Financial Reporting Standards quiz

The two underlying assumptions of financial statements according to the conceptual framework are accrual accounting and the going concern assumption. Historical cost is one of several measurement bases that may be used for financial reporting.

The IASB is currently charged with developing International Financial Reporting Standards .

Balance sheet reporting elements (assets, liabilities, and owners’ equity) measure a company’s financial position. Income statement reporting elements (income, expenses) measure its financial performance .

The elements of financial statements related to the measurement of financial position are assets, liabilities, and equity.

The two fundamental qualitative characteristics that make financial information useful are relevance and faithful representation.

Materiality relates to the level of detail of the information needed to achieve relevance.

The fundamental qualitative characteristics are relevance and faithful representation. Verifiability, timeliness, and understandability are enhancing qualitative characteristics .

The Conceptual Framework identifies two important underlying assumptions of financial statements : accrual basis and going concern. Going concern is the assumption that the entity will continue to operate for the foreseeable future. Enterprises with the intent to liquidate or materially curtail operations would require different information for a fair presentation .

International Accounting Standard (IAS) No 1 defines which financial statements are required and how they must be presented. The required financial statements are : 

Balance sheet.
Statement of comprehensive income.
Cash flow statement.
Statement of changes in equity.
Explanatory notes, including a summary of accounting policies.

Disclosures of material events that affect the company are required by the Securities and Exchange Commission (Form 8-K) for firms that are publicly traded in the United States.

Qualitative characteristics that accounting information must possess according to the IASB Conceptual Framework are relevance and faithful representation, which are enhanced by the characteristics of timeliness, verifiability, understandability, and comparability. While conservatism in accounting has traditionally been viewed as a desirable characteristic, it is not one of the qualitative characteristics specified in the IASB Conceptual Framework .

New types of transactions may emerge that are not covered by existing accounting standards or regulations. Analysts should obtain information from a firm's management about the economic substance of such transactions to ensure that they serve a business purpose and have not been created primarily to manipulate the firm's financial statements .

The four characteristics that enhance relevance and faithful representation are comparability, verifiability, timeliness, and understandability.

The IASB is a standard setting body. The Securities and Exchange Commission (in the United States) and the Financial Conduct Authority (in the United Kingdom) are regulatory authorities .

Historical cost is the consideration paid to acquire an asset .

A discussion of the impact would be the most meaningful, although (The standard will have no material impact) would also be useful.

The FASB is responsible for the Accounting Standards Codification , the single source of nongovernmental authoritative US generally accepted accounting principles.

Standard setting bodies are private sector organizations that establish financial reporting standards. Enforcement is the responsibility of regulatory authorities .

The IASB Conceptual Framework names relevance and faithful representation as the two fundamental characteristics that make financial information useful.

Under the IASB’s Conceptual Framework, verifiability means that different knowledgeable and independent users would agree that the information presented faithfully represents the economic events that it is intended to represent.

(Understandability)  is incorrect. is the clear and concise presentation of information.

(Comparability ) is incorrect. Comparability allows users to identify and understand similarities and differences of items.

The SEC is responsible for overseeing the PCAOB under the Sarbanes–Oxley Act of 2002 .

(Prosecuting analysts who disseminate conclusions based on non-material non-public information ) is incorrect. Under mosaic theory, it is not a violation of CFA Institute standards or securities laws to disseminate conclusions based on non-material non-public information in combination with an analysis of public information.

(Promoting the adoption of global financial reporting standards) is incorrect. This is one of the principle objectives of the IFRS Foundation .

 Accrual basis reflects the effects of transactions and other events being recognized when they occur, not when the cash flows. These effects are recorded and reported in the financial statements of the periods to which they relate.