Conceptual framework

A conceptual framework for financial reporting is

• A set of items which make up an entity's financial statements

• A set of regulations which govern financial reporting

• A set of principles which underpin financial reporting

• A set of financial reporting standards

The primary users of general purpose financial reports are

• Investors and employees

• investors and lenders

• Employees and lenders

• Investors and customers

The fundamental qualitative characteristics of financial information are:

• Relevance and faithful representation

• Relevance and comparability

• Faithful representation and comparability

• Verifiability and understandability

Under the concept of physical capital maintenance, profit is defined in terms of the increase in an entity's operating capability during an accounting period. True or False?

• True

• False

The purpose of the Conceptual Framework is:

• To assist the International Accounting Standards Board to develop IFRS Standards

• To assist preparers of IFRS financial statements to develop consistent accounting policies when no IFRS Standard applies to a particular transaction or other event, or when a Standard allows a choice of accounting policy

• To assist all parties to understand and interpret IFRS Standards

• All of the above

The Conceptual Framework can override requirements in a Standard.

• True

• False

The objective of general purpose financial reporting as described in the Conceptual Framework is to:

• Provide information to regulators

• Support the entity's tax return

• Meet the information needs of an entity's stakeholders

• Provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity

Financial reports need to provide information useful in making decisions relating to providing resources to the entity. Those decisions include decisions about exercising rights to vote on, or otherwise influence, management's actions that affect the use of the entity's economic resources.

• True

• False

For information to be relevant, it has to possess:

• Only predictive value

• Only confirmative value

• Both predictive and confirmatory value

• Either predictive or confirmatory value, or both

The Conceptual Framework describes prudence as:

• The exercise of caution when making judgements under conditions of uncertainty

• A bias towards understating assets or income and towards overstating liabilities or expenses

• A preference towards the earlier recognition of expenses and liabilities than of income and assets

• A mechanism for smoothing profits over time (understate profits in good years and overstate profits in bad years)