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INTERMEDIATE ACCOUNTING 1-CHAPTER 2 EXAM QUESTIONS WITH COMPLETE ANSWERS
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INTERMEDIATE ACCOUNTING 1-CHAPTER 2 EXAM QUESTIONS WITH COMPLETE ANSWERS
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INTERMEDIATE ACCOUNTING 1-CHAPTER 2 EXAM QUESTIONS WITH
COMPLETE ANSWERS
The Need for a Conceptual Framework - Answer--To develop a coherent set of
standards and rules.
-To solve new and emerging practical problems.
A conceptual framework underlying financial accounting is important because it can
lead to consistent standards and it prescribes the nature, function, and limits of financial
accounting and financial statements. - Answer-True
Overview of the Conceptual Framework - Answer-First Level = Basic Objectives
Second Level = Qualitative Characteristics and Elements
Third Level = Recognition, Measurement, and Disclosure Concepts.
Objective of financial reporting: - Answer-To provide financial information about the
reporting entity that is useful to present and potential equity investors, lenders, and
other creditors in making decisions about providing resources to the entity.
Qualitative characteristics - Answer-1. Fundamental Qualities
2. Enhancing qualities
Fundamental Qualities-Qualitative characteristics - Answer-1. Relevance
2. Faithful representation
Relevance-Fundamental Qualities-Qualitative Characteristics - Answer--To be relevant,
accounting information must be capable of making a difference in a decision.
-Financial information has predictive value if it has value as an input to predictive
processes used by investors to form their own expectations about the future.
-Relevant information also helps users confirm or correct prior expectations.
-Information is material if omitting it or misstating it could influence decisions that users
make on the basis of the reported financial information.
Faithful Representation-Fundamental Qualities-Qualitative Characteristics - Answer--
Faithful representation means that the numbers and descriptions match what really
existed or happened.
-Completeness means that all the information that is necessary for faithful
representation is provided.
-Neutrality means that a company cannot select information to favor one set of
interested parties over another.
-An information item that is free from error will be a more accurate (faithful)
representation of a financial item.
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