Question 1

Decision Usefulness is the underlying theme of the conceptual framework.

Accepted Answer

The overarching objective of the Conceptual Framework is to provide information that is useful to investors, creditors, and other financial statement users in making their resource allocation decisions. This is commonly referred to as decision usefulness. Therefore, decision usefulness is indeed the underlying theme of the Conceptual Framework.

Question 2

The conceptual framework for accounting has been discovered through empirical research.

Accepted Answer

The conceptual framework for accounting has been developed through logical reasoning and analysis, rather than empirical research. It is based on principles and concepts that are universally applicable to accounting practices.

Question 3

A conceptual framework is a coherent system of interrelated objectives and fundamentals that can lead to consistent standards.

Accepted Answer

This is the definition of a conceptual framework provided by the International Accounting Standards Board (IASB). It is used in various fields such as accounting, economics, and social sciences to provide guidance and structure for research and analysis.

Question 4

Although the FASB intends to develop a conceptual framework, no Statements of Financial Accounting Concepts have been issued to date.

Accepted Answer

The statement is incorrect. The FASB has issued several Statements of Financial Accounting Concepts.

Question 5

The historical cost principle would be of limited usefulness if not for the going concern assumption.

Accepted Answer

The historical cost principle is based on the assumption that the business will continue to operate (going concern assumption). Without this assumption, the historical cost of assets and liabilities may not reflect their true economic value. For example, if a company is expected to go bankrupt in the near future, the historical cost of its assets may not accurately represent the amount they can be sold for in the market. Therefore, the going concern assumption is necessary for the historical cost principle to be useful.

Question 6

Timeliness and neutrality are two ingredients of relevance.

Accepted Answer

Relevance in information or data typically refers to how pertinent, connected, or applicable something is to a matter at hand. Timeliness and neutrality are not ingredients of relevance; rather, relevance is determined by the usefulness and applicability of the information to a specific situation or question. Timeliness could affect relevance, but neutrality is more about objectivity and bias, not relevance directly.

Question 7

Companies consider only quantitative factors in determining whether an item is material.

Accepted Answer

Companies consider both quantitative and qualitative factors in determining whether an item is material. Quantitative factors include the amount or size of the item, while qualitative factors include the nature of the item, its impact on the company's financial statements, and the expectations of users of the financial statements.

Question 8

Revenues, gains, and distributions to owners all increase equity.

Accepted Answer

Revenues and gains increase equity, but distributions to owners decrease equity.

Question 9

Supplementary information may include details or amounts that present a different perspective from that adopted in the financial statements.

Accepted Answer

Supplementary information provides additional details that may not be included in the financial statements themselves, and this information may help to provide a different perspective on the financial performance and position of an organization. Therefore, it is true that supplementary information can present a different perspective than that found in the financial statements.

Question 10

Verifiability and predictive value are two ingredients of reliability.

Accepted Answer

Verifiability and predictive value are not ingredients of reliability; they are components of relevance and faithful representation in financial reporting. Reliability involves faithful representation, verifiability, neutrality, and completeness.

Question 11

Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

Accepted Answer

Comprehensive income includes all changes in equity except for investments by owners (which increase equity) and distributions to owners (which decrease equity).

Question 12

Conservatism in accounting means the accountant should attempt to understate assets and income when possible.

Accepted Answer

Conservatism in accounting means the accountant should attempt to overstate assets and income when possible.

Question 13

The economic entity assumption means that economic activity can be identified with a particular legal entity.

Accepted Answer

The answer of The economic entity assumption means that economic...

Question 14

Relevance and reliability are the two primary qualities that make accounting information useful for decision making.

Accepted Answer

Relevance means that the information is important and useful for making decisions, while reliability means that it is accurate and can be trusted. These two qualities are essential for accounting information to be useful for decision making.

Question 15

The first level of the conceptual framework identifies the recognition and measurement concepts used in establishing accounting standards.

Accepted Answer

The first level of the conceptual framework identifies the objective of financial reporting, not recognition and measurement concepts.

Question 16

The IASB has issued a conceptual framework that is broadly consistent with that of the United States.

Accepted Answer

The IASB has indeed issued a conceptual framework that is broadly consistent with that of the United States.

Question 17

Users of financial statements are assumed to have no knowledge of business and financial accounting matters by financial statement preparers.

Accepted Answer

Financial statement preparers assume that users have basic knowledge of business and financial accounting matters, as they are intended to provide information for decision-making by investors, creditors, and other stakeholders. However, some users may have more expertise in these areas than others, and financial statements may need to be presented in a way that is easily understandable by a broad range of users.

Question 18

The idea of consistency does not mean that companies cannot switch from one accounting method to another.

Accepted Answer

Consistency refers to using the same accounting methods and procedures from one accounting period to the next, but companies are allowed to switch methods if they have a valid reason and disclose the change in their financial statements.

Question 19

The matching principle states that debits must equal credits in each transaction.

Accepted Answer

The matching principle is an accounting concept that dictates expenses should be recorded in the same period as the revenues they help to generate, not about debits equaling credits.

Question 20

Revenues are realizable when assets received or held are readily convertible into cash or claims to cash.

Accepted Answer

This is the definition of when revenues can be considered realizable according to generally accepted accounting principles (GAAP).

Quiz 2: Conceptual Framework Underlying Financial Accounting