Chapter 2

Question 1

Demand - 1 Needs of the target market 2 strategic goal or objective 3 desirable product characteristics

Supply - technological and production constraints 1 potential product components 2 product design 3 customization

Answer 1

Outline of a Business Plan

Question 2

Demand - 1 Users and their needs 2 objectives 3 qualitative characteristics

Supply - constraints and assumptions 1 elements of financial statements 2 recognition 3 measurement

Answer 2

Conceptual Framework for Financial Reporting

Question 3

Users and their needs, objectives, qualitative characteristics, constraints, assumptions, elements of financial statements, recognition, measurement

Answer 3

8 Major Components of a Conceptual Framework

Question 4

Existing and potential investors, lenders and other creditors

Answer 4

Users

Question 5

Enable investment and lending decisions through information about the amount, timing, and uncertainty of cash flow and on the entity’s resources, claims, and performance

Answer 5

The Objects of Financial Reporting

Question 6

A basis of accounting that records economic events when they happen rather than only when cash exchanges occur; contrast with cash accounting

Answer 6

Accrual Accounting

Question 7

What enumerates the desirable characteristics of financial reports that help to meet users’ information needs

Answer 7

Qualitative Characteristics

Question 8

The cataract is tics that must be present for information to be useful for decision making including relative and reliability

Answer 8

Fundamental Qualitative Characteristics

Question 9

The characteristics that effect the information’s degree of usefulness including understandability, comparability, verifiability, and timeliness

Answer 9

Enhancing Qualitative Characteristics

Question 10

The ab I pity to influence user’s economic decisions whether confirmatory or predictive (about the past or future)

Answer 10

Relevance

Question 11

Whether omitting, misstating, or obscuring a particular piece of information about a reporting entity would influence the primary user’s economic decisions

Answer 11

Materiality

Question 12

The extent to which financial information reflects the underlying transactions, resources, and claims of an enterprise

Answer 12

Representational Faithfulness

Question 13

The three attributes that contribute to representational faithfulness or reliability

Answer 13

Completeness, neutrality, and freedom from error

Question 14

The inclusion of all material items in the financial statements. One of three attributes of representational faithfulness

Answer 14

Completeness

Question 15

The extent to which information is free from bias. One of three attributes of representational faithfulness

Answer 15

Neutrality

Question 16

The extent to which information is absent of errors or omissions. One of three attributes of representational faithfulness.

Answer 16

Free from Error

Question 17

The ease with which users are able to comprehend financial reports. One of four enhancing qualitative characteristics

Answer 17

Understandability

Question 18

Refers to the ability to compare one set of financial statements with another. The comparison may be with the financial statements of the same enterprise in a different year or with those of a different enterprise. One of four enhancing qualitative characteristics.

Answer 18

Comparability

Question 19

The degree to which different people would agree with the chosen representation in the financial reports. One of four enhancing qualitative characteristics

Answer 19

Verifiability

Question 20

How soon the information becomes available to decision makers. One of four enhancing qualitative characteristics

Answer 20

Timeliness

Question 21

Elements relating to measuring financial position

Answer 21

Assets, liability, and equity

Question 22

Income, revenue, gains, expenses

Answer 22

Elements relating to measuring performance

Question 23

• a resource controlled by an entity
• as a result of past events and
• from which future economic benefits are expected to flow to the entity

Answer 23

Asset

Question 24

• a present obligation of the entity
• arising from past events
• the settlement of which is expected to result in an outflow from the entity of economic resources embodying economic benefits

Answer 24

Liability

Question 25

The process of presenting an item in the financial statements, as opposed to merely disclosing that item in the notes. This criteria sets down the guidelines for when to report something as a line item on one of the main financial statements instead of in the notes while measurement provides the basis for quantifying the items reported

Answer 25

Recognition

Question 26

Generally, accounting elements are recognized in the financial statements if the future inflows or outflows of resources are what and the amounts are what?

Answer 26

Probably and Reasonably Measurable

Question 27

For example accounts receivable have a high probability while research and development is low

Answer 27

Probable

Question 28

The basis for quantifying items reported in the financial statements

Answer 28

Measurement

Question 29

The actual cost of an asset at the time it was purchased; can also refer to amounts based on historical cost but adjusted by depreciation or impairment

Answer 29

Historical Cost

Question 30

Other measurement bases used for different financial statements items in addition to historical cost

Answer 30

Current cost, realizable value, present value

Question 31

A constraint stating that the cost of reporting financial information should not exceed the benefits that can be obtained from using that information

Answer 31

Cost Constraint

Question 32

Simplified generalizations about the real world that are deemed to be appropriate for most circumstances (but not always). Such as target markets or going concern

Answer 32

Assumptions

Question 33

The assumption that the reporting entity will continue operating into the foreseeable future. For example this means we consider an asset’s value in use in the entity rather than its liquidation value in a forced sale

Answer 33

Going Concern

Question 34

Refers to the amount of resources required to ensure the economic sustainability of an entity — maintains that what is necessary for the entity to continue in operations for the foreseeable future at a level similar to how it has operated in the past

Answer 34

Capital Maintenance

Question 35

The assumption that an entity needs to have as much resource in monetary terms at the end of a period as it did at the beginning of that period to maintain its operating capacity. Amounts in excess of that required to maintain financial capital are profit

Answer 35

Financial Capital Maintenance

Question 36

An entity, other than a not-for-profit organization, that has issued debt or equity instruments that are outstanding and traded in a public market (or is in the process of issuing such instruments or an entity that holds assets in a fiduciary capacity for a board group of outsiders as one of its primary businesses

Answer 36

Public ally Accountable Enterprise

Question 37

In the ASPE standards, any for-profit entity that is not a publicly accountable enterprise

Answer 37

Private Enterprise

Question 38

CPA Canada Chartered Professional Accountants of Canada providing funding to

1) Accounting Standards Oversight Board (AcSOC)

A. Accounting Standards Board (AcSB)
- Non-for-profit enterprises
- For-profit enterprises (privately and publicly held)

B. Public Sector Accounting Board (PSAB)
- Public sector accounting standards

2) Auditing and Assurance Standards Oversight Council (AASOC)

• Auditing and Assurance Standards Board (AASB)
  
  • Auditing and Assurance Standards

Answer 38

The Structure of Standard Setting in Canada