ch02.doc.pdf

 CHAPTER 2 CONCEPTUAL FRAMEWORK UNDERLYING FINANCIAL ACCOUNTING CHAPTER LEARNING OBJECTIVES 1. Descri Describe be the usefu usefulnes lness s of a concept conceptual ual frame framewor work. k. 2. Describe Describe efforts efforts to to constr construct uct a conceptu conceptual al framew framework. ork. 3. Unders Understan tand d the object objective ive of fina financi ncial al report reporting ing.. 4. Identif Identif the the !ualitativ !ualitative e character characteristic istics s of accoun accounting ting inform information. ation. ". Define Define the the basic basic elements elements of financial financial statements statements.. #. Descri Describe be the basi basic c assump assumptio tions ns of accou accounti nting. ng. $. %&plain %&plain the application application of the the basic basic princip principles les of accounting. accounting. '. Describe Describe the impact impact that constr constraints aints have have on reportin reporting g accounting accounting information. information.

2*2

Test Bank !" Inte"#e$%ate A&&!'nt%n() IFRS E$%t%!n

TRUE*FALSE+C!n&e,t'a1. (he conceptual framework for accounting has been discovered through through empirical research. 2. ) conceptual conceptual framework framework is a coherent coherent sstem sstem of interrelated interrelated objectives objectives and fundamentals fundamentals that can lead to consistent standards. 3. (he Internationa Internationall )ccounting )ccounting *tandards *tandards +oard ,I)*+- uses a conceptual conceptual framework framework based on individual concepts developed b each member of the standardsetting bod. 4. ) soundl developed developed conceptual conceptual framework framework enables the International International )ccounting )ccounting *tandards *tandards +oard ,I)*+- to issue more useful and consistent pronouncements over time. ". ) soundl developed developed conceptual conceptual framework framework enables the International International )ccounting )ccounting *tandards *tandards +oard ,I)*+- to !uickl solve new and emerging practical problems b referencing basic theor. #. (he I)*+ has issued issued a concep conceptual tual framew framework ork that is broadl broadl consis consisten tentt with with that that of the United *tates. $. (he International International )ccounting )ccounting *tandards *tandards +oard/s ,I)*+/s,I)*+/s- 0onceptual 0onceptual ramework ramework includes supplementar information. '. (he International International )ccounting )ccounting *tandards *tandards +oard/s ,I)*+/s,I)*+/s- 0onceptual 0onceptual ramework ramework includes the elements of financial statements. . (he 2nd level of the I)*+/s conceptual framework provides the !ualitative characteristics that make accounting information useful and the elements of financial statements. 1. ne of the challenges challenges in developin developing g a common conceptual conceptual framew framework ork will be to agree on how the framework should be organi5ed since the )*+ and I)*+ conceptual frameworks are organi5ed in ver different was. 11. (he first level of the conceptu conceptual al framew framework ork identifie identifies s the recogniti recognition on and measurem measurement ent concepts used in establishing accounting standards. 12. Decision Decision usefulness usefulness is the underling underling theme of the conceptual conceptual framewor framework. k. 13. Users Users of financial statem statements ents are assumed assumed to have no knowledge knowledge of business business and financial accounting matters b financial statement preparers. 14. (he founda foundatio tion n of the Intern Internati ationa onall )ccount )ccounting ing *tanda *tandards rds +oard/ +oard/s s ,I)*+/ ,I)*+/ss- 0oncep 0onceptual tual ramew ramework ork is found found on the third level level of the ramew ramework ork and includ includes es assump assumptio tions6 ns6 principles6 and constraints. 1". 1". )n impl implic icit it assu assump mpti tion on of the the Inte Intern rnat ation ional al )cco )ccount untin ing g *tan *tandar dards ds +oar +oard/ d/s s ,I)* ,I)*+/ +/ss0onc 0oncep eptu tual al ram ramew ewor ork k is that that user users s need need to be e&pe e&pert rts s in busi busine ness ss and and fina financ ncial ial accounting matters to understand the information contained in financial statements. 1#. 7eleva 7elevance nce and reliabi reliabilit lit  are the two primar primar  !ualiti !ualities es that that make make accoun accountin ting g inform informati ation on useful for decision making.

0onceptual ramework Underling inancial )ccounting

2*.

1$. (he idea idea of consis consisten tenc c does does n!t mean that companies cannot switch from one accounting method to another. 1'. (imeliness (imeliness and neutrali neutralit t are two ingredient ingredients s of relevance. relevance. 1. 8erifiabili 8erifiabilit t and predictive predictive value are two ingredients ingredients of reliabilit reliabilit. . 2. (he second level level of the Internation International al )ccounting )ccounting *tandards *tandards +oard/s ,I)*+/s,I)*+/s- 0onceptual 0onceptual ram ramew ewor ork k serv serves es as a bridg bridge e betw betwee een n the the 9wh 9wh:: of acco accoun unti ting ng and and the the 9how: 9how: of accounting. 21. 21. In the the Inte Intern rnati ationa onall )cco )ccoun unti ting ng *tand *tandar ards ds +oar +oard/ d/s s ,I)* ,I)*+/ +/ss- 0onc 0oncep eptu tual al ram ramew ewor ork6 k6 !ualitative characteristics are considered either relevant or prudent. 22. 22. In the the Inte Intern rnati ationa onall )cco )ccoun unti ting ng *tand *tandar ards ds +oar +oard/ d/s s ,I)* ,I)*+/ +/ss- 0onc 0oncep eptu tual al ram ramew ewor ork6 k6 !ualit !ualitati ative ve charac character terist istics ics distin distinguis guish h better better inform informati ation on from from inferio inferiorr inform informati ation on for decisionmaking purposes. 23. In the Intern Internati ational onal )ccount )ccounting ing *tanda *tandards rds +oard/s +oard/s ,I)*+/ ,I)*+/ss- 0oncep 0onceptua tuall ramew ramework ork66 an enhancing !ualitative characteristic is predictive value. 24. In the Intern Internati ational onal )ccount )ccounting ing *tanda *tandards rds +oard/s +oard/s ,I)*+/ ,I)*+/ss- 0oncep 0onceptua tuall ramew ramework ork66 an ingredient of a fundamental !ualitative characteristic is understandabilit. 2". (o be a faithf faithful ul repres represent entati ation on as descri described bed b the Intern Internati ationa onall )ccoun )ccountin ting g *tandar *tandards ds +oard/s ,I)*+/s- 0onceptual ramework6 information must be confirmator. 2#. )n enhanc enhancing ing !ualit !ualit as descri described bed b the Internat Internationa ionall )ccount )ccounting ing *tanda *tandards rds +oard/s +oard/s ,I)*+/s- 0onceptual ramework is comparabilit. 2$. ;oon6 Inc. Inc. applies different different accounting accounting treatments treatments to similar similar events from period period to period. ;oon6 Inc. is violating verifiabilit verifiabilit as described described b the International International )ccounting *tandards *tandards +oard/s ,I)*+/s- 0onceptual ramework. 2'. (he Internation International al )ccounting )ccounting *tandards +oard/s +oard/s ,I)*+- definition definition of retained retained earnings is 9the residual interest in the a ssets of the entit after deducting all its liabilities.: 2. (he histor historica icall cost cost principl principle e would would be of limited limited usefulne usefulness ss if n!t  for the going concern assumption. 3. (he economic economic entit entit assump assumption tion means that economic economic activi activit t can be identi identifie fied d with with a particular legal entit. 31. 31. ;ate ;ateri riali alit t is one one of the the basi basic c assu assump mpti tions ons of acco accoun unti ting ng used used b the the Inte Intern rnat ation ional al )ccounting *tandards +oard ,I)*+-. 32. 32.