True or False

1. Revisions of the Conceptual Framework will automatically lead to changes in accounting

standards. False
2. The objective of general-purpose financial reporting forms the foundation of the
Conceptual Framework. True
3. General purpose financial reports can provide all of the information that existing and
potential investors, lenders and other creditors need. False
4. General purpose financial reports are designed to show the value of a reporting entity.
False
5. To a large extent, financial reports are based on exact depictions rather than estimates,
judgements and models. False
6. Information about a reporting entity’s economic resources and claims helps users to
understand the return that the entity has produced on its economic resources. False
7. Financial information is capable of making a difference in decisions if it has predictive
value, confirmatory value or both. True
8. Financial information has confirmatory value if it can be used as an input to processes
employed by users to predict future outcomes. False
9. Financial information has predictive value if it provides feedback about (confirms or
changes) previous evaluations. False
10. Information that has predictive value often also has confirmatory value. True
11. 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. True
12. In many circumstances, the substance of an economic phenomenon and its legal form
are the same. True
13. If they economic phenomenon and legal form of circumstance are not the same,
providing information only about the legal form would not faithfully represent the
economic phenomenon. True
14. To be a perfectly faithful representation, a depiction would have two characteristics.
False
15. Neutrality is supported by the exercise of prudence. True
16. The exercise of prudence does imply a need for asymmetry, for example, a systematic
need for more persuasive evidence to support the recognition of assets or income than
the recognition of liabilities or expenses. False
17. Faithful representation does not mean accurate in all respects. True
18. The use of reasonable estimates is an essential part of the preparation of financial
information and does not undermine the usefulness of the information if the estimates
are clearly and accurately described and explained. True
19. Information must either be relevant and provide a faithful representation of what it
purports to represent if it is to be useful. False
20. In some cases, a trade-off between the fundamental qualitative characteristics may need
to be made in order to meet the objective of financial reporting, which is to provide useful
information about economic phenomena. True
21. Comparability, verifiability, timeliness and understandability are qualitative
characteristics that enhance the usefulness of information that both is relevant and
provides a faithful representation of what it purports to represent. True
22. Verifiability is the qualitative characteristic that enables users to identify and understand
similarities in, and differences among, items. False
23. Consistency, although related to comparability, is not the same. True
24. Comparability is not uniformity. True
25. Verifiability helps assure users that information faithfully represents the economic
phenomena it purports to represent. True
26. Verification can be direct or indirect. True
27. Direct verification means verifying an amount or other representation through direct
observation. True
28. Timeliness means having information available to decision-makers in time to be capable
of influencing their decisions. True
29. The enhancing qualitative characteristics, either individually or as a group, cannot make
information useful if that information is irrelevant or does not provide a faithful
representation of what it purports to represent. True
30. Applying the enhancing qualitative characteristics is an iterative process that does not
follow a prescribed order. True
31. Benefit is a pervasive constraint on the information that can be provided by financial
reporting. False
32. Reporting financial information that is relevant and faithfully represents what it purports
to represent helps users to make decisions with more confidence. True
33. The Conceptual Framework does not specify whether the statement(s) of financial
performance
comprise(s) a single statement or two statements. True
34. 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. True
35. Financial statements are normally prepared on the assumption that the reporting entity is
a going concern and will continue in operation for the foreseeable future. True
36. Consolidated financial statements are designed to provide information about the parent’s
assets, liabilities, equity, income and expenses, and not about those of its subsidiaries.
True
37. An asset is a present economic resource controlled by the entity as a result of past
events. True
38. An economic resource is a right that has the potential to produce economic benefits.
True
39. 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. True
40. Control links an economic resource to an entity. True
41. 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. True
42. A liability is a present obligation of the entity to transfer an economic resource as a result
of past events. True
43. An obligation is a duty or responsibility that an entity has no practical ability to avoid.
True
44. A present obligation can exist even if a transfer of economic resources cannot be
enforced until some point in the future. True
45. 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. True
46. 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. True
47. Equity is the residual interest in the assets of the entity after deducting all its liabilities.
True
 48. 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. True
49. 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. True
50. 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.
True
51. Only items that meet the definition of an asset, a liability or equity are recognized in the
statement of financial position. True
52. Derecognition is the removal of all or part of a recognized asset or liability from an
entity’s statement of financial position. True
53. 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. True
54. Current value measures provide monetary information about assets, liabilities and
related income and expenses, using information updated to reflect conditions at the
measurement date. True
55. 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.
True
56. Value in use is the present value of the cash, or other economic resources, that an entity
expects to be obliged to transfer as it fulfils a liability. False
57. 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. True
58. A financial concept of capital is adopted by most entities in preparing their financial
statements. True
59. Financial capital maintenance can be measured in either nominal monetary units or units
of constant purchasing power. True
60. Aggregation is the adding together of assets, liabilities, equity, income or expenses that
have shared characteristics and are included in the same classification. True

Multiple Choice

1. To make an assessment like dividends, principal and interest payments, lenders and
other creditors, existing and potential investors need information about:
I. the economic resources of the entity, claims against the entity and changes in
those resources and claims.
II. how efficiently and effectively the entity’s management and governing board
have discharged their responsibilities to use the entity’s economic resources

a. Both I and II
b. I only
c. II only
d. Either I or II

2. The most efficient and effective process for applying the fundamental qualitative
characteristics would usually be:
 I. Identify an economic phenomenon, information about which is capable of being
useful to users of the reporting entity’s financial information.
II. Identify the type of information about that phenomenon that would be most
relevant.
III. Determine whether that information is available and whether it can provide a
faithful representation of the economic phenomenon.

a. I, II, III
b. I, II
c. I, III
d. II and III

3. Determining the appropriate boundary of a reporting entity can be difficult if the reporting
entity:
I. is not a legal entity
II. does not comprise only legal entities linked by a parent-subsidiary relationship.

a. Both I and II
b. I only
c. II only
d. Either I or II

4. The aspects comprising the definition of asset would include:

a. Right
b. Potential to produce economic benefit
c. Control
d. All of the above

5. Rights that correspond to an obligation of another party would include all of the following
except:
a. Rights to receive cash
b. Rights to receive goods and services
c. Rights to exchange economic resources with another party on favorable terms
d. Rights to use intellectual property

6. Statement 1: An entity cannot have a right to obtain economic benefits from itself thus
treasury shares are not treated as economic resource of an entity.
Statement 2: If a reporting entity comprises more than one legal entity, debt instruments
or equity instruments issued by one of those legal entities and held by another of those
legal entities are not economic resources of the reporting entity.
a. True; true
b. False; true
c. False; False
d. True; False

7. For a liability to exist, which of the following must be satisfied:

I. the entity has an obligation
II. the obligation is to transfer an economic resource
III. the obligation is a present obligation that exists as a result of past events

a. I, II, III
 b. I, II
c. I, III
d. II, III

8. Obligations to transfer an economic resource include all of the following except:

a. obligations to exchange economic resources with another party on unfavorable
terms.
b. obligations to deliver goods or provide services.
c. obligations to transfer an economic resource if a specified uncertain future event
occurs.
d. replace that obligation to transfer an economic resource with another obligation by
entering into a new transaction.

9. A present obligation exists as a result of past events only if:

I. the entity has already obtained economic benefits or taken an action
II. the entity will or may have to transfer an economic resource that it would not
otherwise have had to transfer.

a. I, II
b. I only
c. II only
d. Either I or II

10. Possible unit of accounts would include:

a. a group of rights and/or obligations arising from a portfolio of dissimilar items—for
example, a portfolio of assets and liabilities to be disposed of in a single transaction
b. a subgroup of those rights and/or obligations—for example, a subgroup of rights over
an item of property, plant and equipment for which the useful life and pattern of
consumption differ from those of the other rights over that item
c. a group of rights and/or obligations arising from a portfolio of similar items
d. All of the above

11. The recognition of income occurs at the same time as:

I. the initial recognition of an asset, or an increase in the carrying amount of an
asset
II. the derecognition of a liability, or a decrease in the carrying amount of a liability

a. I, II
b. I only
c. II only
d. Either I or II

12. the recognition of expenses occurs at the same time as:

I. the initial recognition of a liability, or an increase in the carrying amount of a
liability
II. the derecognition of an asset, or a decrease in the carrying amount of an asset.

a. Both I and II
b. I only
c. II only
d. Either I or II
13. The historical cost of an asset is updated over time to depict, if applicable:
a. the consumption of part or all of the economic resource that constitutes the asset
(depreciation or amortization)
b. payments received that extinguish part or all of the asset
c. accrual of interest to reflect any financing component of the asset
d. All of the above

14. Current value measurement bases include:

I. Fair value
II. Value in use
III. Current cost

a. I, II, III
b. I, II
c. III, II
d. I, III

15. A claim on the residual interest in the assets of the entity after deducting all its liabilities.
a. Assets
b. Liabilities
c. Equity
d. Equity claim

16. 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 statements
b. General purpose financial reports
c. Annual financial statement
d. Annual financial report

17. Uncertainty that arises when monetary amounts in financial reports cannot be observed
directly and must instead be estimated.
a. Measurement
b. Measurement uncertainty
c. Measurement basis
d. Measure

18. 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.
a. Outcome uncertainty
b. Offsetting
c. Prudence
d. Materiality and aggregation

19. 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. Executory contracts
 b. Unit of account
c. Useful financial information
d. Users
20. Financial statements of a reporting entity that comprises two or more entities that are not
all linked by a parent-subsidiary relationship.
a. Consolidated financial statements
b. Combined financial statements
c. Parent financial statements
d. Joint venture relationships

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