Accounting Standards & Conceptual Framework Flashcards
(22 cards)
According to the FASB and IASB conceptual frameworks, the primary users of financial reports include all of the following, except:
a. Regulators
b. Creditors
c. Lenders
d. Investors
Answer:
Regulators are not considered to be primary users.
According to the FASB and IASB conceptual framework, useful information must exhibit the FUNDAMENTAL QUALITATIVE CHARACTERISTIC of:
Faithful representation and relevance
What is the underlying concept governing the recording of gain contingencies?
Conservatism
(1) Recognize revenues/gains when the earnings process is complete (or virtually complete).
(2) Recognize expenses/losses immediately.
According to the FASB conceptual framework, which of the following attributes would NOT be used to measure inventory?
a. Present value of future cash flows
b. Historical cost
c. Replacement cost
d. Net realizable value
Present value of future cash flows.
The present value of future cash flows is used to measure long-term receivables or payables, not inventory, because inventory is a short-term asset, which has more immediate cash flows.
Historical cost, replacement cost, and net realizable value are relevant and reliable measurement attribute of current assets.
According to the FASB and IASB conceptual frameworks, the objective of general purpose financial reporting is to:
Provide financial information that is useful to primary users.
According to the FASB and IASB conceptual frameworks, completeness is an ingredient of:
Faithful Representation - Yes
Relevance - No
According to the FASB conceptual framework, the process of reporting an item in the financial statements of an entity is:
a. Allocation
b. Recognition
c. Matching
d. Realization
Recognition
Recognition is the process of recording an item in the financial statements of an entity.
Financial information provided in general purpose financial reports does NOT include information about:
a. The claims against the entity.
b. How effectively and efficiently the entity’s shareholders’ have discharged its responsibility to use the entity’s resources.
c. The resources of the entity.
d. How effectively and efficiently the entity’s governing board has discharged its responsibility to use the entity’s resources.
b. How effectively and efficiently the entity’s shareholders’ have discharged their responsibility to use the entity’s resources.
Shareholders do not have a responsibility (or a right) to use the entity’s resources.
According to the FASB conceptual framework, which of the following statements conforms to the realization concept?
a. Cash was collected on accounts receivable. b. Equipment depreciation was assigned to a production department and then to product unit costs. c. Depreciated equipment was sold in exchange for a note receivable. d. Product unit costs were assigned to cost of goods sold when the units were sold.
c. Depreciated equipment was sold in exchange for a note receivable.
Revenues and gains are realized when assets are exchanged for cash or claims to cash. SFAC 5 para. 83.
On December 31, Brooks Co. decided to end operations and dispose of its assets within three months. At December 31, the net realizable value of the equipment was below historical cost. What is the appropriate measurement basis for equipment included in Brooks’ December 31 balance sheet?
a. Net realizable value.
b. Current reproduction cost.
c. Historical cost.
d. Current replacement cost
a.Net realizable value
Net realizable value is the appropriate measurement basis for equipment included in Brooks’ Dec. 31 balance sheet, because of the decision to end operations and quickly (3 months) dispose of its assets.
According to the FASB and IASB conceptual frameworks, which of the following is an enhancing qualitative characteristic?
a. Completeness.
b. Timeliness.
c. Neutrality.
d. Materiality.
b.Timeliness.
Enhancing Qualitative Characteristics:
(1) Comparability
(2) Verifiability
(3) Timeliness
(4) Understandability
According to the FASB and IASB conceptual frameworks, the quality of information that helps users forecast future outcomes is:
a. Neutrality. b. Confirming value. c. Representational faithfulness. d. Predictive value.
Choice “d” is correct. The quality of information that helps users forecast future outcomes is predictive value. Forecasting is predicting.
Which of the following characteristics enhances relevance and faithful representation?
a. Timeliness. b. Materiality. c. Neutrality. d. Predictive value.
Choice “a” is correct. Timeliness is a characteristic that enhances the usefulness of information that is relevant and faithfully represented.
Choice “b” is incorrect. Materiality is a component of relevance.
Choice “d” is incorrect. Predictive value is a component of relevance.
Choice “c” is incorrect. Neutrality is a component of faithful representation.
According to the FASB conceptual framework, certain assets are reported in financial statements at the amount of cash or its equivalent that would have to be paid if the same or equivalent assets were acquired currently. What is the name of the reporting concept?
a. Net realizable value. b. Current market value. c. Replacement cost. d. Historical cost.
Choice “c” is correct. Replacement cost is defined as the amount of cash or its equivalent that would be paid to acquire or replace an asset currently. Replacement cost is an acquisition cost.
Choice “b” is incorrect. Current market value, or fair value, is the price to sell (not acquire) an asset.
Choice “d” is incorrect. Historical cost is the amount paid by a company to acquire an asset.
Choice “a” is incorrect. Net realizable value is the selling price of an asset less any disposal costs.
Which of the following statements best describes an operating procedure for issuing FASB Accounting Standards Update?
a. The exposure draft is modified per public opinion before issuing the discussion memorandum. b. A new Accounting Standards Update can be rescinded by a majority vote of the AICPA membership. c. An Accounting Standards Update is issued only after a majority vote by the members of the FASB. d. The emerging issues task force must approve a discussion memorandum before it is disseminated to the public.
Choice “c” is correct. An Accounting Standards Update is issued only after a majority vote of the members of the FASB.
According to the IASB conceptual framework, which of the following is an underlying assumption of financial statement preparation and presentation?
a. Historical cost. b. Periodicity. c. Going concern. d. Monetary unit.
Choice “c” is correct. Under the IASB framework, going concern is the underlying assumption of financial statement preparation and presentation.
Choice “b” is incorrect. This is a fundamental assumption under the FASB framework, not the IASB framework.
Choice “a” is incorrect. This is a fundamental assumption under the FASB framework, not the IASB framework.
Choice “d” is incorrect. This is a fundamental assumption under the FASB framework, not the IASB framework.
Which of the following is the most authoritative source of U.S. GAAP?
a. International Financial Reporting Standards. b. FASB Accounting Standards Codification. c. FASB Statements of Financial Accounting Concepts. d. FASB Statements of Financial Accounting Standards.
Choice “b” is correct. The FASB Accounting Standards Codification is the single source of authoritative nongovernmental U.S. GAAP.
Which of the following statements best describes an operating procedure for issuing a new International Financial Reporting Standard?
a. The IASB and IFRIC must jointly approve a new IFRS by majority vote. b. Exposure drafts are only released to selected interested parties. c. The IASB issues a required discussion paper as its first publication on the new topic. d. An exposure draft is issued after approval by at least nine members of the IASB.
Choice “d” is correct. Before an exposure draft is issued for public comment, it must be approved by at least nine members of the IASB.
Which of the following documents is typically issued as part of the due-process activities of the Financial Accounting Standards Board (FASB) for amending the FASB Accounting Standards Codification?
a. A proposed staff accounting bulletin. b. A proposed statement of position. c. A proposed accounting standards update. d. A proposed accounting research bulletin.
Choice “c” is correct. A proposed accounting standards update is prepared by the FASB as part of the due-process activities.
Materiality and relevance are both defined by:
a. The consistency in the application of methods over time. b. The perceived benefits to be denied that exceed the perceived costs associated with it. c. Quantitative criteria set by the Financial Accounting Standards Board. d. What influences or makes a difference to a decision maker.
Choice “d” is correct. The accountant’s determination of materiality and relevance is based on professional judgment and is affected by the needs of those who will be using the financial statements to make decisions.
According to the FASB conceptual framework, for financial reporting to be useful, it must:
a. Be in accordance with generally accepted accounting principles. b. Provide information useful for making business and investment decisions. c. Directly measure the value of the entity being reported on. d. Be understandable to those who have a limited knowledge of business activities.
Choice “b” is correct. According to the FASB conceptual framework, for financial reporting to be useful it must provide information which is useful to existing and potential investors, lenders, and other creditors in making decisions about the reporting entity based on the financial information provided.
The FASB’s due process for setting accounting standards includes which of the following procedures?
a. The FASB’s Emerging Issues Task Force ratifies amendments to the Accounting Standards Codification. b. The FASB delegates topics to the Financial Accounting Foundation for research and reporting. c. The FASB obtains approval from the International Accounting Standards Board in setting its agenda. d. The FASB can seek information about accounting and reporting issues by holding public forums, usually based on an exposure draft.
Choice “d” is correct. Proposed FASB amendments to the Accounting Standards Codification are issued for public comment in the form of exposure drafts. At the end of the comment period, the FASB will analyze all comment letters and position papers. When the board members of the FASB are satisfied that all reasonable alternatives have been considered, the FASB staff will prepare an Accounting Standards Update for approval by the board (majority vote is required).
