Conceptual Framework

Question 1

What is the objective of financial reporting?

Answer 1

To provide information use to present and potential equity investors, lenders, creditors in their capacity as capital providers.

Question 2

What are the fundamental qualities of financial reporting?

Answer 2

Relevance and faithful representation

Question 3

What are the enhancing qualities of financial reporting?

Answer 3

Comparability, verifiability, timeliness, and understandability

Question 4

The concept of __________ information is that it is helpful in making decisions.

Answer 4

Relevant

Question 5

Relevant information will have one or more of the following characteristics (3):

Answer 5

Predictive value, confirmatory value, materiality

Question 6

Information that is used by investors to form their own expectations about the future has ________.

Answer 6

Predictive value

Question 7

Information that helps users confirm or correct prior expectations has __________.

Answer 7

Confirmatory value

Question 8

Information is _________ if omitting it or misstating it could influence decisions that users make on the basis of reported financial information

Answer 8

Material

Question 9

The _____________ quality of financial reporting is fulfilled when the numbers and descriptions match what actually existed or happened.

Answer 9

Faithful representation

Question 10

What are the three characteristics of faithful representation?

Answer 10

Completeness, neutrality, and free from error

Question 11

__________ is satisfied when all the information that is necessary for faithful representation is provided.

Answer 11

Completeness

Question 12

The characteristic of ________ means a company cannot select information to favor one set of interested parties over another.

Answer 12

Neutrality

Question 13

Accurate representation of a financial item refers to information that is ________.

Answer 13

Free from error

Question 14

Information that is measured and reported in a similar manner for different companies is considered to be _________.

Answer 14

Comparable

Question 15

This characteristic or quality is met when independent measurers, using the same methods, obtain similar results

Answer 15

Verifiability

Question 16

Information is ________ when information is available to decision makers before it loses capacity to influence decisions.

Answer 16

Timely

Question 17

The quality of information that lets reasonably informed users see its significance is the concept of _______.

Answer 17

Understandability

Question 18

What are the 4 assumptions of the conceptual framework?

Answer 18

Economic Entity, Going Concern, Monetary Unit, Periodicity

Question 19

This concept assumes that the company keeps its activity separate from its owners and other businesses

Answer 19

Economic entity

Question 20

This concept assumes that the business will last long enough to fulfill objectives and commitments

Answer 20

Going concern

Question 21

This concept assumes that money is the common denominator in financial reporting

Answer 21

Monetary Unit

Question 22

This concept assumes the company can divide its economic activities into time periods

Answer 22

Periodicity

Question 23

The two constraints in the conceptual framework are the ___________ and _________ constraints

Answer 23

Cost, industry practice

Question 24

The _________ states the cost of providing the information must be weighed against the benefits that can be derived from using it.

Answer 24

Cost constraint

Question 25

The unique nature of some industries and businesses sometimes requires departure from basic accounting theory.

Answer 25

Industry practice