Conceptual Framework
1. Which of the following gives the best description of the objective of financial statements as set out
by the International Accounting Standards Board’s (The Board’s) Conceptual Framework for Financial
Reporting?
A. To provide all information about the reporting entity that users need.
B. To fairly present the financial position, performance and changes in financial position of an
enterprise.
C. To provide information about the value of the reporting entity to the users.
D. To provide financial information about the reporting entity that is useful to users in making decisions
relating to providing resources to the entity.
2. Which of the following statements relating to regulatory frameworks is/are true?
Accounting standards on their own provide a complete regulatory framework.
A regulatory framework is required to ensure that financial reporting meets the needs of
primary users.
3. The International Accounting Standards Board’s Conceptual Framework for Financial Reporting
lists two fundamental qualitative characteristics of financial statements, relevance and faithful
representation.
Place the qualities listed alongside the appropriate qualitative characteristic. Faithful representation
Relevance
Completeness
Predictive value
Neutrality
4. The International Accounting Standards Board’s Conceptual Framework for Financial Reporting
identifies qualitative characteristics of financial statements.
Which TWO of the following characteristics are NOT fundamental qualitative characteristics according
to the IASB’s The Conceptual Framework for Financial Reporting?
A. Relevance
B. Reliability
C. Faithful representation
D. Comparability
5. Match the element to the correct definition according to the International Accounting Standards
Board’s Conceptual Framework for Financial Reporting?
6. Which of the following criteria need to be satisfied in order for an element to be recognised
within the financial statements?
(i). It meets the definition of an element of the financial statements.
(ii). Recognition provides relevant information.
(iii). Recognition provides a reliable measure.
(iv). the element has fair value.
(v). Recognition provides faithful representation of the element.
A. (i), (ii) and (v)
B. (i), (iii) and (v)
C. (i), (ii) and (iv)
D. (i), (iii) and (iv)
7. Which description defines information that is relevant to users of financial information?
A. Information that is free from error, bias and is a faithful representation of events
B. Information that has been prudently prepared
C. Information that is comparable from one period to the next
D. Information that influences the decisions of users
8. Which description is most representative of the accounting framework used under IFRS
Standards?
9. Which of the advantages below is/are the likely advantage(s) of the global harmonisation of
accounting standards?
10. Which THREE of the following are advantages of applying a principles-based framework of
accounting rather than a rules-based framework?
A. It avoids ‘fire-fighting’, where standards are developed in responses to specific problems as they arise
B. It allows preparers and auditors to deal with complex transactions which may not be specifically
covered by an accounting standard
C. Principles-based standards are thought to be harder to circumvent
D. A set of rules is given which attempts to cover every eventuality
E. It is easier to prove non-compliance
11. Faithful representation is a fundamental characteristic of useful information within the
International Accounting Standards Board’s Conceptual Framework for financial reporting.
Which of the following treatments applies the principle of faithful representation?
A. Reporting a transaction based on its legal status rather than its economic substance.
B. Excluding a subsidiary from consolidation because its activities are not compatible with those of the
rest of the group.
C. Recording the whole of the net proceeds from the issue of a loan note which is potentially convertible
to equity shares as a liability.
D. Allocating part of the sales proceeds of a motor vehicle to interest received even though it was sold
with interest-free finance.
12 The International Accounting Standards Board’s Conceptual Framework for Financial Reporting
defines recognition as the process of incorporating within the financial statements an item which meets
the definition of an element and satisfies certain criteria.
Which of the following elements should be recognised in the financial statements of an entity in the
manner described?
A. As a non-current liability: a provision for possible hurricane damage to property for an entity located
in an area which experiences a high incidence of hurricanes.
B. In equity: irredeemable preference shares.
C. As a trade receivable: an amount of $10,000 due from a customer which has been sold (factored) to a
finance company with no recourse to the seller.
D. In revenue: the whole of the proceeds from the sale of an item of manufactured plant which has to
be maintained by the seller for three years as part of the sale agreement.
13. Which of the following is NOT included in the International Accounting Standards Board’s
(IASB) definition of an asset in the Conceptual Framework for Financial Reporting?
A. The asset is controlled by the entity
B. The asset is a present economic resource
C. The economic resource can be reliably measured
D. The asset exists as a result of past events
14. Comparability is identified as an enhancing qualitative characteristic in the International
Accounting Standards Board’s Conceptual Framework for Financial Reporting.
Which of the following does NOT improve comparability?
A. Restating the financial statements of previous years when there has been a change of accounting
policy.
B. Prohibiting changes of accounting policy unless required by an IFRS Standard or to give more relevant
and reliable information.
C. Disclosing discontinued operations separately in financial statements.
D. Applying an entity’s current accounting policy to a transaction which an entity has not engaged in
before.
15. Which of the following criticisms does NOT apply to historical cost financial statements during
a period of rising prices?
A. They contain mixed values, some items are at current values, some at out-of-date values
B. They are difficult to verify as transactions could have happened many years ago
C. They understate assets
D. They overstate profits
