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1 Copyright © 2016 Pearson Education, Inc.Intermediate Accounting (Gordon/Raedy/Sannella) Chapter 2 Financial Reporting Theory
2.1 Overview of the Conceptual Framework
1) The FASB has taken the conceptual framework to a higher level than the IASB.
Answer: FALSE
Diff: 2
Objective: 2.1
IFRS/GAAP: GAAP
AACSB: Application of knowledge
2) U.S. GAAP and IFRS set forth the same objective of financial reporting in their respective conceptual frameworks.
Answer: TRUE
Diff: 2
Objective: 2.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge
3) The conceptual framework indicates that the primary users of financial information are the investors, lenders, and managers.
Answer: FALSE
Diff: 2
Objective: 2.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge
4) The conceptual framework indicates that the primary users of financial information are the investors, lenders, and other creditors.
Answer: TRUE
Diff: 2
Objective: 2.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge
5) Publicly traded U.S. companies are required to comply with IFRS.
Answer: FALSE
Diff: 2
Objective: 2.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge
6) The FASB's decisions are often based on an investor's need to form an opinion about a company's future cash flows.
Answer: TRUE
Diff: 2
Objective: 2.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge
Intermediate Accounting 1st Edition Gordon Test Bank Visit TestBankDeal.com to get complete for all chapters
2 Copyright © 2016 Pearson Education, Inc.7) What is the primary challenge for financial reporting?
- to stay relevant to the needs of investors
- to stay relevant to the needs of lenders and creditors
- to stay relevant to the needs of other financial statement users
- both A & B
- all of the above
Answer: D
Diff: 2
Objective: 2.1
IFRS/GAAP: GAAP
AACSB: Application of knowledge
8) The conceptual framework assists with ________.
- the development of a set of standards which provide absolute answers for accounting questions
- the development of a set of standards for auditors to use when looking for material misstatements or
- the development of a set of standards which ensure that financial reports meet the needs of investors
- All of the above
fraud
and creditors
Answer: C
Diff: 2
Objective: 2.1
IFRS/GAAP: GAAP
AACSB: Application of knowledge
9) Which of the following types of information is not a focus of the primary objective of financial reporting?
- information that helps a banker decide to provide a loan
- information that helps a manager assess the efficiency and effectiveness of operations
- information that helps a supplier evaluate amount and timing of cash flows of its customers
- information that helps an investor form an opinion about a company's future cash flows
Answer: D
Diff: 2
Objective: 2.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge
10) The primary purpose of financial reporting is to provide information that is useful to a company's
________.
- suppliers
- managers
- regulators
- employees
Answer: A
Diff: 2
Objective: 2.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge
3 Copyright © 2016 Pearson Education, Inc.11) Which of the following is not considered to be a primary user of financial information for which financial reporting standards are designed?
- supplier
- investor
- regulator
- lender
Answer: C
Diff: 2
Objective: 2.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge
12) Who are the primary users of financial information? Discuss how FASB and IASB take them into account.Answer: Primary users are investors, lenders, and other creditors that cannot demand information from the entity. When making decisions regarding the conceptual frameworks, the boards consider the needs of these groups to have access to relevant information when assessing the financial health of a company and in forming opinions about the state of the company.
Diff: 2
Objective: 2.1
IFRS/GAAP: GAAP
AACSB: Analytical thinking
13) Ronaldo Woods is a student getting his degree in business administration. He does not like his accounting class very much, and doesn't understand why he needs to study accounting — stating "I'm never going to be an accountant — why do I need to know this?" Explain to Ronaldo why it is important for business students to learn about accounting and give examples.Answer: Answers will vary — should include discussion on accountability and transparency. Other points could be the need to talk intelligently with their accountant, to know which gauges to watch (and be able to understand their meaning and consequence), and be able to identify economic events that could impact the company. (If open book exam, they could reference the interview with Paul Pacter from Section 2.2.)
Diff: 2
Objective: 2.1
IFRS/GAAP: GAAP
AACSB: Analytical thinking
4 Copyright © 2016 Pearson Education, Inc.
2.2 The Objective of Financial Reporting
1) Currently the FASB and IASB have two separate conceptual frameworks which are partially converged.
Answer: TRUE
Diff: 1
Objective: 2.2
IFRS/GAAP: GAAP
AACSB: Application of knowledge
2) A purpose of the conceptual framework is to override accounting standards.
Answer: FALSE
Diff: 1
Objective: 2.2
IFRS/GAAP: GAAP
AACSB: Application of knowledge
3) The conceptual framework defines the objective of financial reporting as providing financial information that is useful in making decisions about resource allocation.
Answer: TRUE
Diff: 1
Objective: 2.2
IFRS/GAAP: GAAP
AACSB: Application of knowledge
4) A key relationship among the conceptual framework components is the direct effect of financial reporting standards on the elements of the financial statement.
Answer: FALSE
Diff: 1
Objective: 2.2
IFRS/GAAP: GAAP
AACSB: Application of knowledge
5) A key relationship among the conceptual framework components is the impact the objective of financial reporting has on the qualitative characteristics that are considered to make accounting information useful.
Answer: TRUE
Diff: 1
Objective: 2.2
IFRS/GAAP: GAAP
AACSB: Application of knowledge
6) A purpose of IASB's conceptual framework is to assist preparers, auditors, and users of financial statements.
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