01.01- Conceptual Framework

Question 1

What are the six OBJECTIVES of FINANCIAL REPORTING?

Answer 1

1) Provide useful information to those who need it
2) Report information about the entity’s economic resources
3) Report about changes in economic resources and claims
4) Financial performance reflected by ACCRUAL ACCOUNTING
5) Financial performance reflected by past CASH FLOW
6) Changes in economic resources and claims, not resulting from financial performance

Question 2

Why does financial reporting use ACCRUAL ACCOUNTING?

Answer 2

Provides a better basis for assessing past and future performance when compared to cash basis.

Question 3

What two PRIMARY QUALITATIVE CHARACTERISTICS makes information useful?

Answer 3

• Relevance

- Faithful Representation

Question 4

What two values make information RELEVANT?

Answer 4

Predictive Value

Confirmatory Value

Question 5

What is MATERIALITY?

Answer 5

Information that effects a decision if omitted or misstated.

Question 6

What three things are needed for information to have FAITHFUL REPRESENTATION?

Answer 6

Free from Error
Neutrality (free from bias)
Completeness

Question 7

What are the four ENHANCING QUALITATIVE CHARACTERISTICS that related to both Relevance and Faithful Representation?

Answer 7

CUT like a V

Comparability
Understandability
Timeliness
Verifiabilty

Question 8

What one CONSTRAINT overrides useful information?

Answer 8

Cost/Benefit