UNIVERSITY OF SANTO TOMAS

UST - ALFREDO M. VELAYO COLLEGE OF ACCOUNTANCY

SECOND TERM, ACADEMIC YEAR 2024-2025

CA5106- CONCEPTUAL FRAMEWORK &

ACCOUNTING STANDARDS

Module 1 and 2- The Needs for Financial Reporting and

Conceptual Framework

Student name:__________ -RVC-

MULTIPLE CHOICE - Choose the one alternative that best completes the
statement or answers the question.
1) External decision makers would not look primarily to financial accounting
information to assist them in making decisions on ______.
A) granting credit
B) capital budgeting
C) selecting shares
D) mergers and acquisitions

2) Which of the following groups is not among the external users for whom financial
statements are prepared?
A) customers
B) suppliers
C) employees
D) Customers, suppliers, and employees are all external users of financial
statements.

3) Which of the following does not apply to secondary markets?

A) Transactions are important to the efficient allocation of resources in our
economy.
B) New resources are provided when shares are sold by the corporation to the
initial owners.
C) Transactions help to establish market prices for additional shares that may be
issued in the future.
D) Many investors might be unwilling to provide resources to corporations if
there is no available mechanism for the future sale of their shares and bonds
to others.

4) Which of the following is not true about net operating cash flow?
A) It is the difference between cash receipts and cash disbursements from
providing goods and services.
B) It is a measure used in accrual accounting and is recognized as the best
predictor of future operating cash flows.
C) Over short periods, it may not be indicative of long-run cash-generating
ability.
D) It is easy to understand and all information required to measure it is factual.

1
5) Which of the following is not a potential benefit of accrual accounting, compared to
cash-basis accounting?
A) timeliness
B) better reflecting economic activity
C) periodicity
D) better matching of revenues and expenses

6) The term "IFRS" usually refers to the following types of accounting standards:
______.
A) Conceptual Framework and International Financial Reporting Standards
B) interpretations issued by the IFRS Interpretations Committee
C) International Accounting Standards
D) all of these

7) The IASB's standard setting process includes, in the correct order, ______.
A) exposure draft, research, discussion paper, standards
B) research, exposure draft, discussion paper, standards
C) research, discussion paper, exposure draft, standards
D) discussion paper, research, exposure draft, standards

8) Which IASB organization enforces the use of IFRS?

A) the International Organization of Securities Commissions
B) the Securities and Exchange Commission
C) the Monitoring Board
D) none of these

9) Accounting standard setting has been characterized as ______.

A) a political process
B) using the scientific method
C) pure deductive reasoning
D) pure inductive reasoning

10) The most recent example of the political process at work in IASB standard setting is
the heated debate that occurred on the issue of ______.
A) pension plan accounting
B) accounting for share-based compensation
C) accounting for business combinations
D) fair value accounting for financial assets and liabilities

11) Independent auditors express an opinion on the ______.

A) fairness of financial statements
B) accuracy of financial statements
C) soundness of a company’s future
D) quality of a company’s management

2
12) The possibility that the capital markets' focus on periodic profits may tempt a
company's management to bend or even break accounting rules to inflate reported
net income is an example of ______.
A) an ethical dilemma
B) an accounting theory issue
C) a technical accounting issue
D) an auditor’s responsibility to inform higher authorities

13) The IASB's conceptual framework ______.

A) emphasizes the overarching concept of the financial statements providing a
"true and fair representation" of the company
B) is not designed to provide guidance to standard setters, but rather only to
practitioners
C) is not designed to provide guidance to practitioners, but rather only to
standard setters
D) specifies a set of rules that determine what constitutes a true IFRS standard

14) The IASB's conceptual framework's qualitative characteristics of accounting

information include ______.
A) presentation and disclosure
B) relevance
C) going concern
D) historical cost

15) The conceptual framework's qualitative characteristic of faithful representation

includes ______.
A) predictive value
B) neutrality
C) confirmatory value
D) timeliness

16) Recognizing expected losses immediately, but deferring expected gains, is an

example of ______.
A) materiality
B) conservatism
C) cost-effectiveness
D) timeliness

17) Primecoat Corporation could disseminate its annual financial statements two days
earlier if it shifted substantial human resources from other operations to the annual
report project. Management decided the value of the earlier report was not worth the
added commitment of resources. The concept demonstrated is ______.
A) timeliness
B) materiality
C) relevance
D) cost-effectiveness

3
18) Four different competent accountants independently agree on the amount and
method of reporting an economic event. The concept demonstrated is ______.
A) reliability
B) comparability
C) completeness
D) verifiability

19) Gains are ______.

A) inflows from selling a product or service to a customer
B) increases in equity resulting from transfers of assets to the company from
owners
C) increases in equity from peripheral transactions of an entity
D) none of these

20) Elements of financial statements do not include ______.

A) monetary unit
B) investments by owners
C) comprehensive income
D) losses

21) Change in equity from nonowner sources is ______.

A) comprehensive income
B) revenues
C) expenses
D) gains and losses

22)The IASB's conceptual framework recognizes which one of the following as an

assumption?
A) periodicity assumption
B) monetary unit assumption
C) going concern assumption
D) economic entity assumption

23)If a company has declared bankruptcy, its financial statements likely violate
______.
A) the fair value measurement approach
B) the present value measurement approach
C) the stable monetary unit assumption
D) the going concern assumption

24)An important argument in support of historical cost information is ______.

A) relevance
B) predictive quality for future cash flows
C) materiality
D) verifiability

4
25) Which of the following is not an identified valuation technique in IFRS regarding
fair value measurement?
A) cost approach
B) market approach
C) cost-benefit approach
D) income approach

26)Disclosure notes to a company's financial statements ______.

A) are relatively unimportant facts that don't belong in the basic financial
statements
B) document the source of financial statement facts, like literary footnotes
C) are an integral part of a company's financial statements
D) are irrelevant facts that are immaterial in amount

27) The asset/liability approach emphasizes ______.

A) whether amounts on the statement of financial position meet the definitions
of assets and liabilities
B) a close relation between the statement of financial position and the statement
of cash flows
C) the distinction between net assets and gross assets
D) all of these

28) External decision makers would not look primarily to financial accounting
information to assist them in making decisions on ______.
A) granting credit
B) capital budgeting
C) selecting shares
D) mergers and acquisitions

29)Which of the following groups is not among the external users for whom financial
statements are prepared?
A) customers
B) suppliers
C) employees
D) Customers, suppliers, and employees are all external users of financial
statements.

30) Which of the following does not apply to secondary markets?

A) Transactions are important to the efficient allocation of resources in our
economy.
B) New resources are provided when shares are sold by the corporation to the
initial owners.
C) Transactions help to establish market prices for additional shares that may be
issued in the future.
D) Many investors might be unwilling to provide resources to corporations if
there is no available mechanism for the future sale of their shares and bonds
to others.

5
31) Which of the following is not true about net operating cash flow?
A) It is the difference between cash receipts and cash disbursements from
providing goods and services.
B) It is a measure used in accrual accounting and is recognized as the best
predictor of future operating cash flows.
C) Over short periods, it may not be indicative of long-run cash-generating
ability.
D) It is easy to understand and all information required to measure it is factual.

32)Which of the following is not a potential benefit of accrual accounting, compared to

cash-basis accounting?
A) timeliness
B) better reflecting economic activity
C) periodicity
D) better matching of revenues and expenses

33)The term "IFRS" usually refers to the following types of accounting standards:
______.
A) Conceptual Framework and International Financial Reporting Standards
B) interpretations issued by the IFRS Interpretations Committee
C) International Accounting Standards
D) all of these

34)The IASB's standard setting process includes, in the correct order, ______.
A) exposure draft, research, discussion paper, standards
B) research, exposure draft, discussion paper, standards
C) research, discussion paper, exposure draft, standards
D) discussion paper, research, exposure draft, standards

35) Which IASB organization enforces the use of IFRS?

A) the International Organization of Securities Commissions
B) the Securities and Exchange Commission
C) the Monitoring Board
D) none of these

36)Accounting standard setting has been characterized as ______.

A) a political process
B) using the scientific method
C) pure deductive reasoning
D) pure inductive reasoning

37) The most recent example of the political process at work in IASB standard setting is
the heated debate that occurred on the issue of ______.
A) pension plan accounting
B) accounting for share-based compensation
C) accounting for business combinations
D) fair value accounting for financial assets and liabilities

6
38) Independent auditors express an opinion on the ______.
A) fairness of financial statements
B) accuracy of financial statements
C) soundness of a company’s future
D) quality of a company’s management

39)The possibility that the capital markets' focus on periodic profits may tempt a
company's management to bend or even break accounting rules to inflate reported
net income is an example of ______.
A) an ethical dilemma
B) an accounting theory issue
C) a technical accounting issue
D) an auditor’s responsibility to inform higher authorities

40) The IASB's conceptual framework ______.

A) emphasizes the overarching concept of the financial statements providing a
"true and fair representation" of the company
B) is not designed to provide guidance to standard setters, but rather only to
practitioners
C) is not designed to provide guidance to practitioners, but rather only to
standard setters
D) specifies a set of rules that determine what constitutes a true IFRS standard

41) The IASB's conceptual framework's qualitative characteristics of accounting

information include ______.
A) presentation and disclosure
B) relevance
C) going concern
D) historical cost

42)The conceptual framework's qualitative characteristic of faithful representation

includes ______.
A) predictive value
B) neutrality
C) confirmatory value
D) timeliness

43)Recognizing expected losses immediately, but deferring expected gains, is an

example of ______.
A) materiality
B) conservatism
C) cost-effectiveness
D) timeliness

7
44) Primecoat Corporation could disseminate its annual financial statements two
days earlier if it shifted substantial human resources from other operations to the
annual report project. Management decided the value of the earlier report was not
worth the added commitment of resources. The concept demonstrated is ______.
A) timeliness
B) materiality
C) relevance
D) cost-effectiveness

45)Four different competent accountants independently agree on the amount and

method of reporting an economic event. The concept demonstrated is ______.
A) reliability
B) comparability
C) completeness
D) verifiability

46) Gains are ______.

A) inflows from selling a product or service to a customer
B) increases in equity resulting from transfers of assets to the company from
owners
C) increases in equity from peripheral transactions of an entity
D) none of these

47) Elements of financial statements do not include ______.

A) monetary unit
B) investments by owners
C) comprehensive income
D) losses

48) Change in equity from nonowner sources is ______.

A) comprehensive income
B) revenues
C) expenses
D) gains and losses

49) The IASB's conceptual framework recognizes which one of the following as an
assumption?
A) periodicity assumption
B) monetary unit assumption
C) going concern assumption
D) economic entity assumption

50) If a company has declared bankruptcy, its financial statements likely violate
______.
A) the fair value measurement approach
B) the present value measurement approach
C) the stable monetary unit assumption
D) the going concern assumption

8
51) Statement 1- The PFRSs set out the recognition, measurement, presentation, and
disclosure requirements for transactions and events required in special-purpose
financial statements.

Statement 2- The PFRSs can set out requirements for transactions and events that
arise only in specific industries.
a. Both statements are false c. Both statements are true
b. True, false d. False, true

52) In September 2022, the Professional Regulatory Board of Accountancy approved the
renaming of the Financial Reporting Standards Council (FRSC) to the Financial and
Sustainability Reporting Standards Council (FSRSC) under the Implementing Rules and
Regulations of the Accountancy Act of 2004. Which of the following is true about FSRSC?
a. FSRSC members are appointed by PICPA presidents
b. all of these are a possible answer
c. FSRSC created the Philippine Sustainability Reporting Committee (PSRC)
d. FSRSC is composed of at least 17 members

53) International financial reporting standards are currently established by the:

a. IASC. c. IASB.
b. PCAOB. d. FASB.

54)Mr. ABC was recently hired as an accounting analyst and asked to monitor the
monthly electric billings to prepare the necessary adjusting entries at the end of
every month. Which branch of accounting is Mr. ABC engaged in providing?
a. financial accounting c. cost accounting
b. auditing d. management accounting

55) Which of the following is an accredited professional organization of the Philippine

Institute of Certified Public Accountants represented in the FRSC?
a. Government Association of CPAs
b. Accredited CPAs in Academe
c. Accredited CPAs in Commerce and Industry
d. Accredited CPAs in Public Practice

56)Which of the following people outside the company do not demand financial
statement information as a key input?
a. Suppliers and Lenders.
b. Government and Regulatory Agencies
c. Competitors.
d. Customers.

57) What is the branch of accounting that serves the information of creditors and
investors?
a. cost accounting c. management accounting
b. financial accounting d. auditing

58) What is the branch of accounting that makes financial information about an entity
accessible to internal users?
a. management accounting c. financial accounting
b. cost accounting d. government accounting

59)In 1981, the Philippine Institute of Public Accountants (PICPA) formalized the
country's standard-setting process by organizing the ASC or the Accounting
9
 Standards Council. Which of the following are represented in the Accounting
Standard Council?
a. National Association of CPA in Education (NACPAE)
b. Department of Finance
c. Commission on Audit
d. Bureau of Internal Revenue

60) Mr. ABC was recently hired as a corporate accountant and is tasked to prepare
the following special purpose financial reports: annual budget, capital budget, and
actual financial statements and variance analysis. Mr. ABC is engaged in providing
which branch of accounting?
a. financial accounting c. cost accounting
b. advanced accounting d. management accounting

61) IFRS frequently:

a. follow a more generalized overview approach than do U.S. GAAP
counterpart standards.
b. are automatically approved for any foreign-listed company as soon as a new
standard is issued.
c. allow firms less latitude when compared to U.S. GAAP.
d. permit only one accounting treatment for similar business transactions and
events to promote comparability.

62)Ms. ABC, a recent UST- AMV College of Accountancy graduate, was hired as a
bookkeeper in XYZ Trading located in Sampaloc Manila; which of the following may
be included in her responsibilities?
a. analyzing billings from Meralco and computation of average electricity
charges
b. computation of inventory cost
c. preparation of monthly actual vs. plan financial statement
d. research and analysis related to capital project

63)Which of the following is an accurate statement related to the demand for financial
reporting?
a. Comprehensive financial data is demanded when there is a broad base of
internal users.
b. Economically realistic reporting standards are low when there are
numerous essential capital providers.
c. Cross-country differences have no impact on capital funding opportunities
and financial reporting practices.
d. External investors who provide capital do not demand a reporting system
that accurately depicts a company's past economic performance and its
future prospects.

64) Which of the following is not part of the due process in developing financial
reporting standards?
a. planning the research project
b. the setting of an agenda
c. colloquium presentation of the discussion paper
d. publishing an exposure draft

65) Employees demand financial information for all of the following except:
a. Monitoring union contracts that link negotiated wage increases to company
financial performance.
b. Monitoring profit sharing and stock ownership plans.
c. Monitoring current payroll tax liabilities.
d. Monitoring the health of company pension plans.

10
66) External decision makers would not look primarily to financial accounting
information to assist them in making decisions on ______.
a. granting credit
b. capital budgeting
c. selecting shares
d. mergers and acquisitions (for example, purchasing a controlling interest or
more than 50% of voting shares of stocks)

67) Which of the following groups is not among the indirect external users of financial
statements?
a. corporate director
b. Suppliers
c. labor unions
d. Customers

68) Which of the following are parts of the due process the International Accounting
Standard Board applied in developing financial reporting standards?

1- Developing the exposure draft

2- Setting the agenda
3- Developing and publishing the standard
4- Publishing the exposure draft
5- Issuance of the specific IAS/ IFRS
6- Developing and publishing the discussion paper

a. 2, 6, 4, 1, 3, 5 c. 2, 1, 4, 6, 3, 5
b. 2, 6, 4, 3, 1, 5 d. 2, 6, 1, 4, 3, 5

69) Your current job in one of the firms located in the financial district of Manila
includes assessing the credibility of the financial statements by gathering evidence to
support the fairness of assertions made by management; which branch of accounting
is included?
a. advanced auditing
b. none of these, auditing is distinguishable from accounting
c. financial accounting
d. management accounting

70)A firm’s financial statements contain trends that give users insight into the firm’s:
a. position within its industry.
b. profitability, productivity, and liquidity.
c. the current market price for common and preferred stock.
d. future market share.

11
Answer Key
Test name: HO1- Module 1 and 2-Spiceland

1) B
2) D
3) B
4) B
5) C
6) D
7) C
8) D
9) A
10) D
11) D
12) A
13) A
14) B
15) B
16) B
17) D
18) D
19) C
20) A
21) A
22)C
23)D
24)D
25) C
26)C
27) A
28) B
29)D
30) B
31) B
32)C
33)D
34)C
35) D
36)A
37) D
38) D
39)A
40) A
41) B
42)B
43)B
44) D
45)D
46) C
47) A

12
48) A
49) C
50) D
51) D
52) C
53) C
54)A
55) A
56)C
57) B
58)A
59)A
60) D
61) A
62)A
63)C
64) C
65)B
66) B
67) C
68) D
69) B
70)B

13