CF

Question 1

Functions financial reporting

Answer 1

Distribution function
Information function

Question 2

Adverse selection

Answer 2

Is at type of information asymmetry whereby one or more parties to a business transaction, or potential transaction, have an information advantage

Question 3

Moral hazard

Answer 3

is a type of information asymmetry whereby one or more parties to a contract can observe their actions in fulfillment of the contract but other parties cannot

Question 4

Contracting perspective

Answer 4

emphasizes the stewardship function of accounting

Question 5

Information economics perspective

Answer 5

emphasizes the valuation function of accounting

Question 6

Objective of general purpose financial reporting

Answer 6

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

Question 7

Fundamental qualitative characteristics

Answer 7

Relevance: capable of making a difference in the decisions made by users
Faithful representation:
- Neutral
- Complete
- Free from error

Question 8

Enhancing qualitative characteristics

Answer 8

Comparability
Verifiability
Timeliness
Understandability

Question 9

General recognition criteria:

Answer 9

a) relevant information about the asset or the liability
b) a faithful representation of the asset or the liability
c) information that results in the benefits exceeding the cost of providing that information

Question 10

Circumstances in which recognition may not provide relevant information:

Answer 10

1) it is uncertain whether an asset exists, or is separable from goodwill, or whether a liability exists;
2) there is only a low probability that an inflow or outflow of economic benefits will result
3) a measurement of an asset or liability is available, but the level of measurement uncertainty is so high that the resulting information has little relevance and no other relevant measure is available