Exam 2: Financial Reporting: Its Conceptual Framework

The materiality of an item of financial information refers to the likelihood that its omission or misstatement would affect the decisions of those relying on that information and thus make differing choices if the information had been presented. This concept most closely relates to the

Financial statements provide limited information for external users to ascertain the necessary information upon which to base decisions. What are other sources in which companies can disclose financial information to external users?

Which of the following is a phase of the joint FASB and IASB conceptual framework project?

In its "Objectives of Financial Reporting by Business Enterprises" the FASB identified a variety of primary users including all of the following except

What is the goal of FASB and IASB in the creation of the conceptual framework?

Liquidity is positively related to financial flexibility but negatively related to risk and return on investments.

A list of statements follows: a. The Conceptual Framework establishes______ of financial reporting. b. Financial reporting should, above all, provide information that is________ to external decision makers. c. Accounting information is a if it is complete, neutral, and free from error. d. _____of accounting information enables users to identify similarities and differences between two sets of facts, while ______means that accounting methods are applied in the same way from period to period. e. A specific objective of financial reporting is to provide information about a company's economic ______and _____against the company Required: Fill in the words necessary to complete the statements.

Three phases of the convergence project were put on hold they were elements and recognition, measurement, and presentation and disclosure.

The state legislature is currently debating a bill that, if passed, would require the Roberts Company to go out of business. Which of the following principles or assumptions related to the preparation of Roberts financial statements is most directly affected by this impending vote of the legislature?

Accounting principles are theories, truths, and propositions that service as the basis for financial accounting and reporting.

The FASB and IASB concluded that the most general objective of financial reporting is to

Which of the following sets includes only accounting assumptions and conventions?

Which of the following is a specific objective of financial reporting?

Intracompany comparability would be violated if

GAAP lists and describes the qualitative characteristics that make accounting information useful for decision-making purposes. The FASB viewed the characteristics as a hierarchy of qualities that make accounting information useful. The FASB stated that accounting information must possess both relevance and faithful representation qualities to be useful, but it was noted that relevance and faithful representation may conflict with each other in some instances. For example, to increase relevance, faithful representation may have to be sacrificed, or vice versa. Required: a. Define "relevance" and "faithful representation" and list the components or "ingredients" of each quality. b. Give an example in financial accounting that illustrates the following tradeoffs: 1) Relevance is sacrificed in order to make accounting information more reliable. 2) Faithful representation is sacrificed in order to make accounting information more relevant.

Using an allowance method of accounting to recognize uncollectible accounts receivable is an application of which accounting convention?

The eight phases of the joint FASB and IASB framework project are: 1) objective and qualitative characteristics, 2) elements and recognition, 3) presentation and disclosure, 4) reporting entity, 5) measurement, 6) framework for GAAP hierarchy, 7) applicability to the not-for-profit sector, and 8) any remaining issues needing to be addressed.

What additional supplementary information should be included as part of the financial statements under GAAP?

The FASB and IASB describe four characteristics that enhance the decision usefulness of information that is relevant and faithfully represented. What are these characteristics and provide a brief explanation of each. Comparability Information must be able to be compared with similar information