts.
c. Standard Auditing Controls.
d. Statements from Accounting Committees.
General Feedback:
Learning objective 10.1: describe the development of accounting regulation in Australia resulting in the issue of accounting standards.
2. Which of the following have been a significant influence on the development of modern accounting principles?
I. Global warming
II. Globalisation
III. Series of high-profile company failures
IV. The rise of the multinational corporation
a. III and IV only
b. I, II and III only
c. II, III and IV
d. II and IV only
General Feedback:
Learning objective 10.1: describe the development of accounting regulation in Australia resulting in the issue of accounting standards.
3. Which regulatory authority acts as overseer and advisor to the AASB?
a. Financial Reporting Council.
b. The Accounting Professional and Ethical Standards Board.
c. Australian Accounting Research Foundation.
d. Australian Securities and Investments Commission.
General Feedback:
Learning objective 10.1: describe the development of accounting regulation in Australia resulting in the issue of accounting standards.
4. Which of these Australian accounting standards has no IASB equivalent?
a. AASB 102 Inventories
b. All Australian accounting standards have IASB equivalents
c. AASB 101 Presentation of Financial Statements
d. Some standards exclusively relating to non-profit entities
General Feedback:
Learning objective 10.1: describe the development of accounting regulation in Australia resulting in the issue of accounting standards.
5. The major reason for the existence of generally accepted accounting principles is to:
a. make accountants legally accountable for material errors.
b. increase business disclosures.
c. limit the amount of professional judgement required by accountants in the preparation of financial reports.
d. improve the standard of accounting information for decision-making.
General Feedback:
Learning objective 10.1: describe the development of accounting regulation in Australia resulting in the issue of accounting standards
6. Which is the following statements concerning the Australian Securities and Investments Commission (ASIC) is incorrect?
a. One of ASIC's functions is to monitor and promote market integrity and consumer protection in regards to the Australian financial system
b. ASIC acts as an overseer and advisory body to the accounting standard setters.
c. ASIC is required to provide information about companies to the public as soon as is practicable.
d. ASIC is responsible for administering company law throughout Australia.
General Feedback:
Learning objective 10.1: describe the development of accounting regulation in Australia resulting in the issue of accounting standards
7. The AASB has developed a set of accounting standards which, when applied, ,allow entities to assert that their financial statements comply with IASB standards. Which of the following is a way in which Australian standards remain different to international standards?
I. The AASB has continued to issue accounting standards where no IASB equivalent exists, e.g. standards for non-profit entities.
II. Some Australian standards require more information to be disclosed than the equivalent IASB standard.
III. Australian standards contain, where applicable, extra paragraphs relevant to entities in the public and not-for-profit sectors.
a. I, II and III
b. III only
c. I and III only
d. II and III only
General Feedback:
Learning objective 10.1: describe the development of accounting regulation in Australia resulting in the issue of accounting standards
8. The body in Australia which issues legally enforceable accounting standards that apply to companies is:
a. Australian Securities and Investments Commission.
b. Financial Reporting Council.
c. CPA Australia.
d. Australian Accounting Standards Board.
General Feedback:
Learning objective 10.1: describe the development of accounting regulation in Australia resulting in the issue of accounting standards
9. Which organisation is concerned with improving disclosure in financial reports of companies listed on the various exchanges throughout Australia?
a. Australian Stock Exchange
b. Accounting Standards Board
c. Australian Companies Exchange
d. Australian Securities Exchange
General Feedback:
Learning objective 10.1: describe the development of accounting regulation in Australia resulting in the issue of accounting standards
10. Which body currently has the role of supervising real-time trading on the Australian Stock Exchange and enforcing laws against misconduct?
a. The Australian Securities and Investments Commission
b. The Financial Reporting Council
c. The Australian Securities Exchange
d. The Australian Accounting Standards Board
General Feedback:
Learning objective 10.1: describe the development of accounting regulation in Australia resulting in the issue of accounting standards
11. Which of the following statements concerning accounting standards is incorrect?
a. Accounting standards guide the preparation of reliable financial reports.
b. Accounting standards improve the comparability of financial reports.
c. Accounting standards evolve with changes in business requirements.
d. Accounting standards only apply to companies.
General Feedback:
Learning objective 10.1: describe the development of accounting regulation in Australia resulting in the issue of accounting standards
12. The mandate of the IFRS Interpretations Committee is to:
a. both b. and d.
b. provide authoritative guidance on accounting issues.
c. option b. only
d. review on a timely basis widespread accounting issues that have arisen within the context of current IFRS.
General Feedback:
Learning objective 10.1: describe the development of accounting regulation in Australia resulting in the issue of accounting standards
13. GAAP stands for:
a. general auditing and accountancy practices.
b. government approved accounting policy.
c. generally accepted accounting practices.
d. generally accepted accounting principles.
General Feedback:
Learning objective 10.1: describe the development of accounting regulation in Australia resulting in the issue of accounting standards.
14. In which year did Australia adopt the IASB's international accounting standards?
a. 2005
b. 2001
c. 2015
d. 2009
General Feedback:
Learning objective 10.2: explain the nature of the Conceptual Framework for Financial Reporting, and the history of the development of the framework.
15. The primary reason for developing a conceptual framework was to:
a. enable regulators to develop accounting standards that are based on consistent concepts.
b. assist in the development of the accounting standards.
c. provide an alternative view to the accounting standards.
d. reduce the number of accounting standards needed.
General Feedback:
Learning objective 10.2: explain the nature of the Conceptual Framework for Financial Reporting, and the history of the development of the framework.
16. The accounting standard setting body in the USA is the:
a. USAASB.
b. FASB.
c. IASB.
d. AASB.
General Feedback:
Learning objective 10.2: explain the nature of the Conceptual Framework for Financial Reporting, and the history of the development of the framework.
17. While judgement is required to distinguish between a reporting entity and a non-reporting entity, it is expected that a reporting entity will include:
I. government departments
II. small-medium proprietary companies
III. statutory authorities
IV. public companies
a. I, III and IV
b. I and III only
c. II and IV
d. II, III and IV
General Feedback:
Learning objective 10.3: describe the nature of a reporting entity under the Conceptual Framework.
18. An entity where it is reasonable to expect the existence of users who depend on general-purpose financial reports for information to enable them to make and evaluate economic decisions is known as a:
a. reporting entity.
b. public entity.
c. company.
d. financial entity.
General Feedback:
Learning objective 10.3: describe the nature of a reporting entity under the Conceptual Framework.
19. Which of these is not an indicator listed in SAC 1 to help assess the existence of a reporting entity?
a. Control over large amounts of resources and/or a large amount of borrowings.
b. Economic or political influence.
c. A high degree of separation between management and owners.
d. Revenue greater than $2 million.
General Feedback:
Learning objective 10.3: describe the nature of a reporting entity under the Conceptual Framework.
20. Under SAC 1, which entity is the least likely to have users dependent on general-purpose financial reports?
a. A company which issues debentures to the public.
b. A company which is listed on the stock exchange.
c. A company with a large number of shareholders.
d. A small proprietary company whose shareholders also run the business.
General Feedback:
Learning objective 10.3: describe the nature of a reporting entity under the Conceptual Framework.
21. As identified by the IASB's Conceptual Framework, which of the following groups are the prime users of financial reports?
a. Existing and potential investors and creditors
b. Governments, regulatory bodies and parties performing an overseeing function
c. The public and consumers of goods and services
d. Investors and their advisors
General Feedback:
Learning objective 10.4: describe the objectives of general purpose financial reporting under the Conceptual Framework.
22. Which of the following statements about general purpose financial reports (GPFRs) is correct?
a. The IASB's Conceptual Framework and SAC2 have the same definition of GPFRs.
b. The IASB's Conceptual Framework and SAC 4 have different definitions of GPFRs.
c. There is no clear definition of GPFRs in the IASB's Conceptual Framework.
d. Neither the IASB's Conceptual Framework or SAC 2 contain a definition of GPFRs.
General Feedback:
Learning objective 10.4: describe the objectives of general purpose financial reporting under the Conceptual Framework.
23. Which of the following statements about the objective of general purpose financial reports (GPFRs), as contained in the IASB's Conceptual Framework, is correct?
a. The primary users of GPFRs are seen as being a diverse group including shareholders, creditors, regulators, members of the public, etc.
b. The entity perspective has been adopted when defining the objectives of GPFRs.
c. GPFRs will generally satisfy user's needs for information.
d. The IASB's Conceptual Framework deliberately emphasises sustainability as an objective of GPFRs.
General Feedback:
Learning objective 10.4: describe the objectives of general purpose financial reporting under the Conceptual Framework.
24. Which of the following is not a constraint of the Conceptual Framework's qualitative characteristic of timeliness?
a. Preparing financial reports for a 12-month period.
b. The longer the delay in publication of the financial reports after the end of the financial period, the less relevant the information for decision-making purposes.
c. Having information available in time to influence decisions.
d. The frequency of the reporting period.
General Feedback:
Learning objective 10.5: identify the qualitative characteristics for the selection and presentation of financial information.
25. In the Conceptual Framework the fundamental qualitative characteristic of faithful representation requires information to be:
a. all of these options.
b. neutral: without bias.
c. free from material error.
d. complete: includes all necessary descriptions and explanations.
General Feedback:
Learning objective 10.5: identify the qualitative characteristics for the selection and presentation of financial information.
26. Which of the following is not a cost of financial reporting?
a. Loss of competitive position as a result of the disclosure of financial information outside the business.
b. Cost of preparing the annual report.
c. Cost of complying with accounting standards.
d. Cost of preparing the organisation's annual budgets for all departments.
General Feedback:
Learning objective 10.5: identify the qualitative characteristics for the selection and presentation of financial information.
27. The Conceptual Framework states that an important implication of the qualitative characteristic of comparability is that:
a. it will be used to predict outcomes of past, present or future events.
b. if there is a choice of accounting methods one method should be chosen and then applied throughout the life of the entity.
c. it will allow different users of the information to come to a consensus.
d. users will be informed of the accounting policies used in the preparation of the financial reports, plus any changes to those policies and the effects of those changes.
General Feedback:
Learning objective 10.5: identify the qualitative characteristics for the selection and presentation of financial information.
28. Materiality is an aspect of the fundamental characteristic of relevance and:
a. provides a cut-off point in determining whether information is relevant.
b. means exercising due care and caution.
c is linked to the qualitative characteristic of faithful representation.
d. means attention to detail.
General Feedback:
Learning objective 10.5: identify the qualitative characteristics for the selection and presentation of financial information.
29. Accountants must use when deciding if an item is material.
a. a text book.
b. the code of conduct.
c. a set of rules.
d. professional judgement.
General Feedback:
Learning objective 10.5: identify the qualitative characteristics for the selection and presentation of financial information.
30. Under the Conceptual Framework, the qualitative characteristic where information is available and capable of influencing decisions sooner rather than later is:
a. material.
b. relevant.
c. timeliness.
d. comparable.
General Feedback:
Learning objective 10.5: identify the qualitative characteristics for the selection and presentation of financial information.
31. Changing from straight line to reducing balance depreciation in one year, then back to straight line in the next, and then back again to reducing balance, is a violation of which qualitative characteristic?
a. timeliness.
b. relevance.
c. comparability.
d. reliability.
General Feedback:
Learning objective 10.5: identify the qualitative characteristics for the selection and presentation of financial information.
32. Accounting information that is representative of the real-world is likely to meet the Conceptual Framework's criteria of:
a. understandability.
b. faithful representation.
c. comparability.
d. relevance.
General Feedback:
Learning objective 10.5: identify the qualitative characteristics for the selection and presentation of financial information.
33. Which statement relating to comparability is correct?
a. It requires an entity, as far as possible, to use the same accounting method from year to year.
b. It means all firms in the same industry should use the same accounting methods.
c. It means a company can never change an accounting method.
d. It means the same depreciation method must be employed for all classes of non-current assets.
General Feedback:
Learning objective 10.5: identify the qualitative characteristics for the selection and presentation of financial information.
34. Which statement relating to the Conceptual Framework's concept of understandability is incorrect?
a. The financial reports are required to be simple to read and understand.
b. It is expected that users of financial statements will be willing to study the information with reasonable diligence.
c. It is assumed that readers of financial reports have a reasonable knowledge of business and economic activities.
d. Information about complex matters should be included in the reports if it is considered relevant to decision making.
General Feedback:
Learning objective 10.5: identify the qualitative characteristics for the selection and presentation of financial information.
35. The test to determine whether information which is otherwise relevant and faithfully represented, can be omitted, misstated or not disclosed separately without adversely affecting economic decision-making, is known as:
a. comparability.
b. understandability.
c. consistency.
d. materiality.
General Feedback:
Learning objective 10.5: identify the qualitative characteristics for the selection and presentation of financial information.
36. What are the enhancing qualitative characteristics for financial reporting contained in the Conceptual Framework?
a. II, IV, VI and VIII
b. IV, V, VI and VII
c. I, III, V and VII
d. I, III, VII and VIII
General Feedback:
Learning objective 10.5: identify the qualitative characteristics for the selection and presentation of financial information.
37. Which of the following statements are incorrect about the Conceptual Framework's qualitative characteristic of verifiability?
a. It means that different knowledgeable and independent observers will be able to reach complete agreement that the information is faithfully presented.
b. A consequence is that it may not be possible to verify budgeted information until a future period of time.
c. Indirect verification requires checking the inputs of a model, formula or technique and recalculating the outputs using the same methodology.
d. Direct verification is through direct observation such as counting cash.
General Feedback:
Learning objective 10.5: identify the qualitative characteristics for the selection and presentation of financial information.
38. According to the Conceptual Framework information that is free from material error and bias has greater:
a. decision making usefulness.
b. relevance.
c. verifiability.
d. faithful representation.
General Feedback:
Learning objective 10.5: identify the qualitative characteristics for the selection and presentation of financial information.
39. According to the Conceptual Framework faithful representation does not include which of the following?
a. Verifiability
b. Neutrality
c. Completeness
d. Freedom from material errors
General Feedback:
Learning objective 10.5: identify the qualitative characteristics for the selection and presentation of financial information.
40. Which of the following pairs of qualitative characteristics are most likely to be in conflict?
a. Relevance and faithful representation
b. Comparability and verifiability
c. Understandability and timeliness
d. Relevance and comparability
General Feedback:
Learning objective 10.5: identify the qualitative characteristics for the selection and presentation of financial information.
41. In the Conceptual Framework, materiality is an aspect of:
a. timeliness.
b. faithful representation.
c. understandability.
d. relevance.
General Feedback:
Learning objective 10.5: identify the qualitative characteristics for the selection and presentation of financial information.
42. is the qualitative characteristic that simplifies complex transactions in external financial reports without sacrificing the relevance or faithful representation of those reports.
a. verifiability.
b. comparability.
c. understandability.
d. timeliness.
General Feedback:
Learning objective 10.5: identify the qualitative characteristics for the selection and presentation of financial information.
43. The two types of qualitative characteristics specified in the Conceptual Framework are:
a. understandability and timeliness
b. relevance and reliability
c. comparability and verifiability
d. faithful representation and relevance
General Feedback:
Learning objective 10.5: identify the qualitative characteristics for the selection and presentation of financial information.
45. Which of the following statements concerning the definition of expenses in the Conceptual Framework is incorrect?
a. An expense is recognised when a decrease in future economic benefits can be measured reliably.
b. An expense arises whenever the economic benefits in an asset are consumed or lost.
c. An expense occurs simultaneously with a decrease in an asset or an increase in a liability that reduces equity.
d. All expenses must be matched with their associated income in the same financial period.
General Feedback:
Learning objective 10.6: define assets, liabilities, equity, income and expenses, as established under the Conceptual Framework.
46. Under the Conceptual Framework which of the following is not an essential characteristic of an asset?
a. The event giving rise to the entity's control over the resource must have occurred.
b. The resource must be controlled by the entity.
c. It must have physical substance.
d. It must have the potential to contribute economic resources to the entity.
General Feedback:
Learning objective 10.6: define assets, liabilities, equity, income and expenses, as established under the Conceptual Framework.
47. In accordance with the Conceptual Framework, the definition of income:
a. is increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims.
b. revenue and profits.
c. the definition of assets only
d. is increases in assets, or decreases in liabilities, that result in increases in equity.
General Feedback:
Learning objective 10.6: define assets, liabilities, equity, income and expenses, as established under the Conceptual Framework.
48. The Conceptual Framework characterises equity as:
a. a result of a profitable business operation.
b. All of these options.
c. a residual.
d. being influenced by the measurement systems adopted for assets and liabilities.
General Feedback:
Learning objective 10.6: define assets, liabilities, equity, income and expenses, as established under the Conceptual Framework.
49. If an entity receives a deposit in advance of goods or services being supplied, the deposit is initially classified as:
a. a liability.
b. revenue.
c. an expense.
d. an asset.
General Feedback:
Learning objective 10.6: define assets, liabilities, equity, income and expenses, as established under the Conceptual Framework.
50. in increases in equity, other than those relating to contributions from holders of equity claims', is the definition of:
a. contributions.
b. equity.
c. income.
d. assets.
General Feedback:
Learning objective 10.6: define assets, liabilities, equity, income and expenses, as established under the Conceptual Framework.
51. Under the Conceptual Framework, which of the following is not a characteristic of a liability?
a. It must result from a past transaction or event.
b. It is expected to result in an outflow of economic resources.
c. It must be a legal debt.
d. It must be a present obligation of the entity.
General Feedback:
Learning objective 10.6: define assets, liabilities, equity, income and expenses, as established under the Conceptual Framework.
52. Under IAS 15/AASB 15 interest income should be recognised:
a. at the date of agreement.
b. when the contract for the loan is signed.
c. at the end of the loan period.
d. separately from revenue from contracts with customers.
General Feedback:
Learning objective 10.7: describe the recognition criteria, established in the Conceptual Framework, for assets, liabilities, income and expenses.
53. Under the Conceptual Framework, the definition of an 'economic resource' would be:
a. is a right that has the potential to produce economic benefit.
b. a right that is exchanged for cash.
c. a right that provides benefits to the entity.
d. a right that resulted from a past event.
General Feedback:
Learning objective 10.7: describe the recognition criteria, established in the Conceptual Framework, for assets, liabilities, income and expenses.
54. In accounting, recognition refers to:
I. the inclusion of dollar amounts into an entity's accounting system.
II. the process of incorporating the important elements into the financial statements.
III. that information is acknowledged in the reports.
IV. that the meaning of information can be comprehended by users.
a. II and III
b. III and IV
c. I and IV
d. I and II
General Feedback:
Learning objective 10.7: describe the recognition criteria, established in the Conceptual framework, for assets, liabilities, income and expenses.
55. According to the Conceptual Framework which statement concerning the recognition of liabilities is incorrect?
a. Liabilities that do not satisfy the recognition criteria can be included in the notes attached to the accounts..
b. A recognition criteria is that the amount of the liability must be able to be measured reliably.
c. A recognition criteria is that it is probable that a sacrifice of future economic benefits will be required.
d. All liabilities that meet the definition of a liability should be recognised in the entity's statement of financial position.
General Feedback:
Learning objective 10.7: describe the recognition criteria, established in the Conceptual Framework, for assets, liabilities, income and expenses.
56. The common recognition criteria for each of assets, liabilities, income and expenses is that they must be:
a. relevant information and a faithful representation of the element.
b. reliable.
c. faithfully represented.
d. matched in the period they occur.
General Feedback:
Learning objective 10.7: describe the recognition criteria, established in the Conceptual Framework, for assets, liabilities, income and expenses.
57. In accounting in Australia, the most common measurement basis used is:
a. current value.
b. realisable value.
c. historical cost.
d. present value.
General Feedback:
Learning objective 10.8: explain the importance of measurement in the preparation of financial statements.
58. The Conceptual Framework includes a number of different measurement bases for assets, liabilities, income and expenses. Which of the following is not one of the measurement bases that may be used?
a. Current cost
b. Fair value
c. Fulfilment value
d. Historical cost
General Feedback:
Learning objective 10.8: explain the importance of measurement in the preparation of financial statements.
59. Under the financial capital concept, profit exists:
a. only after the entity has maintained it capital, measured at the dollar value of equity, or the purchasing power of those dollars, at the beginning of the period.
b. only when the effects of inflation have been considered.
c. only after the entity has set aside enough capital to maintain the operating capability of its assets.
d. only when the entity's assets are higher than their liabilities
General Feedback:
Learning objective 10.8: explain the importance of measurement in the preparation of financial statements.
60. The concept of capital where capital is seen as the operating capability of the assets is:
a. purchasing power capital.
b. operational capital.
c. financial capital.
d. physical capital.
General Feedback:
Learning objective 10.8: explain the importance of measurement in the preparation of financial statements.
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Financial Accounting 11e | Test Bank with Answer Key by John Hoggett
By John Hoggett, Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield