30 Questions
True or false: The Conceptual Framework for Financial Reporting serves as a guide to the FRSC in developing accounting standards and resolving accounting issues.
True
True or false: The purpose of the Conceptual Framework is to assist the Board in promoting harmonization of regulations and procedures relating to the presentation of financial statements.
True
True or false: The Conceptual Framework is an IFRS and defines standards for specific measurement or disclosure issues.
False
True or false: The Conceptual Framework helps preparers of financial statements in applying IFRSs and dealing with topics not covered by an IFRS.
True
True or false: The Conceptual Framework assists auditors in forming an opinion on whether financial statements comply with IFRSs.
True
True or false: The Conceptual Framework provides information about the IASB's approach to the formulation of IFRSs.
True
True or false: The purpose of the Conceptual Framework is to provide a basis for reducing the number of alternative accounting treatments permitted by IFRSs.
True
Understandability is a constraint on the information that can be provided by financial reporting.
True
The new FRSC conceptual framework includes the accrual basis as an underlying assumption.
False
The monetary unit assumption means that the financial statements should be prepared in the currency of the country where the business operates.
True
Equity represents the total assets of the enterprise after deducting all its liabilities.
True
Income is recognized in the statement of financial position when there is a decrease in an asset or an increase in a liability.
False
Recognition is the process of incorporating an item in the financial statements that meets the definition of an element and satisfies the criteria for recognition.
True
An asset is recognized in the statement of financial position when it is probable that the future economic benefits will flow to the enterprise.
True
Recognition of income occurs simultaneously with the recognition of increases in assets or decreases in liabilities.
True
True or false: The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity.
True
Expenses are recognized when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably.
True
True or false: General purpose financial reports provide information about the financial position of a reporting entity, which is information about the entity’s economic resources and the claims against the reporting entity.
True
Measurement involves assigning monetary amounts at which the elements of the financial statements are to be recognized and reported.
True
True or false: Accrual accounting depicts the effects of transactions and other events and circumstances on a reporting entity’s economic resources and claims in the periods in which those effects occur, even if the resulting cash receipts and payments occur in a different period.
True
The Framework includes concepts or principles for selecting which measurement basis should be used for particular elements of financial statements or in particular circumstances.
False
True or false: Materiality is an entity-specific aspect of relevance based on the nature or magnitude, or both, of the items to which the information relates in the context of an individual entity’s financial report.
True
Historical cost is the measurement basis most commonly used today, but it is usually combined with other measurement bases.
True
True or false: A complete depiction, as an ingredient of faithful representation, includes all information necessary for a user to understand the phenomenon being depicted, including all necessary descriptions and explanations.
True
The qualitative characteristics provide guidance for selecting the measurement basis to be used for particular elements of financial statements or in particular circumstances.
False
True or false: A neutral depiction, as an ingredient of faithful representation, is without bias in the selection or presentation of financial information.
True
The financial concept of capital means capital is the net assets or equity of the entity.
True
The physical concept of capital means capital is regarded as the productive capacity of the enterprise based on units of output per day.
True
True or false: Comparability is the qualitative characteristic that enables users to identify and understand similarities in, and differences among, items.
True
Under the financial capital maintenance concept, a profit is earned only if the financial (or money) amount of the net assets at the end of the period exceeds the financial (or money) amount of the net assets at the beginning of the period.
True
Study Notes
Conceptual Framework for Financial Reporting
- The Conceptual Framework serves as a guide to the FRSC in developing accounting standards and resolving accounting issues.
- It helps preparers of financial statements in applying IFRSs and dealing with topics not covered by an IFRS.
- It assists auditors in forming an opinion on whether financial statements comply with IFRSs.
- It provides information about the IASB's approach to the formulation of IFRSs.
- It helps to promote harmonization of regulations and procedures relating to the presentation of financial statements.
Key Concepts
- Understandability is a constraint on the information that can be provided by financial reporting.
- The accrual basis is an underlying assumption in the new FRSC conceptual framework.
- The monetary unit assumption means that financial statements should be prepared in a currency.
- Equity represents the total assets of the enterprise after deducting all its liabilities.
Recognition and Measurement
- Recognition is the process of incorporating an item in the financial statements that meets the definition of an element and satisfies the criteria for recognition.
- An asset is recognized in the statement of financial position when it is probable that the future economic benefits will flow to the enterprise.
- Recognition of income occurs simultaneously with the recognition of increases in assets or decreases in liabilities.
- Expenses are recognized when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably.
- Measurement involves assigning monetary amounts at which the elements of the financial statements are to be recognized and reported.
- The Framework includes concepts or principles for selecting which measurement basis should be used for particular elements of financial statements or in particular circumstances.
Accrual Accounting
- Accrual accounting depicts the effects of transactions and other events and circumstances on a reporting entity’s economic resources and claims in the periods in which those effects occur.
Qualitative Characteristics
- Materiality is an entity-specific aspect of relevance based on the nature or magnitude, or both, of the items to which the information relates in the context of an individual entity’s financial report.
- A complete depiction, as an ingredient of faithful representation, includes all information necessary for a user to understand the phenomenon being depicted, including all necessary descriptions and explanations.
- A neutral depiction, as an ingredient of faithful representation, is without bias in the selection or presentation of financial information.
- Comparability is the qualitative characteristic that enables users to identify and understand similarities in, and differences among, items.
Capital Maintenance
- The financial concept of capital means capital is the net assets or equity of the entity.
- The physical concept of capital means capital is regarded as the productive capacity of the enterprise based on units of output per day.
- Under the financial capital maintenance concept, a profit is earned only if the financial (or money) amount of the net assets at the end of the period exceeds the financial (or money) amount of the net assets at the beginning of the period.
Test your knowledge on the importance of clear and concise information presentation, as well as the cost constraint on financial reporting. This quiz will assess your understanding of how these factors impact the usefulness and justification of reporting financial information.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
