Financial Reporting Standards quiz

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

 According to the conceptual frameworks adopted under both International Financial Reporting Standards and US GAAP, faithful representation and relevance are the two fundamental qualitative characteristics that make financial information useful.

(comparability) is incorrect. Comparability is an enhancing qualitative characteristic.

(Understandability) is incorrect. Understandability is an enhancing qualitative characteristic.

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

The joint conceptual framework project aims to develop accounting standards based on principles in an attempt to achieve consistency in financial reporting approaches and judgments while trying to limit the range of acceptable answers.

(integrated with local legal and economic norms) is incorrect. The joint conceptual framework project reflects the widespread recognition that coordination among global standard-setting bodies is better suited to global capital markets than independent development of financial reporting standards within each country.

(comprehensive, complex rules designed to increase uniformity) is incorrect. This statement describes rules-based standards. The joint conceptual framework is designed to foster the development of principles-based standards.

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

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 .

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 .

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 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.

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 .

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.

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

Standard-setting bodies are professional organizations of accountants and auditors that establish financial reporting standards. Regulatory authorities are government agencies that have the legal authority to enforce compliance with financial reporting standards. Regulatory authorities, such as the Securities and Exchange Commission in the U.S. and the Financial Conduct Authority in the United Kingdom, are established by national governments. Most national authorities belong to the International Organization of Securities Commissions (IOSCO).

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.

Consistency is one of the general features underlying the preparation of financial statements based on IFRS.

Understandability is incorrect. Understandability is one of the qualitative characteristics of financial statements under IFRS framework for the preparation and presentation of financial statements. It is not a general feature.

Timeliness is incorrect. Timeliness is one of the qualitative characteristics of financial statements under IFRS framework for the preparation and presentation of financial statements. It is not a general feature

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 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

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

 The IASB Conceptual Framework states that the objective of financial reporting is to provide information about the firm to current and potential investors that is useful for making decisions about investing in or lending to the firm.