FAR - Accounting Standards & Conceptual Frameworks

Question 1

According to the FASB & IASB conceptual frameworks, useful information mush exhibit the fundamental qualitative characteristics of:

Answer 1

Faithful representation & relevance

Question 2

What is the underlying concept governing the recording of gain contingencies?

Answer 2

Conservatism

Question 3

According to the FASB conceptual framework, which of the following attributes would not be used to measure inventory?

Answer 3

Present value of future cash flows. The present value of future cash flows is used to measure long-term receivables or payables, not inventory, because inventory is a short-term asset, which has more immediate cash flows. SFAC 5 para. 67

Question 4

According to the FASB and IASB conceptual frameworks, completeness is an ingredient of:

Answer 4

Completeness is an ingredient of faithful representation. Other ingredients of faithful representation include neutrality and freedom from error.

Question 5

According to the FASB conceptual framework, the process of reporting an item in the financial statements of an entity is:

Answer 5

Recognition is the process of recording an item in the financial statements of an entity. SFAC 5 para. 6

Question 6

Financial information provided in general purpose financial reports does not include information about:

Answer 6

How effectively and efficiently the entity’s shareholders’ have discharged their responsibility to use the entity’s resources.

Question 7

According to the FASB conceptual framework, which of the following statements conforms to the realization concept?

Answer 7

Revenues and gains are realized when assets are exchanged for cash or claims to cash. SFAC 5 para. 83.

Question 8

On December 31, Brooks Co. decided to end operations and dispose of its assets within three months. At December 31, the net realizable value of the equipment was below historical cost. What is the appropriate measurement basis for equipment included in Brooks’ December 31 balance sheet?

Answer 8

Net realizable value is the appropriate measurement basis for equipment included in Brooks’ Dec. 31 balance sheet, because of the decision to end operations and quickly (3 months) dispose of its assets.

Question 9

According to the FASB and IASB conceptual frameworks, which of the following is an enhancing qualitative characteristic?

Answer 9

Timeliness, understandability, comparability and verifiability are characteristics that enhance the usefulness of information that is relevant and faithfully represented.

Question 10

A U.S. public company needs guidance in accounting for and reporting a complex derivative transaction that it entered into with a European subsidiary. This company is most likely to find the appropriate guidance in the

Answer 10

The FASB Accounting Standards Codification is the single source of U.S. GAAP. U.S. public companies are required to follow U.S. GAAP

Question 11

Which of the following is not defined in FASB Statement of Financial Accounting Concepts Number 7 as one of the five elements of present value (or economic value) measurement used to establish the value of assets or liabilities using cash flow information?

Answer 11

The risk tolerance of management is not defined by SFAC #7 as an element of present value measurement used to establish the value of assets or liabilities using cash flows. SFAC defines the following elements of present value measurement identified by the mnemonic UVOTE:

U-The Price for Bearing Uncertainty.

V-Expectations about Timing Variations of Future Cash Flows.

O-Other Factors (e.g., Liquidity Issues and Market Imperfections).

T-Time Value of Money (the Risk-free Rate of Interest).

E-Estimate of Future Cash Flow.

Question 12

Which of the following is a generally accepted accounting principle that illustrates the practice of conservatism during a particular reporting period?

Answer 12

The rule of conservatism states that revenues and gains should be recognized when the earnings process is complete, but that expenses and losses should be expensed immediately. Reporting inventory at the lower of cost or market requires the recording of a loss on inventory when market is lower than cost in the period the loss is sustained, rather than when the inventory is sold, consistent with the rule of conservatism.

Question 13

According to the FASB and IASB conceptual frameworks, the quality of information that helps users forecast future outcomes is:

Answer 13

The quality of information that helps users forecast future outcomes is predictive value. Forecasting is predicting.

Question 14

Which of the following characteristics enhances relevance and faithful representation?

Answer 14

Timeliness is a characteristic that enhances the usefulness of information that is relevant and faithfully represented

Question 15

Which of the following assumptions means that money is the common denominator of economic activity and provides an appropriate basis for accounting measurement and analysis?

Answer 15

The monetary unit assumption means that money is the common denominator for economic activity and provides an appropriate basis for accounting measurements and analysis

Question 16

According to the FASB conceptual framework, certain assets are reported in financial statements at the amount of cash or its equivalent that would have to be paid if the same or equivalent assets were acquired currently. What is the name of the reporting concept?

Answer 16

Replacement cost is defined as the amount of cash or its equivalent that would be paid to acquire or replace an asset currently. Replacement cost is an acquisition cost.

Question 17

Which of the following statements best describes an operating procedure for issuing FASB Accounting Standards Update?

Answer 17

An Accounting Standards Update is issued only after a majority vote of the members of the FASB

Question 18

According to the FASB and IASB conceptual frameworks, to be relevant, information should have which of the following?

Answer 18

To be relevant, information should have predictive value and/or confirming value, and must be material.

Question 19

According to the FASB and IASB conceptual frameworks, one of the fundamental qualitative characteristics of useful financial information is:

Answer 19

Relevance and faithful representation are the fundamental qualitative characteristics of useful financial information

Question 20

According to the FASB and IASB conceptual frameworks, neutrality is an ingredient of:

Answer 20

Neutrality, which is freedom from bias in selection or presentation, is an ingredient of faithful representation.

Question 21

According to the IASB conceptual framework, which of the following is an underlying assumption of financial statement preparation and presentation?

Answer 21

Under the IASB framework, going concern and accrual accounting are the two underlying assumptions of financial statement preparation and presentation.

Question 22

Which of the following is the most authoritative source of U.S. GAAP?

Answer 22

The FASB Accounting Standards Codification is the single source of authoritative nongovernmental U.S. GAAP.

Question 23

Which of the following statements best describes an operating procedure for issuing a new International Financial Reporting Standard?

Answer 23

Before an exposure draft is issued for public comment, it must be approved by at least nine members of the IASB.

Question 24

Users of financial statements frequently rely upon the data displayed in the financial statements to predict future financial outcomes. Financial accounting concepts refer to the characteristic of accounting information that provides predictive value to users as the quality of:

Answer 24

The fundamental qualitative characteristic of useful accounting information described by the term “relevance” contemplates predictive value, confirming value, and materiality

Question 25

According to the FASB and IASB conceptual frameworks, which of the following correctly pairs a fundamental qualitative characteristic of useful information with one of its components?

Answer 25

Under the FASB and IASB conceptual frameworks, relevance is a fundamental qualitative characteristic, and materiality is a component of relevance.

Question 26

Which of the following characteristics of accounting information primarily allows users of financial statements to generate predictions about an organization?

Answer 26

According to SFAC No.8, financial information is relevant if it is capable of making a difference in the decisions made by users and has predictive and/or confirming value

Question 27

Which of the following documents is typically issued as part of the due-process activities of the Financial Accounting Standards Board (FASB) for amending the FASB Accounting Standards Codification?

Answer 27

A proposed accounting standards update is prepared by the FASB as part of the due-process activities.