Financial Reporting Standards quiz

The fundamental qualitative characteristic of faithful representation is contributed to by completeness, neutrality, and freedom from error.

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 .

According to the Conceptual Framework for Financial Reporting, the objective of financial reporting is to provide information about the firm to current and potential investors and creditors that is useful for making their decisions about investing in or lending to the firm.

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 .

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

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.

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.

Accuracy is not an enhancing qualitative characteristic. Faithful representation, not accuracy, is a fundamental qualitative characteristic .

The annual report is not a requirement of the SEC.

Form The 10-K is incorrect . The 10-K is required by the SEC

proxy statement is incorrect . A proxy statement is required by the SEC

In the IASB conceptual framework, the two qualitative characteristics of financial statements are relevance and faithful representation. Timeliness is a characteristic that enhances relevance and faithful representation. Going concern is an underlying assumption of financial statements.

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.

Without the recognition of the standards by the regulatory authorities, such as the US SEC, private sector standard-setting bodies, such as the US Financial Accounting Standards Board, would have no authority.

(The requirement to prepare financial reports in accordance with specified accounting standards is the responsibility of standard-setting bodies) is incorrect . The requirement to prepare financial statements in accordance with specific accounting standards is the responsibility of regulatory authorities.

(Regulatory authorities are typically private sector, self-regulated organizations) is incorrect. Standard-setting bodies (not regulatory authorities) are typically private sector, self-regulated organizations .

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.

 A core objective of IOSCO (International Organization of Securities Commissions) is to ensure that markets are fair, efficient, and transparent. The other core objectives are to reduce, not eliminate, systemic risk and to protect investors, not all users of financial statements.

Financial statements provide information, including information about the entity’s financial position, performance, and changes in financial position, to users. They do not typically provide information about users .

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

IOSCO provides a forum for regulators from different jurisdictions to work together toward fair, efficient, and transparent markets, promoting cross-border cooperation and uniformity in securities regulation.

(enforcing financial reporting requirements for entities participating in capital markets) is incorrect. This is the role of regulatory authorities such as the Securities Exchange Commission. IOSCO is not a regulator and as such has no authority to regulate.

(promoting the use of International Financial Reporting Standards (IFRS) and the convergence of national accounting standards) is incorrect. This is the role of the IFRS Foundation .

Understandability is an enhancing qualitative characteristic of financial information - not a constraint .

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