Tutorial (4) IFRS

Chapter (2):
Conceptual Framework for Financial Reporting
True or False:
1. The second level of the International Accounting Standards Board’s (IASB’s) Conceptual
Framework serves as a bridge between the “why” of accounting and the “how” of
accounting.
2. The International Accounting Standards Board’s (IASB) definition of retained earnings is
“the residual interest in the assets of the entity after deducting all its liabilities.”
3. The International Accounting Standards Board’s (IASB) definition of assets is “the
resource controlled by the entity as a result of past events and from which future economic
benefits are expected to flow to the entity.”
4. Materiality is one of the basic assumptions of accounting used by the International
Accounting Standards Board (IASB).
5. Periodicity is one of the basic assumptions of accounting used by the International
Accounting Standards Board (IASB).
6. Timeliness is one of the basic assumptions of accounting used by the International
Accounting Standards Board (IASB).
7. The IASB conceptual framework specifically identifies accrual basis accounting as one of
its fundamental assumptions.
8. One assumption made by the IASB conceptual framework is that the reporting entity is a
going concern.
9. The expense recognition principle states that debits must equal credits in each transaction.
10.Revenues are recognized in the accounting period in which the performance obligation is
satisfied.
11.Supplementary information may include details or amounts that present a different
perspective from that adopted in the financial statements.
12.The International Accounting Standards Board has given companies the option of using
fair value to report financial liabilities.
13.The cost constraint included in the International Accounting Standards Board’s conceptual
framework states that financial information should be free from cost to users of the
information.

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MCQ:
1. A soundly developed conceptual framework of concepts and objectives should…….
a) increase financial statement users’ understanding of and confidence in financial
reporting.
b) enhance comparability among companies’ financial statements.
c) allow new and emerging practical problems to be more quickly solved.
d) all of these answers are correct.
2. What is a purpose of having a conceptual framework?
a) To make sure that economic activity can be identified with a particular legal entity.
b) To segregate activities among competing companies.
c) To provide comparable information for different companies.
d) To enable the profession to more quickly solve emerging practical problems and to
provide a foundation from which to build more useful standards.
3. Which of the following is not a benefit associated with the IASB Conceptual
Framework Project?
a. A conceptual framework should increase financial statement users’ understanding of
and confidence in financial reporting.
b. Practical problems should be more quickly solvable by reference to an existing
conceptual framework.
c. A coherent set of accounting standards and rules should result.
d. Business entities will need far less assistance from accountants because the financial
reporting process will be quite easy to apply.
4. A soundly developed conceptual framework enables the International Accounting
Standards Board (IASB) to:
I. Issue more useful and consistent pronouncements over time.
II. More quickly solve new and emerging practical problems by referencing basic
theory.
a) I only.
b) II only.
c) Both I and II.
d) Neither I nor II.
5. In the conceptual framework for financial reporting, what provides “the why”– the
purpose of accounting?
a) Recognition, measurement, and disclosure concepts such as assumptions, principles,
and constraints.

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b) Qualitative characteristics of accounting information.
c) Elements of financial statements.
d) Objective of financial reporting.
6. The underlying theme of the conceptual framework is
a. decision usefulness.
b. understandability.
c. faithful representation.
d. comparability.
7. What is the objective of general-purpose financial reporting?
a) 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.
b) to provide companies with the option to select information that favors one set of
interested parties over another.
c) to provide users with financial information that implies total freedom from error.
d) 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.
8. The International Accounting Standards Board’s (IASB’s) Conceptual Framework
includes all of the following except:
a. Objective of financial reporting.
b. Supplementary information.
c. Elements of financial statements.
d. Qualitative characteristics of accounting information.
9. The second level in the International Accounting Standards Board’s (IASB’s)
Conceptual Framework…………….
a. Identifies the objective of financial reporting.
b. Identifies recognition, measurement, and disclosure concepts used in establishing
and applying accounting standards.
c. Provides the elements of financial statements.
d. Includes assumptions, principles, and constraints.
10.The objective of financial reporting in the International Accounting Standards
Board ’s (IASB’s) Conceptual Framework…………
a. Is the foundation for the Framework.
b. Includes the qualitative characteristics that make accounting information useful.
c. Is found on the third level of the Framework.
d. All of the choices are correct regarding the objective of financial reporting.

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11.Which of the following is a fundamental quality of useful accounting
information?
a. Comparability.
b. Relevance.
c. Neutrality.
d. Materiality.
12.Which of the following is a fundamental quality of useful accounting
information?
a. Conservatism.
b. Comparability.
c. Faithful representation.
d. Consistency.
13.What is meant by comparability when discussing financial accounting
information?
a. Information has predictive or feedback value.
b. Information is reasonably free from error.
c. Information that is measured and reported in a similar fashion across
companies.
d. Information is timely.
14.What is meant by consistency when discussing financial accounting
information?
a. Information presented by a company that applies the same accounting
treatment to similar events, from period to period.
b. Information is timely.
c. Information that is classified, characterized, and presented clearly and
concisely.
d. Information is verifiable.
15.Which of the following is an ingredient of relevance?
a. Verifiability.
b. Timeliness.
c. Predictive value.
d. Neutrality.
16.Which of the following is an ingredient of faithful representation?
a. Predictive value.
b. Materiality.
c. Neutrality.
d. Confirmatory value.

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17.Changing the method of inventory valuation should be reported in the financial
statements under what qualitative characteristic of accounting information?
a. Consistency.
b. Verifiability.
c. Timeliness.
d. Comparability.
18.Company A issuing its annual financial reports within one month of the end of
the year is an example of which enhancing quality of accounting information?
a) Comparability.
b) Timeliness.
c) Understandability.
d) Verifiability.
19.What is the quality of information that is capable of making a difference in a
decision?
a) Faithful representation.
b) Materiality.
c) Timeliness.
d) Relevance.
20.Neutrality is an ingredient of which fundamental quality of information?
a) Faithful representation.
b) Comparability.
c) Relevance.
d) Understandability.
21.The second level of the International Accounting Standards Board’s (IASB’s)
Conceptual Framework………….
a) provides conceptual building blocks that explain the qualitative
characteristics of accounting information.
b) defines the elements of financial statements.
c) serves as a bridge between the “why” of accounting and the “how” of
accounting.
d) all of the choices are correct.
22.In the International Accounting Standards Board’s (IASB’s) Conceptual
Framework, qualitative characteristics……….……….
a) Are considered either fundamental or enhancing.
b) Contribute to the decision-usefulness of financial reporting information.
c) Distinguish better information from inferior information for decision-making
purposes.

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d) All of the choices are correct.
23.In the International Accounting Standards Board’s (IASB’s) Conceptual
Framework, an enhancing qualitative characteristic is…………….
a) Predictive value.
b) Free from error.
c) Timeliness.
d) Confirmatory value.
24.In the International Accounting Standards Board’s (IASB’s) Conceptual
Framework, a fundamental qualitative characteristic is………………
a) Materiality.
b) Faithful representation.
c) Decision usefulness.
d) Neutrality.
25.Enhancing qualities as described by the International Accounting Standards
Board’s (IASB’s) Conceptual Framework, include all of the following except:
a) Comparability.
b) Neutrality.
c) Understandability.
d) Verifiability.
26.Erin Company applies the same accounting treatment to similar events from
period to period. Erin Company is exhibiting which of the following qualities as
described by the International Accounting Standards Board’s (IASB’s)
Conceptual Framework?
a) Verifiability.
b) Consistency.
c) Predictive value.
d) All of the choices are correct.
27.According to the IASB Conceptual Framework, the elements: assets, liabilities,
and equity describe amounts of resources and claims to resources at/during a
Moment in Time Period of Time
a. Yes No
b. Yes Yes
c. No Yes
d. No No
28.Which of the following is not a basic element of financial statements?
a) Assets.

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b) Statement of financial position.
c) Expenses.
d) Income.
29.Which of the following basic elements of financial statements is more
associated with the statement of financial position than the income statement?
a) Equity.
b) Income.
c) Gains.
d) Expenses.
30.Issuance of common stock for cash affects which basic element of financial
statements?
a) Revenues.
b) Losses.
c) Liabilities.
d) Equity.
31.The International Accounting Standards Board (IASB) defines five interrelated
elements of financial statements. Which of the following is not one of those
elements?
a) Asset.
b) Income.
c) Equity.
d) All of the choices are elements defined by the IASB.
32.The International Accounting Standards Board (IASB) defines one of the 5
elements as follows: “the residual interest in the assets of the entity after
deducting all its liabilities”. Which element matches this description?
a) Retained earnings.
b) Income.
c) Equity.
d) All of the choices match this definition.
33.Which of the following is not a basic assumption underlying the financial
accounting structure?
a) Economic entity assumption.
b) Going concern assumption.
c) Periodicity assumption.
d) Historical cost assumption.

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34.Which basic assumption is illustrated when a firm reports financial results on
an annual basis?
a) Economic entity assumption.
b) Going concern assumption.
c) Periodicity assumption.
d) Monetary unit assumption.
35.Which basic assumption may not be followed when a firm in bankruptcy
reports financial results?
a) Economic entity assumption.
b) Going concern assumption.
c) Periodicity assumption.
d) Monetary unit assumption.
36.Which accounting assumption or principle is being violated if a company
provides financial reports only when it introduces a new product?
a) Periodicity.
b) Economic entity.
c) Revenue recognition.
d) Full disclosure.
37.Which of the following basic accounting assumptions is threatened by the
existence of severe inflation in the economy?
a) Monetary unit assumption.
b) Periodicity assumption.
c) Going-concern assumption.
d) Economic entity assumption.
38.Under current IFRS, inflation is ignored in accounting due to the…………
a) economic entity assumption.
b) going concern assumption.
c) monetary unit assumption.
d) periodicity assumption.
39.Preparation of consolidated financial statements when a parent-subsidiary
relationship exists is an example of the…………………
a) economic entity assumption.
b) relevance characteristic.
c) comparability characteristic.
d) neutrality characteristic.

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40.The assumption that a company will not be sold or liquidated in the near future
is known as the…………….
a) economic entity assumption.
b) monetary unit assumption.
c) materiality assumption.
d) none of these answers are correct.
41.Which of the following is an implication of the going concern assumption?
a) The historical cost principle is credible.
b) Depreciation and amortization policies are justifiable and appropriate.
c) The current-noncurrent classification of assets and liabilities is justifiable and
significant.
d) All of these answers are correct.
42.The basic assumptions of accounting used by the International Accounting
Standards Board (IASB) include all of the following except:
a) Going concern.
b) Periodicity.
c) Accrual basis.
d) Materiality.
43.The basic assumptions of accounting used by the International Accounting
Standards Board (IASB) include………….
a) Neutrality.
b) Periodicity.
c) Understandability.
d) Materiality.
44.The basic assumptions of accounting used by the International Accounting
Standards Board (IASB) include…………………
a) Monetary unit.
b) Decision usefulness
c) Timeliness.
d) All of the choices are basic assumptions of accounting.
45.Revenue is recognized in the accounting period in which the performance
obligation is satisfied. This statement describes the……………….
a) consistency characteristic.
b) expense recognition principle.
c) revenue recognition principle.
d) relevance characteristic.

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46.Revenue should be recognized……………….
a) at the end of production.
b) at the time of cash collection.
c) when realized.
d) when the performance obligation is satisfied.
47.The measurement principle includes the
a) fair value principle only.
b) historical cost principle only.
c) revenue recognition principle and expense recognition principle.
d) historical cost principle and the fair value principle.
48.A company has a performance obligation when it agrees to
a) Perform a service for a customer and receives cash payment.
b) Sell a product to a customer after receiving payment.
c) Perform a service or sell a product to a customer.
d) None of these answers are correct.
49.Which accounting assumption or principle is being violated if a company is a
party to major litigation that it may lose and decides not to include the
information in the financial statements because it may have a negative impact
on the company’s share price?
a) Full disclosure.
b) Going concern.
c) Historical cost.
d) Expense recognition.
50.Which assumption or principle requires that all information significant enough
to affect a decision of reasonably informed users should be reported in the
financial statements?
a) Expense recognition.
b) Going concern.
c) Historical cost.
d) Full disclosure.
51.The basic principles of accounting used by the International Accounting
Standards Board include all of the following except:
a) Measurement
b) Full disclosure
c) Revenue recognition
d) Going concern.

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52.Under International Financial Reporting Standards (IFRS) _______ costs are

charged off in the immediate period and ________ costs may be carried into
future periods.
a) Period; product.
b) Material; overhead.
c) Product; period.
d) Overhead; administrative.
53.Which of the following is a constraint in presenting financial information?
a) Cost.
b) Full disclosure.
c) Relevance.
d) Consistency.
54.The International Accounting Standards Board’s conceptual framework
includes a cost constraint. Which of the following best describes the cost
constraint?
a) The benefits of the information must be greater than the costs of providing it.
b) Financial information should be free from cost to users of the information.
c) Costs of providing financial information are not always evident or measurable
but must be considered.
d) All of the choices are correct.

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