Chapter 2 - Conceptual Framework for Financial Reporting - LO 1

A soundly developed conceptual framework of concepts and objectives should

• increase financial statement users' understanding of and confidence in financial reporting.

• enhance comparability among companies' financial statements.

• allow new and emerging practical problems to be more quickly solved.

• All of these answers are correct.

Which of the following is not true concerning a conceptual framework in accounting?

• It should be a basis for standard-setting.

• It should allow practical problems to be solved more quickly by reference to it.

• It should be based on fundamental truths that are derived from the laws of nature.

• All of these answers are correct.

What is a purpose of having a conceptual framework?

• To make sure that economic activity can be identified with a particular legal entity.

• To segregate activities among competing companies.

• To provide comparable information for different companies.

• To enable the profession to more quickly solve emerging practical problems and to provide a foundation from which to build more useful standards.

Which of the following is not a benefit associated with the IASB Conceptual Framework Project?

• A conceptual framework should increase financial statement users' understanding of and confidence in financial reporting.

• Practical problems should be more quickly solvable by reference to an existing conceptual framework.

• A coherent set of accounting standards and rules should result.

• Business entities will need far less assistance from accountants because the financial reporting process will be quite easy to apply.

A soundly developed conceptual framework enables the International Accounting Standards Board (IASB) to

• I only.

• Issue more useful and consistent pronouncements over time.

• II only.

• Both I and II.

• More quickly solve new and emerging practical problems by referencing basic theory.

In the conceptual framework for financial reporting, what provides "the why"-the purpose of accounting?

• Recognition, measurement, and disclosure concepts such as assumptions, principles, and constraints

• Qualitative characteristics of accounting information

• Elements of financial statements

• Objective of financial reporting

The underlying theme of the conceptual framework is

• decision usefulness.

• understandability.

• faithful representation.

• comparability.

What is the objective of general-purpose financial reporting?

• to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions in their capacity as capital providers.

• to provide companies with the option to select information that favors one set of interested parties over another.

• to provide users with financial information that implies total freedom from error.

• to provide a metric for financial information used to determine when the boundary between two or more entities should be disregarded and the entities considered to be a licensing arrangement.

The International Accounting Standards Board's (IASB's) Conceptual Framework includes all of the following except:

• Objective of financial reporting.

• Supplementary information

• Elements of financial statements.

• Qualitative characteristics of accounting information.

The second level in the International Accounting Standards Board's (IASB's) Conceptual Framework

• Identifies the objective of financial reporting.

• Identifies recognition, measurement, and disclosure concepts used in establishing and applying accounting standards.

• Provides the elements of financial statements.

• Includes assumptions, principles, and constraints.