Lecture 3 part 1

Question 1

Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB), Project was what? and what was it purpose?

Answer 1

The Conceptual Framework (CF) project is an initiative led by accounting standard-setting bodies, primarily the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB), to establish a foundation for consistent and high-quality financial reporting standards.

Question 2

the preparation of financial statements is referd to as…

Answer 2

General Purpose Financial Reporting (GPFR)

Question 3

Standards Governing GPFR include ….

Answer 3

International Financial Reporting Standards (IFRS)

Question 4

. Qualitative characteristics are…

Answer 4

the attributes that make financial information useful to users (e.g., investors, creditors, regulators).

Question 5

In the Qualitative characteristics hierarchy, what goes below relevance and reliability respectivly?

Answer 5

Relevance: Timeliness, feedback value and predictive value.

Reliability: verifiability, neutrality, representational faithfulness

Question 6

Reliability:

Answer 6

The quality of information that assures that information is reasonably free from error and bias and faithfully represents what it purports to represent. I.e. verifiability, precision and accuracy are important.

Question 7

Faithful representation:

Answer 7

To be useful, financial information must not only represent relevant phenomena, but it must also faithfully represent the substance of the phenomena that it purports to represent.

Question 8

To be a perfectly faithful representation, a depiction would have three characteristics;

Answer 8

it would be complete, neutral and free from error.

Question 9

Fair value is

Answer 9

the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (IFRS 13 §9)

Question 10

Describe the three levels in the IFRS’s (13) fair value hierarchy.

Answer 10

Level 1) quoted prices in active markets for identical assets or liabilities (market approach).
Level 2) inputs other than quoted prices observable for the asset or liability (directly or indirectly).
Level 3) unobservable inputs for the asset or liability.