Unit 1: Standard-Setting Bodies and Processes, CF and presentation of FS Flashcards
1
Q
A report that provides financial information about the reporting entity’s economic resources, claims against the entity and changes in those economic resources and claims that is useful to primary users in making decisions relating to providing resources to the entity.
A
General Purpose Financial Report
2
Q
Existing and potential investors, lenders and other creditors.
A
Primary users
3
Q
Financial information that is useful to primary users of general purpose financial reports in making decisions relating to providing resources to the reporting entity. To be useful, financial information must be relevant and faithfully represent what it purports to represent.
A
Useful financial information
4
Q
A qualitative characteristic that financial information must possess to be useful to the primary users of general purpose financial reports. (relevance and faithful representation)
A
Fundamental qualitative characteristics
5
Q
A qualitative characteristic that makes useful information more useful. (comparability, verifiability, timeliness and understandability)
A
Enhancing qualitative characteristics
6
Q
A particular form of general purpose financial reports that provide information about the reporting entity’s assets, liabilities, equity, income and expenses.
A
General purpose FS
7
Q
Information whose omission or misstatement could influence decisions that the primary users of general purpose financial reports make on the basis of those reports, which provide financial information about a specific reporting entity.
A
Material information
8
Q
The exercise of caution when making judgements under conditions of uncertainty. The exercise of which means that assets and income are not overstated and liabilities and expenses are not understated. Equally, the exercise of which does not allow for the understatement of assets or income or the overstatement of liabilities or expenses.
A
Prudence
9
Q
Uncertainty that arises when monetary amounts in financial reports cannot be observed directly and must instead be estimated
A
Measurement uncertainty
10
Q
An entity that is required, or chooses, to prepare general purpose financial statements.
A
Reporting entity
11
Q
Financial statements of a reporting entity that comprises both the parent and its subsidiaries
A
Consolidated FS
12
Q
Financial statements of a reporting entity that is the parent alone.
A
Unconsolidated FS
13
Q
Financial statements of a reporting entity that comprises two or more entities that are not all linked by a parent-subsidiary relationship.
A
Combined FS
14
Q
The right or the group of rights, the obligation or the group of obligations, or the group of rights and obligations, to which recognition criteria and measurement concepts are applied.
A
Unit of account
15
Q
Uncertainty about whether an asset or liability exists.
A
Existence uncertainty
16
Q
A contract, or a portion of a contract, that is equally unperformed—neither party has fulfilled any of its obligations, or both parties have partially fulfilled their obligations to an equal extent
A
Executory contracts
17
Q
A present economic resource controlled by the entity as a result of past events.
A
Asset
18
Q
A right that has the potential to produce economic benefits.
A
Economic resources
19
Q
Within an economic resource, a feature that already exists and that, in at least one circumstance, would produce for the entity economic benefits beyond those available to all other parties.
A
Potential to produce (economic benefits)
20
Q
The present ability to direct the use of the economic resource and obtain the economic benefits that may flow from it
A
Control (of an economic resource)
21
Q
A present obligation of the entity to transfer an economic resource as a result of past events.
A
Liability
22
Q
The residual interest in the assets of the entity after deducting all its liabilities.
A
Equity
23
Q
A claim on the residual interest in the assets of the entity after deducting all its liabilities.
A
Equity claim
24
Q
Increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims.
A
Income
25
Decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims.
Expenses
26
The amount at which an asset, a liability or equity is recognized in the statement of financial position
Carrying amount
27
The process of capturing for inclusion in the statement of financial position or the statement(s) of financial performance an item that meets the definition of one of the elements of financial statements—an asset, a liability, equity, income or expenses. It involves depicting the item in one of those statements—either alone or in aggregation with other items—in words and by a monetary amount, and including that amount in one or more totals in that statement.
Recognition (>> inclusion)
28
The removal of all or part of a recognized asset or liability from an entity’s statement of financial position.
Derecognition (>> removal)
29
The result of applying a measurement basis to an asset or liability and related income and expenses.
Measure
30
An identified feature—for example, historical cost, fair value or fulfilment value—of an item being measured.
Measurement basis
31
Uncertainty about the amount or timing of any inflow or outflow of economic benefits that will result from an asset or liability.
Outcome uncertainty
32
The sorting of assets, liabilities, equity, income or expenses on the basis of shared characteristics for presentation and disclosure purposes.
Classification
33
The adding together of assets, liabilities, equity, income or expenses that have shared characteristics and are included in the same classification.
Aggregation
34
Grouping an asset and liability that are recognized and measured as separate units of account into a single net amount in the statement of financial position.
Offsetting
35
Which of the following is not a purpose of the Conceptual Framework for Financial Reporting?
A) To assist the International Accounting Standards Board (Board) to develop IFRS Standards (Standards) that are based on consistent concepts.
B) To assist preparers to develop consistent accounting policies when no Standard applies to a particular transaction or other event, or when a Standard allows a choice of accounting policy.
C) To assist all parties to understand and interpret the Standards.
D) To assist regulatory agencies in enforcing compliance of companies to the requirements of the applicable IFRSs.
D) To assist regulatory agencies in enforcing compliance of companies to the requirements of the applicable IFRSs.
36
The Conceptual Framework for Financial Reporting the following fundamental issues, except:
A) What is the objective of financial reporting?
B) What makes financial information useful?
C) Which among the financial statements presented are most important and useful to users?
D) What are assets, liabilities, equity, income and expenses, when should they be recognized and how should they be measured, presented and disclosed?
C) Which among the financial statements presented are most important and useful to users?
37
Which of the following statements is incorrect concerning the Conceptual Framework for Financial Reporting?
A) The Conceptual Framework is not a Standard and nothing in the Conceptual Framework overrides any Standard or any requirement in a Standard.
B) The Conceptual Framework may be revised from time to time on the basis of the Board’s experience of working with it.
C) Revisions of the Conceptual Framework will automatically lead to changes to the Standards
D) Any decision to amend a Standard would require the Board to go through its due process for adding a project to its agenda and developing an amendment to that Standard.
C) Revisions of the Conceptual Framework will automatically lead to changes to the Standards
38
Which of the following statements does not pertain to the objectives of general purpose financial reporting?
A) The objective of general purpose financial reporting forms the foundation of the Conceptual Framework.
B) Other aspects of the Conceptual Framework—the qualitative characteristics of, and the cost constraint on, useful financial information, a reporting entity concept, elements of financial statements, recognition and derecognition, measurement, presentation and disclosure—flow logically from the objective.
C) The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity.
D) The objective of general purpose financial is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions.
D) The objective of general purpose financial is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions.
39
Which of the following statements concerning the objectives of financial reporting is incorrect?
A) Financial reporting provides both financial information and non-financial information useful to users in making decisions.
B) Users’ decisions involve decisions about buying, holding or selling equity and debt instruments; providing or settling loans and other forms of credit; or exercising rights to vote on, or otherwise influence, management’s actions that affect the use of the entity’s economic resources.
C) In making decisions, users assess prospects for future net cash inflows (amount, timing and uncertainty) to the entity and management’s stewardship of the entity’s economic resources.
D) In making assessments, users need information about economic resources, claims and changes in those resources and claims; and how efficiently and effectively management and governing board has discharged its responsibilities to use the entity’s economic resources.
A) Financial reporting provides both financial information and non-financial information useful to users in making decisions.
40
Which of the following statements is incorrect?
A) The primary users of the information presented in the general purpose financial reports are the existing and potential investors, creditors, other lenders and management.
B) The general purpose financial reports are directed to the primary users because they cannot require reporting entities to provide information directly to them.
C) The primary users need to consider pertinent information from other sources (e.g. general economic conditions and expectations, political events and political climate, and industry and company outlooks) since the general purpose financial reports do not and cannot provide all of the information.
D) Other parties, such as regulators and members of the public other than the primary users, may also find the general purpose financial reports useful but these reports are not primarily directed to them.
A) The primary users of the information presented in the general purpose financial reports are the existing and potential investors, creditors, other lenders and management.
41
All of the following statements pertain to the limitations of financial reporting, except:
A) To a large extent, financial reports are based on estimates, judgments and models rather than exact depictions.
B) Management should still rely on general purpose financial reports even if it is able to obtain the financial information it needs internally.
C) General purpose financial reports do not and cannot provide all of the information that existing and potential investors, lenders and other creditors need.
D) General purpose financial reports are not designed to show the value of a reporting entity; but they provide information to help existing and potential investors, lenders and other creditors to estimate the value of the reporting entity.
B) Management should still rely on general purpose financial reports even if it is able to obtain the financial information it needs internally.
42
Information about the nature and amounts of a reporting entity’s economic resources and claims can help users to (choose the incorrect one):
A) identify the reporting entity’s financial strengths and weaknesses.
B) assess the reporting entity’s liquidity and solvency, its needs for additional financing and how successful it is likely to be in obtaining that financing.
C) assess management’s stewardship of the entity’s economic resources.
D) understand the return that the entity has produced on its economic resources.
D) understand the return that the entity has produced on its economic resources.
43
Which of the following statements is incorrect?
A) Changes in a reporting entity’s economic resources and claims result from that entity’s financial performance and from other events or transactions such as issuing debt or equity instruments.
B) Financial performance reflected by cash basis of accounting is important because it provides a better basis for assessing the entity’s past and future performance than information solely about cash receipts and payments during that period.
C) Information about a reporting entity’s cash flows during a period also helps users to assess the entity’s ability to generate future net cash inflows and to assess management’s stewardship of the entity’s economic resources.
D) Information about the changes in economic resources and claims not resulting from financial performance is necessary to give users a complete understanding of why the reporting entity’s economic resources and claims changed and the implications of those changes for its future financial performance.
B) Financial performance reflected by cash basis of accounting is important because it provides a better basis for assessing the entity’s past and future performance than information solely about cash receipts and payments during that period.
44
Which of the following statements is incorrect concerning the “information about a reporting entity’s financial performance during a period”?
A) It is useful in assessing the entity’s past and future ability to generate net cash inflows.
B) It can help users to assess management’s stewardship of the entity’s economic resources.
C) It indicates the extent to which the reporting entity has increased its available economic resources, and thus its capacity for generating net cash inflows by obtaining additional resources directly from investors and creditors rather than through its operations.
D) It may also indicate the extent to which events such as changes in market prices or interest rates have increased or decreased the entity’s economic resources and claims, thereby affecting the entity’s ability to generate net cash inflows.
C) It indicates the extent to which the reporting entity has increased its available economic resources, and thus its capacity for generating net cash inflows by obtaining additional resources directly from investors and creditors rather than through its operations.
45
Information about how efficiently and effectively the reporting entity’s management has discharged its responsibilities to use the entity’s economic resources (choose the incorrect item)
A) is useful in identifying errors in the financial reports.
B) helps users to assess management’s stewardship of those resources.
C) can be useful for assessing the entity’s prospects for future net cash inflows.
D) is useful for predicting how efficiently and effectively management will use the entity’s economic resources in future periods.
A) is useful in identifying errors in the financial reports.
46
Which of the following statements concerning the qualitative characteristics of useful financial information is incorrect?
A) If financial information is to be useful, it must be relevant and faithfully represent what it purports to represent.
B) The usefulness of financial information is enhanced if it is verifiable, comparable, understandable and timely.
C) The fundamental qualitative characteristics are relevance and reliability.
D) Verifiability, comparability, understandability and timeliness are qualitative characteristics that enhance the usefulness of information that both is relevant and provides a faithful representation of what it purports to represent.
C) The fundamental qualitative characteristics are relevance and reliability.
47
Which of the following statements is incorrect concerning relevance?
A) Relevant financial information is capable of making a difference in the decisions made by preparers.
B) Financial information is capable of making a difference in decisions if it has predictive value, confirmatory value, “or” both.
C) Financial information has predictive value if it can be used as an input to processes employed by users to predict future outcomes.
D) Financial information has confirmatory value if it provides feedback about (confirms or changes) previous evaluations.
A) Relevant financial information is capable of making a difference in the decisions made by preparers.
48
Which of the following statements is correct concerning relevance?
I. Financial information need to be a prediction or forecast to have predictive value.
II. Information that has predictive value often also has confirmatory value.
A) I only
B) II only
C) both I and II
D) neither I nor II
B) II only
49
Which of the following statements is incorrect concerning the concept of materiality?
I. Information is material if omitting it or misstating it could influence decisions that the primary users of general purpose financial reports make on the basis of those reports, which provide financial information about a specific reporting entity.
II. Materiality is an entity-specific aspect of relevance based on the nature or magnitude, or both, of the items to which the information relates in the context of an individual entity’s financial report.
A) I only
B) II only
C) both I and II
D) neither I nor II
D) neither I nor II
50
Which of the following statements is incorrect concerning faithful representation?
A) To be useful, financial information must not only represent relevant phenomena, but it must also faithfully represent the substance of the phenomena that it purports to represent.
B) Faithful representation means accurate in all respect.
C) Information must both be relevant and provide a faithful representation of what it purports to represent if it is to be useful.
D) Neither a faithful representation of an irrelevant phenomenon nor an unfaithful representation of a relevant phenomenon helps users make good decisions.
B) Faithful representation means accurate in all respect.
51
Which of the following statements is incorrect concerning faithful representation?
A) To be a perfectly faithful representation, a depiction would have three characteristics - complete, neutral and free from error.
B) A complete depiction includes all information necessary for a user to understand the phenomenon being depicted, including all necessary descriptions and explanations.
C) Neutral depiction is with bias in the selection or presentation of financial information.
D) Free from error means there are no errors or omissions in the description of the phenomenon, and the process used to produce the reported information has been selected and applied with no errors in the process.
C) Neutral depiction is with bias in the selection or presentation of financial information.
52
Which of the following statements about neutrality?
A) Neutrality is supported by the exercise of prudence.
B) Neutral information does not mean information with no purpose or no influence on behaviour.
C) Prudence is no longer part of the Conceptual Framework because it violates the principle of neutrality.
D) A neutral depiction is not slanted, weighted, emphasised, de-emphasised or otherwise manipulated to increase the probability that financial information will be received favourably or unfavourably by users.
C) Prudence is no longer part of the Conceptual Framework because it violates the principle of neutrality.
53
The most efficient and effective process for applying the fundamental qualitative characteristics would usually be as follows: (identify the proper order)
I. Determine whether that information is available and whether it can provide a faithful representation of the economic phenomenon.
II. Identify an economic phenomenon, information about which is capable of being useful to users of the reporting entity’s financial information.
III. Identify the type of information about that phenomenon that would be most relevant.
IV. If the information is available and can provide a faithful representation of the economic phenomenon, the process of satisfying the fundamental qualitative characteristics ends at that point, otherwise, the process is repeated with the next most relevant type of information.
A) I, II, III, IV
B) I, III, II, IV
C) II, III, I, IV
D) III, II, I, IV
C) II, III, I, IV
54
Which of the following statements is false concerning the enhancing qualitative characteristics?
A) Verifiability means that different knowledgeable and independent observers could reach different conclusions.
B) Comparability is the qualitative characteristic that enables users to identify and understand similarities in, and differences among, items.
C) Financial reports are prepared for users who have a reasonable knowledge of business and economic activities and who review and analyze the information diligently.
D) Timeliness means having information available to decision-makers in time to be capable of influencing their decisions.
A) Verifiability means that different knowledgeable and independent observers could reach different conclusions.
55
Determine the false statement about consistency and comparability.
A) Consistency, although related to comparability, is not the same; comparability is the goal while consistency helps to achieve that goal.
B) Comparability is not uniformity; for information to be comparable, like things must look alike and different things must look different.
C) Permitting alternative accounting methods for the same economic phenomenon does not in any way diminish comparability.
D) Consistency refers to the use of the same methods for the same items, either from period to period within a reporting entity or in a single period across entities.
C) Permitting alternative accounting methods for the same economic phenomenon does not in any way diminish comparability.
56
Which of the following statements concerning the enhancing qualitative characteristics is incorrect?
A) Enhancing qualitative characteristics should be maximized to the extent possible.
B) The enhancing qualitative characteristics, either individually or as a group, can make information useful if that information is irrelevant or does not provide a faithful representation of what it purports to represent.
C) Applying the enhancing qualitative characteristics is an iterative process that does not follow a prescribed order.
D) Sometimes, one enhancing qualitative characteristic may have to be diminished to maximize another qualitative characteristic.
B) The enhancing qualitative characteristics, either individually or as a group, can make information useful if that information is irrelevant or does not provide a faithful representation of what it purports to represent. B) The enhancing qualitative characteristics, either individually or as a group, can make information useful if that information is irrelevant or does not provide a faithful representation of what it purports to represent.
57
```
Identify the (1) pervasive constraint and (2) underlying assumption mentioned in the Conceptual Framework for Financial Reporting
A) (1) cost; (2) accrual basis
C) (1) timeliness; (2) accrual basis
B) (1) cost; (2) going concern
D) (1) timeliness; (2) going concern
```
B) (1) cost; (2) going concern
58
Which of the following statements is correct concerning the constraint on useful financial reporting?
I. Cost is a pervasive constraint on the information that can be provided by financial reporting.
II. Reporting financial information imposes costs, and it is important that those costs are justified by the benefits of reporting that information.
A) I only
B) II only
C) both I and II
D) neither I nor II
C) both I and II
59
Which of the following statements is correct about the underlying assumption?
I. The financial statements are normally prepared on the assumption that an entity is a going concern and will continue in operation for the foreseeable future.
II. It is assumed that the entity has neither the intention nor the need to liquidate or curtail materially the scale of its operations; if such an intention or need exists, the financial statements may have to be prepared on a different basis and, if so, the basis used is disclosed.
A) I only
B) II only
C) both I and II
D) neither I nor II
C) both I and II
60
Which of the following statements is incorrect about financial statements? A) The objective of financial statements is to provide financial information about the reporting entity’s assets, liabilities, equity, income and expenses that is useful to users of financial statements in assessing the prospects for future net cash inflows to the reporting entity and in assessing management’s stewardship of the entity’s economic resources. B) Financial statements include information about transactions and other events that have occurred after the end of the reporting period if providing that information is necessary to meet the objective of financial statements. C) To help users of financial statements to identify and assess changes and trends, financial statements also provide comparative information for at least one preceding reporting period. D) Financial statements provide information about transactions and other events viewed from the perspective of any particular group of the entity’s existing or potential investors, lenders or other creditors.
D) Financial statements provide information about transactions and other events viewed from the perspective of any particular group of the entity’s existing or potential investors, lenders or other creditors.
61
Which of the following statements is least likely a description of a reporting entity?
A) A reporting entity is not necessarily a legal entity.
B) A reporting entity is required to present consolidated financial statements.
C) A reporting entity is an entity that is required, or chooses, to prepare financial statements.
D) A reporting entity can be a single entity or a portion of an entity or can comprise more than one entity
B) A reporting entity is required to present consolidated financial statements.
62
Which of the following statements is not within the scope of the reporting entity under the Conceptual Framework?
A) If a reporting entity comprises both the parent and its subsidiaries, the reporting entity’s financial statements are referred to as ‘consolidated financial statements’.
B) If a reporting entity is the parent alone, the reporting entity’s financial statements are referred to as ‘unconsolidated financial statements’.
C) If a reporting entity comprises two or more entities that are not all linked by a parent-subsidiary relationship, the reporting entity’s financial statements are referred to as ‘combined financial statements’.
D) If a reporting entity prepares financial statements for a period shorter than a full financial year, the reporting entity’s financial statements are referred to as “interim financial report”
D) If a reporting entity prepares financial statements for a period shorter than a full financial year, the reporting entity’s financial statements are referred to as “interim financial report”
63
The elements directly related to a reporting entity’s financial position are defined as follows: (choose the incorrect one)
A) An asset is a present economic resource controlled by the entity as a result of past events.
B) A liability is a present obligation of the entity to transfer an economic resource as a result of past events.
C) Equity is the residual interest in the assets of the entity after deducting all its liabilities.
D) Liabilities and stockholders’ equity are sources of financing for economic resources.
D) Liabilities and stockholders’ equity are sources of financing for economic resources.
64
The three aspects of the definition of an asset and an economic resource include all of the following, except:
A) right
B) potential to produce economic benefits
C) control
D) obligation
D) obligation
65
Which of the following statements about asset is incorrect?
A) An asset is a present economic resource controlled by the entity as a result of past events.
B) An economic resource is a right that has the potential to produce economic benefits.
C) All of an entity’s rights are assets of that entity.
D) Conceptually, the economic resource is the set of rights, not the physical object.
C) All of an entity’s rights are assets of that entity.
66
Which of the following statements about the potential of an economic resource to produce economic benefits is incorrect?
A) The potential to produce economic benefits does not need to be certain, or even likely, that the right will produce economic benefits.
B) For an economic resource to have the potential to produce economic benefits, it is only necessary that the right already exists and that, in at least one circumstance, it would produce for the entity economic benefits beyond those available to all other parties.
C) A right can meet the definition of an economic resource, and hence can be an asset, even if the probability that it will produce economic benefits is low.
D) Although an economic resource derives its value from its present potential to produce future economic benefits, the economic resource is the future economic benefits that the right may produce.
D) Although an economic resource derives its value from its present potential to produce future economic benefits, the economic resource is the future economic benefits that the right may produce.
67
Which of the following statements is incorrect?
A) There is a close association between incurring expenditure and acquiring assets, but the two do not necessarily coincide.
B) When an entity incurs expenditure, this may provide evidence that the entity has sought future economic benefits, but does not provide conclusive proof that the entity has obtained an asset.
C) The absence of related expenditure does not preclude an item from meeting the definition of an asset.
D) The expenditures incurred by an entity which benefits the current period is recognized as an asset.
D) The expenditures incurred by an entity which benefits the current period is recognized as an asset.
68
Which of the following statements about the control of an economic resource is incorrect?
A) An entity controls an economic resource if it has the present ability to direct the use of the economic resource and obtain the economic benefits that may flow from it.
B) Control includes the present ability to prevent other parties from directing the use of the economic resource and from obtaining the economic benefits that may flow from it.
C) Control of an economic resource usually arises from an ability to enforce legal rights.
D) For an entity to control an economic resource, the future economic benefits from that resource must directly flow to the entity rather than to another party.
D) For an entity to control an economic resource, the future economic benefits from that resource must directly flow to the entity rather than to another party.
69
For a liability to exist, all of the following criteria must be satisfied, except:
A) the entity has an obligation
B) the entity has a future obligation
C) the obligation is to transfer an economic resource
D) the obligation is a present obligation that exists as a result of past events
B) the entity has a future obligation
70
Which of the following statements is incorrect concerning an obligation?
A) An obligation is a duty or responsibility that an entity has no practical ability to avoid.
B) An obligation is always owed to another party (or parties) and the other party (or parties) could be a person or another entity, a group of people or other entities, or society at large.
C) If one party has an obligation to transfer an economic resource, it follows that another party (or parties) has a right to receive that economic resource.
D) It is necessary to know the identity of the party (or parties) to whom the obligation is owed.
D) It is necessary to know the identity of the party (or parties) to whom the obligation is owed.
71
Which of the following statements is true about obligation?
I. Many obligations are established by contract, legislation or similar means and are legally enforceable by the party (or parties) to whom they are owed.
II. Obligations can also arise from an entity’s customary practices, published policies or specific statements if the entity has no practical ability to act in a manner
inconsistent with those practices, policies or statements, sometimes referred to as ‘constructive obligation’.
A) I only
B) II only
C) both I and II
D) neither I nor II
C) both I and II
72
Which of the following statements related to obligation is incorrect?
A) In instances when an entity’s duty or responsibility to transfer an economic resource is conditional on a particular future action that the entity itself may take, the entity has an obligation if it has no practical ability to avoid taking that action.
B) The factors used to assess whether an entity has the practical ability to avoid transferring an economic resource may depend on the nature of the entity’s duty or responsibility.
C) Intention to make a transfer and a high likelihood of a transfer are sufficient reasons for concluding that the entity has no practical ability to avoid a transfer.
D) A conclusion that it is appropriate to prepare an entity’s financial statements on a going concern basis also implies a conclusion that the entity has no practical ability to avoid a transfer that could be avoided only by liquidating the entity or by ceasing to trade.
C) Intention to make a transfer and a high likelihood of a transfer are sufficient reasons for concluding that the entity has no practical ability to avoid a transfer.
73
Which of the following statements about transfer of economic resource is incorrect?
A) Obligation must have the potential to require the entity to transfer an economic resource to another party (or parties) to satisfy the transfer of economic resource criteria.
B) The potential for transfer of economic resource does not need to be certain, or even likely, that the entity will be required to transfer an economic resource—the transfer may, for example, be required only if a specified uncertain future event occurs.
C) For potential for transfer of economic resource to exist, it is only necessary that the obligation already exists and that, in at least one circumstance, it would require the entity to transfer an economic resource.
D) An obligation cannot meet the definition of a liability if the probability of a transfer of an economic resource is low.
D) An obligation cannot meet the definition of a liability if the probability of a transfer of an economic resource is low.
74
Which of the following statements about present obligation as a result of past event is incorrect?
A) The enactment of legislation is sufficient to give an entity a present obligation.
B) The enactment of a new legislation and an entity’s customary practice or published policy/statement gives rise to a present obligation only when, as a consequence of obtaining economic benefits or taking an action to which that legislation, practice, policy or statement applies, an entity will or may have to transfer an economic resource that it would not otherwise have had to transfer.
C) A present obligation can exist even if a transfer of economic resources cannot be enforced until some point in the future.
D) An entity does not yet have a present obligation to transfer an economic resource if it has not yet obtained economic benefits, or taken an action, that would or could require the entity to transfer an economic resource that it would not otherwise have had to transfer.
A) The enactment of legislation is sufficient to give an entity a present obligation.
75
Which of the following statements about unit of account is incorrect?
A) The unit of account is the right or the group of rights, the obligation or the group of obligations, or the group of rights and obligations, to which recognition criteria and measurement concepts are applied.
B) A unit of account is selected for an asset or liability when considering how recognition criteria and measurement concepts will apply to that asset or liability and to the related income and expenses.
C) It is inappropriate to select one unit of account for recognition and a different unit of account for measurement.
D) If an entity transfers part of an asset or part of a liability, the unit of account may change at that time, so that the transferred component and the retained component become separate units of account.
E) In selecting a unit of account, it is important to consider whether the benefits of the information provided to users of financial statements by selecting that unit of account are likely to justify the costs of providing and using that information
C) It is inappropriate to select one unit of account for recognition and a different unit of account for measurement.
76
Which of the following statements about executory contracts is incorrect?
A) An executory contract is a contract, or a portion of a contract, that is equally unperformed—neither party has fulfilled any of its obligations, or both parties have partially fulfilled their obligations to an equal extent.
B) An executory contract establishes a combined right and obligation to exchange economic resources.
C) The established combined right and obligation to exchange economic resources are interdependent but can be separated.
D) To the extent that either party fulfils its obligations under the contract, the contract is no longer executory.
C) The established combined right and obligation to exchange economic resources are interdependent but can be separated.
77
Which of the following items about equity claims is incorrect?
A) Equity claims include redeemable preference shares.
B) Equity claims are claims on the residual interest in the assets of the entity after deducting all its liabilities.
C) Equity claims are they are claims against the entity that do not meet the definition of a liability.
D) Equity claims may be established by contract, legislation or similar means, and include, to the extent that they do not meet the definition of a liability:
A) Equity claims include redeemable preference shares.
78
Which of the following statements is incorrect?
A) Income is increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims.
B) Expenses are decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims.
C) The contributions from holders of equity claims are not income, and distributions to holders of equity claims are not expenses.
D) Comprehensive income is no longer part of the Conceptual Framework for Financial Reporting.
D) Comprehensive income is no longer part of the Conceptual Framework for Financial Reporting.
79
Which of the following statements about recognition is incorrect?
A) Recognition is the process of capturing for inclusion in the statement of financial position or the statement(s) of financial performance an item that meets the definition of one of the elements of financial statements—an asset, a liability, equity, income or expenses.
B) Recognition involves depicting the item in one of those statements—either alone or in aggregation with other items—in words and by a monetary amount, and including that amount in one or more totals in that statement.
C) Recognition links the elements, the statement of financial position and the statement(s) of financial performance.
D) The Conceptual Framework allows the recognition in the statement of financial position of items that do not meet the definition of an asset, a liability or equity.
D) The Conceptual Framework allows the recognition in the statement of financial position of items that do not meet the definition of an asset, a liability or equity.
80
Which of the following items about recognition criteria is incorrect?
A) Only items that meet the definition of the elements of financial statements recognized
B) All items that meet the definition of one of the elements of financial statements are recognized.
C) An asset or liability is recognized only if recognition of that asset or liability and of any resulting income, expenses or changes in equity provides users of financial statements with information that is useful.
D) Even if an item meeting the definition of an asset or liability is not recognized, an entity may need to provide information about that item in the notes.
B) All items that meet the definition of one of the elements of financial statements are recognized.
81
When assessing whether the recognition of an asset or liability can provide a faithful representation of the asset or liability, it is necessary to consider not merely its description and measurement in the statement of financial position, but also (choose the incorrect item)
A) the depiction of resulting income, expenses and changes in equity.
B) whether related assets and liabilities are recognized.
C) presentation and disclosure of information about the asset or liability, and resulting income, expenses or changes in equity.
D) the tangibility of the assets being acquired.
D) the tangibility of the assets being acquired.
82
The recognition of a particular asset or liability and any resulting income, expenses or changes in equity may not always provide relevant information due to
A) measurement uncertainty or other factors.
B) existence uncertainty or measurement uncertainty
C) low probability of an inflow or outflow of economic benefits; or other factors
D) existence uncertainty or low probability of an inflow or outflow of economic benefits.
D) existence uncertainty or low probability of an inflow or outflow of economic benefits.
83
Recognition of a particular asset or liability is appropriate if it provides not only relevant information, but also a faithful representation of that asset or liability and of any resulting income, expenses or changes in equity. Whether a faithful representation can be provided may be affected by
A) measurement uncertainty or other factors.
B) existence uncertainty or measurement uncertainty
C) low probability of an inflow or outflow of economic benefits; or other factors
D) existence uncertainty or low probability of an inflow or outflow of economic benefits.
A) measurement uncertainty or other factors.
84
Which of the following items is incorrect concerning derecogntion?
A) Derecognition, which normally occurs when that item no longer meets the definition of an asset or of a liability, is the removal of all or part of a recognized asset or liability from an entity’s statement of financial position.
B) Transferred component refers to all those assets and liabilities that have expired or have been consumed, collected, fulfilled or transferred.
C) No income or expenses are recognized on the retained component as a result of the derecognition of the transferred component, unless the derecognition results in a change in the measurement requirements applicable to the retained component.
D) An entity’s transfer of assets to another party should be derecognized.
D) An entity’s transfer of assets to another party should be derecognized.
85
What are the two measurement basis under the Conceptual Framework for Financial Reporting (2018)?
A) historical cost and amortized cost
B) historical cost and future value
C) historical cost and current value
D) current value and future value
C) historical cost and current value
86
Which of the following statements about historical cost is incorrect?
A) Historical cost measures provide monetary information about assets, liabilities and related income and expenses, using information derived, at least in part, from the price of the transaction or other event that gave rise to them.
B) Historical cost does not reflect changes in values, except to the extent that those changes relate to impairment of an asset or a liability becoming onerous.
C) One way to apply a historical cost measurement basis to financial assets and financial liabilities is to measure them at amortized cost.
D) Historical cost provide monetary information about assets, liabilities and related income and expenses, using information updated to reflect conditions at the measurement date.
D) Historical cost provide monetary information about assets, liabilities and related income and expenses, using information updated to reflect conditions at the measurement date.
87
All of the following measurement bases under current value category are considered exit values, except
A) fair value
B) current cost
C) value in use
D) fulfillment value
B) current cost
88
Which of the following statements about fair value is incorrect?
A) Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.
B) Fair value reflects entity-specific assumptions rather than assumptions by market participants.
C) Because fair value is not derived, even in part, from the price of the transaction or other event that gave rise to the asset or liability, fair value is not increased by the transaction costs incurred when acquiring the asset and is not decreased by the transaction costs incurred when the liability is incurred or taken on.
D) Fair value does not reflect the transaction costs that would be incurred on the ultimate disposal of the asset or on transferring or settling the liability.
B) Fair value reflects entity-specific assumptions rather than assumptions by market participants.
89
Which of the following statements about value in use and fulfillment value is incorrect?
A) Because value in use and fulfilment value are based on future cash flows, they do not include transaction costs incurred on acquiring an asset or taking on a liability.
B) Value in use and fulfilment value include the present value of any transaction costs an entity expects to incur on the ultimate disposal of the asset or on fulfilling the liability.
C) Value in use and fulfilment value reflect assumptions by market participants rather than entityspecific assumptions.
D) Value in use and fulfilment value cannot be observed directly and are determined using cash-flowbased measurement techniques.
C) Value in use and fulfilment value reflect assumptions by market participants rather than entityspecific assumptions.
90
Which of the following statements about current cost is incorrect?
A) The current cost of an asset is the cost of an equivalent asset at the measurement date, comprising the consideration that would be paid at the measurement date plus the transaction costs that would be incurred at that date.
B) The current cost of a liability is the consideration that would be received for an equivalent liability at the measurement date minus the transaction costs that would be incurred at that date.
C) Current cost, like historical cost, is an entry value: it reflects prices in the market in which the entity would acquire the asset or would incur the liability.
D) Current cost does not reflect conditions at the measurement date.
D) Current cost does not reflect conditions at the measurement date.
91
Effective communication of information in the financial statements requires all of the following, except
A) Classifying information in a manner that groups similar items and separates dissimilar items.
B) Focusing on presentation and disclosure objectives and principles rather than focusing on rules.
C) Disclosing information about an items that is required to be presented in the financial statements.
D) Aggregating information in such a way that it is not obscured either by unnecessary detail or by excessive aggregation.
C) Disclosing information about an items that is required to be presented in the financial statements.
92
Which of the following information about classification is incorrect?
A) Classification is applied to the unit of account selected for an asset or liability.
B) To provide useful information, it is not necessary to classify equity claims separately if those equity claims have different characteristics.
C) Classification is applied to income and expenses resulting from the unit of account selected for an asset or liability; or components of such income and expenses if those components have different characteristics and are identified separately.
D) Offsetting occurs when an entity recognizes and measures both an asset and liability as separate units of account, but groups them into a single net amount in the statement of financial position.
B) To provide useful information, it is not necessary to classify equity claims separately if those equity claims have different characteristics.
93
Which of the following information about aggregation is incorrect?
A) Aggregation is the adding together of assets, liabilities, equity, income or expenses that have shared characteristics and are included in the same classification.
B) Aggregation makes information less useful by summarizing a large volume of detail.
C) Aggregation conceals some of that detail, hence, a balance needs to be found so that relevant information is not obscured either by a large amount of insignificant detail or by excessive aggregation.
D) Different levels of aggregation may be needed in different parts of the financial statements.
B) Aggregation makes information less useful by summarizing a large volume of detail.
94
What are the two capital concepts included in the scope of the Conceptual Framework for Financial Reporting (2018)?
A) borrowed and invested capital
B) financial and physical capital
C) accounting and economic capital
D) monetary and non-monetary capital
B) financial and physical capital
95
Which of the following statements is incorrect concerning the concepts of capital?
A) Under a financial concept of capital, such as invested money or invested purchasing power, capital is synonymous with the net assets or equity of the entity.
B) Under a physical concept of capital, such as operating capability, capital is regarded as the productive capacity of the entity based on, for example, units of output per day.
C) A physical concept of capital is adopted by most entities in preparing their financial statements.
D) A financial concept of capital is adopted by most entities in preparing their financial statements.
C) A physical concept of capital is adopted by most entities in preparing their financial statements.
96
Which of the following statements is incorrect concerning the concepts of capital?
A) The selection of the appropriate concept of capital by an entity should not be based on the needs of the users of its financial statements.
B) A financial concept of capital should be adopted if the users of financial statements are primarily concerned with the maintenance of nominal invested capital or the purchasing power of invested capital.
C) A physical concept of capital should be used if the main concern of users is with the operating capability of the entity.
D) The concept chosen indicates the goal to be attained in determining profit, even though there may be some measurement difficulties in making the concept operational.
A) The selection of the appropriate concept of capital by an entity should not be based on the needs of the users of its financial statements.
97
The following statements are concerned with concepts of capital maintenance and the determination of profit. Which of the following is incorrect?
A) Under financial capital maintenance concept, a profit is earned only if the financial (or money) amount of the net assets at the end of the period exceeds the financial (or money) amount of net assets at the beginning of the period, after excluding any distributions to, and contributions from, owners during the period.
B) Under the physical capital maintenance concept, a profit is earned only if the physical productive capacity (or operating capability) of the entity (or the resources or funds needed to achieve that capacity) at the end of the period exceeds the physical productive capacity at the beginning of the period, after excluding any distributions to, and contributions from, owners during the period.
C) Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.
D) Physical capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.
D) Physical capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.
98
Which of the following statements is incorrect concerning the concepts of capital maintenance?
A) It is concerned with how an entity defines the capital that it seeks to maintain.
B) It provides the linkage between the concepts of capital and the concepts of profit because it provides the point of reference by which profit is measured.
C) It is not a prerequisite for distinguishing between an entity’s return on capital and its return of capital.
D) Only inflows of assets in excess of amounts needed to maintain capital may be regarded as profit and therefore as a return on capital.
C) It is not a prerequisite for distinguishing between an entity’s return on capital and its return of capital.
99
The following statements are concerned with concepts of capital maintenance and the determination of profit. Which of the following is incorrect?
A) The financial capital maintenance concept requires the adoption of the current cost basis of measurement while the physical capital maintenance concept does not require the use of a particular basis of measurement.
B) The principal difference between the two concepts of capital maintenance (physical & financial) is the treatment of the effects of changes in the prices of assets and liabilities of the entity.
C) The selection of the measurement bases and concept of capital maintenance will determine the accounting model
used in the preparation of the financial statements.
D) The Conceptual Framework is applicable to a range of accounting models and provides guidance on preparing and presenting the financial statements constructed under the chosen model.
A) The financial capital maintenance concept requires the adoption of the current cost basis of measurement while the physical capital maintenance concept does not require the use of a particular basis of measurement.
100
Which of the following statements is correct concepts of capital maintenance?
I. Under the concept of financial capital maintenance where capital is defined in terms of nominal monetary units, profit represents the increase in nominal money capital over the period.
II. Under the concept of physical capital maintenance when capital is defined in terms of the physical productive capacity, profit represents the increase in that capital over the period.
A) I only
B) II only
C) both I and II
D) neither I nor II
C) both I and II
101
[#4, HW on standard-setting] Which of the following statements regarding accounting theory is incorrect?
A) Accounting concepts are human-made.
B) Accounting concepts are components of accounting theory.
C) Accounting theory has developed primarily in response to government regulations.
D) Accounting theory can be defined as a coherent set of hypothetical, conceptual and pragmatic principles that form a general frame of reference for a field of inquiry.
C) Accounting theory has developed primarily in response to government regulations.
102
[5] Proper application of accounting principles is most dependent upon the:
A) external audit function.
B) existence of specific guidelines.
C) oversight of regulatory bodies.
D) professional judgement of the accountant.
D) professional judgement of the accountant.
103
[6] Which of the following is not a source of GAAP in the Philippines?
A) Existing practices in the Philippines.
B) Available literature on the topic or subject under study.
C) Pronouncements by Association of CPAs in Public Practice.
D) Statements, recommendations, studies, or standards issued by standard-setting bodies such as the IASB and the FASB.
C) Pronouncements by Association of CPAs in Public Practice.
104
[16] Financial accounting standard-setting:
A) is based solely on research and empirical findings.
B) is a legalistic process based on rules promulgated by governmental agencies.
C) is democratic in the sense that a majority of accountants must agree with a standard before it becomes enforceable.
D) can be described as a social process which reflects political actions of various interested user groups as well as a product of research and logic.
D) can be described as a social process which reflects political actions of various interested user groups as well as a product of research and logic.
105
[20] The IASB, in developoing the IFRS, conducts the following steps (in order):
I. Reviews of new Standards are carried out and, if needed, amendments are proposed and consulted on. The IFRIC may also decide to create an interpretation of the Standard.
II. Reserach is conducted to assess possible accounting problems, develop possible solutions and decide whether standard-setting is required. Public views are usually sought via a Discussion Paper.
III. Building on the research, specific proposals are developed and consulted on publicly via an Exposure Draft. Feedback is debated by the Board before a Standard is finalized or amended.
IV. The Board consults the public on its technical work plan every five years. The work of the IFRIC and post-implementation reviews of Standards may also add topics to the work plan.
IV, II, III, I:
IV. The Board consults the public on its technical work plan every five years...
II. Reserach is conducted to assess possible accounting problems, develop possible solutions and decide whether standard-setting is required...
III. Building on the research, specific proposals are developed and consulted on publicly via an Exposure Draft...
I. Reviews of new Standards are carried out and, if needed, amendments are proposed and consulted on...
106
[21] Which of the following is not a description or a function of the FRSC?
A) Its main function is to establish GAAP in the Phils.
B) It receives financial support principally from the PRC.
C) It is the successor of ASC and the creator of Phil. Interpretations Committee.
D) It assists the Professional Regulatory Board of Accountancy (BoA) in carrying out its power and function to promulgate accounting standards in the Phils.
B) It receives financial support principally from the PRC.
^ change PRC to BOA!
107
[22] What is the proper order of the FRSC due process?
I. Issuing for comment an exposure draft approved by a majority of the FRSC members.
II. Approval of a standard or an interpretation by a majority of the FRSC members.
III. Consideration of pronouncement of IASB.
IV. Consideration of all comments received within the comment period and, when appropriate, preparing a comment letter to the IASB.
V. Formation of a task force, when deemed necessary, to give advice to the FRSC.
III, V, I, IV, and II, as follows:
III. Consideration of pronouncement of IASB.
V. Formation of a task force, when deemed necessary, to give advice to the FRSC.
I. Issuing for comment an exposure draft approved by a majority of the FRSC members.
IV. Consideration of all comments received within the comment period and, when appropriate, preparing a comment letter to the IASB.
II. Approval of a standard or an interpretation by a majority of the FRSC members.
108
[25] The primary purpose of the SEC is to:
A) prevent the trading of speculative securities.
B) ensure that investors have adequate information.
C) enforce GAAP.
D) issue accounting and auditing regulations for publicly-held entities.
B. The primary purpose of the SEC is to ensure that investors have adequate information.
109
Retrospective adjustments and retrospective restatements are not changes in equity but they are adjustments to the opening balance of retained earnings, except when an IFRS requires retrospective adjustment of another component of equity.
True. (source: IAS1, p110)
110
Which of the following statements are false?
I. The amortised cost of a financial asset or financial liability reflects estimates of future cash flows, discounted at a rate determined at initial recognition
II. Focusing on common information needs (to satisfy the needs of as many primary users as possible) prevent the reporting entity from including additional information that is most useful to a particular subset of primary users.
III. When presenting a third financial statement, these must be as at an entity shall present three statements of financial position as at (a) the end of the current period, (b) the end of the preceding period; and (c) the beginning of the preceding period.
IV. If an entity changes the presentation or classification of items in its financial statements, it shall reclassify comparative amounts unless reclassification is impracticable.
II. Focusing on common information needs (to satisfy the needs of as many primary users as possible) prevent the reporting entity from including additional information that is most useful to a particular subset of primary users.
(see: p. 1.8)
111
[T/F]. When an asset is acquired or created, or a liability is incurred or taken on, as a result of an event that is not a transaction on market terms, it may not be possible to identify a cost, or the cost may not provide relevant information about the asset or liability.
True. (p. 6.6, CF). If this is the case, a current value of the asset or liability is used as a deemed cost on initial recognition and that deemed cost is then used as a starting point for subsequent measurement at historical cost.
112
Which of the following statements is false?
A) Like historical cost, current cost provides information about the cost of an asset consumed or about income from the fulfilment of liabilities.
B) Unlike historical cost, current cost reflects prices prevailing at the time of consumption or fulfilment.
C) When price changes are significant, margins based on current cost may be more useful for predicting future margins than margins based on historical cost.
D) splitting changes in current cost carrying amounts between the current cost of consumption and the effect of changes in prices (see paragraph 6.42) may be complex and require arbitrary assumptions. Because of these difficulties, current cost measures may lack verifiability and understandability.
None.
113
[T/F]. Amortised cost is unlikely to provide relevant information about cash flows that depend on factors other than principal and interest.
True. (p6.57, CF).
114
While ____ is an identified feature of an item being measured, ____ is the result of its application to an asset or liability and related income and expenses.
Measurement basis; measure.
115
[T/F]. Estimating consumption and identifying and measuring impairment losses or onerous liabilities can be subjective.
True. (p6.70, CF).
116
[T/F]. In general, if more measurement bases are used in a set of financial statements, the resulting information becomes more complex and, hence, less understandable and the totals or subtotals in the statement of financial position and the statement(s) of financial performance become less informative.
True. (p6.67, CF).
117
Which of the statements is false?
A) The total carrying amount of equity (total equity) is not measured directly. It equals the total of the carrying amounts of all recognised assets less the total of the carrying amounts of all recognised liabilities.
B) Because general purpose financial statements are not designed to show an entity’s value, the total carrying amount of equity will not generally equal the aggregate market value of equity claims on the entity (among others).
C) The total carrying amount of an individual class of equity or component of equity is normally positive, but can be negative in some circumstances.
D) None of the above.
D) None of the above.
118
[T/F]. When an asset or liability is measured at cost, no income or expenses arise at initial recognition, unless income or expenses arise from the derecognition of the transferred asset or liability, or unless the asset is impaired or the liability is onerous.
True. (p6.79, CF).
119
It provides the linkage between the concepts of capital and the concepts of profit because it provides the point of reference by which profit is measured; it is a prerequisite for distinguishing between an entity’s return on capital and its return of capital; only inflows of assets in excess of amounts needed to maintain capital may be regarded as profit and therefore as a return on capital.
The concept of capital maintenance. (p8.4, CF).
120
[T/F]. An entity has a right to obtain economic benefits from itself.
False. (p4.10, CF).
121
[T/F]. In the context of obligations: neither an intention to make a transfer, nor a high likelihood of a transfer, is sufficient reason for concluding that the entity has no practical ability to avoid a transfer.
True. (p4.34, CF).
122
[T/F]. The enactment of legislation is in itself sufficient to give an entity a present obligation.
False. (p4.45, CF).
123
[T/F]. The need for understandability allows for inherently complex info to be omitted on the grounds that it may be too difficult for some users to understand.
False. (LT1)
