Financial Reporting Standards quiz

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

In the IFRS framework, timeliness, comparability, verifiability, and understandability are characteristics that enhance the two fundamental qualitative characteristics, relevance and faithful representation. Information that is not timely will not be relevant or faithfully represent the activities of a firm over the reporting period.

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 .

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.

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

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.

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

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 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.

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 .

Relevance and faithful representation are the two fundamental qualitative characteristics that make financial information useful, according to the IASB Conceptual Framework.

(understandability and verifiability) is incorrect. understandability and verifiability are two characteristics that enhance the usefulness of relevant and faithfully represented financial information.

(timeliness and accrual accounting) is incorrect. Timeliness enhances the usefulness of relevant and faithfully represented financial information. Accrual accounting is an underlying assumption.

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).

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

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

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 .

 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.

The amount that would be received in an orderly disposal is realizable value .

There is no statement of changes in income. Under IAS No. 1 , a complete set of financial statements includes a statement of financial position, a statement of comprehensive income, a statement of changes in equity, a statement of cash flows, and notes comprising a summary of significant accounting policies and other explanatory information.

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.

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 .