Conceptual Framework and Regulatory Framework: Put The Missing Words

CLASS 2 Conceptual Framework and Regulatory Framework
Put the missing words

1. In preparing financial statements, accountants follow certain fundamental a………………………..
2. The IASB`s ……………….……… ……………………………………..provides the basis for its IFRSs.
3. The main underlying assumption is …………..……. ……………………… .
4. ………………….… means to be cautious when exercising judgement. In particular ………… should
not be recognised until realised, but a ……… should be recognised as soon as it is foreseen.
Questions
1. A provision can be a liability.
True False
2. Making an allowance for receivables is an example of which concept?

Accruals Going concern Materiality Fair presentation
3. The cost or value of items in the financial statements is never estimated.

True False
Discussion questions
1. Discuss several components of the Conceptual Framework that provide guidance and direction to
accountants when exercising judgment. Why should accountants never lose sight of the important
public interest in their work?
Accounting in society (www.pathwayscommission.org)

2. Discuss the advantages and disadvantages of using fair value to measure the elements reported on
the statement of financial position. Include specific examples and connect your response to the
conceptual framework.
Advantages Disadvantages
3. Using of accounting Information identify fundamental characteristic and its attribute
Use of accounting information Fundamental characteristic Attribute

1. This year’s reported earnings per share is
$0.50 below analysts’ forecasts.
2. Potential creditors review a company’s

long-term liabilities footnote to determine
that entity’s ability to assume additional
debt.
3. A corporation discloses both favorable and

unfavorable tax settlements.
4. A financial analyst computes a company’s

five-year average cost of goods sold in
order to forecast next year’s gross profit
margin.
MCQs
1. Recognition is the process of including within the financial statements items which meet the
definition of an element according to the IASB`s Conceptual Framework for Financial Reporting.
Which of the following items should be recognized as an asset in the statement of financial
position of a company?
(i) A secret formula for the manufacture of a best-selling sauce. The recipe is kept secure at the
company premises and known only by the company directors
(ii) A highly lucrative contract signed during the year which is due to commence shortly after
the year end.
(iii) Items that are to be sold via a third party agent which the company can no longer control
and cannot be returned to the company if they are unsold
(iv) A receivable from a customer which has been sold (factored) to a finance company.
The finance company has full recourse to the company for any losses
A. (i) and (iii)

B. (iii) and (iv)
C. (i) and (iv)
D. (ii), (iii) and (iv)
2. Historical cost accounting remains in use because of its practical advantages.
Which of the following is NOT an advantage of historical cost accounting?
A. Amounts of transactions are reliable and can be verified
B. Amounts in the statements of financial position can be matched to amounts in the statement of
cash flows
C. It avoids to overstatement of profit which can arise during periods of inflation
D. It provides fewer opportunities for creative accounting than systems of current value accounting
3. Overstatement of profits can arise during periods of inflation. This then leads to a number of other
consequences.
Which of the following is NOT a likely consequence of overstatement of profits?
A. Higher wage demands from employees
B. Higher tax bill
C. Reduces dividends to shareholders
D. Overstated EPS
4. Drexler Co acquired an item of plan on 1 October 20X2 at a cost of $500,000. It has a useful life of five
years (straight-line depreciation) and an estimated residual value of 10% of its historical cost or current
cost as appropriate. As at 30 September 20X4, the manufacturer of the plant still makes the same item
of plant and its current price is $600,000.
What is the current carrying amount to be shown in the statement of financial position of Drexler as
at 30 September 20X4 under historical cost and current cost?
Historical cost Current cost
$ $
A. 320,000 600,000
B. 320,000 384,000
C. 300,000 600,000
D. 300,000 384,000
5. The process for developing an International Financial Reporting Standard involves a number of stages.
Following receipt and review of comments on a Discussion Paper, what will be the next step
undertaken by the IASB?
A. Publication of an Exposure Draft
B. Establishment of an Advisory Committee
C. Consultation with the Advisory Committee
D. Issue of a final IFRS
6. Which one of the following would NOT be an advantage of adopting IFRS?

A. It would be easier for investors to compare the financial statements of companies with those of
foreign competitors.
B. Cross-border listing would be facilitated.
C. Accountants and auditors would have more defence in case of litigation.
D. Multinational companies could more easily transfer accounting staff across national borders.
7. Which of the following statements regarding systems of regulation of accounting are true?
(i) A principles-based system is more prescriptive than a rules-based system.
(ii) A rules-based system will require more detailed regulations than a principles-based system.
(iii) A principles-based system will tend to give rise to a larger number of accounting standards than a rules-
based system.
(iv) A rules-based system seeks to cover every eventuality.
(v) A rules-based system requires the exercise of more judgement in application than a principles based
system.
A. (i) and (iii)
B. (ii) and (iv)
C. (i), (ii) and (v)
D. (iii), (iv) and (v)
8. Which of the following statements is/are true?

(1) The IFRS Interpretations Committee is a forum for the IASB to consult with outside world.
(2) The IFRS Foundation produces of the IFRSs. The IFRS Foundation is overseen by the IASB.
(3) One of the objectives of the IFRS Foundation is to bring about convergence of national accounting
standards and IFRS.
A. 1 and 3 only
B. 2 only
C. 2 and 3 only
D. 3 only
9. What is the role of the IASB?

A. Oversee the standard setting and regulatory process
B. Formulate international financial reporting standards
C. Review defective accounts
D. Control the accountancy profession
10. Which ONE of the following is NOT an objective of the IFRS Foundation?
A. Through the IASB, develop a single set of globally accepted International Financial Reporting
Standards (IFRSs)
B. Promote the use and rigorous application of International Financial Reporting Standards (IFRSs)
C. Ensure International Financial Reporting Standards (IFRSs) focus primarily on the needs of global,
multi-national organisations
D. Bring about the convergence of national accounting standards and IFRSs
11. According to the IASB`s Conceptual framework for Financial Reporting, which TWO of the following are
part of faithful representation?
(1) It is neutral
(2) It is relevant
(3) It is presented fairly
(4) It is free from material error
A. 1 and 2
B. 2 and 3
C. 1 and 4
D. 3 and 4
12. According to the IASB Conceptual framework which of the following is NOT an objective of financial
statements?
A. Providing information regarding the financial position of a business
B. Providing information regarding the performance of a business
C. Enabling users to assess the performance of management to aid decision making
D. Providing reliable investment advice
Assessment progress test (Class 2)  18 min

https://edu.hse.ru/mod/quiz/view.php?id=247656
SELF-STUDY
Exercise 1. Complete the following table — identify which fundamental characteristic and which attribute
are indicated in each independent scenario.
Scenario Fundamental Characteristics Attribute
TNT Inc.'s accountant has

verified that all equipment
has been depreciated
according to the company's
depreciation schedule.
TLR Studios discloses

information relating to a
pending lawsuit that is likely
to have an unfavorable
outcome.
Exercise 2. Complete the following table — identify which enhancing characteristic is indicated in each
independent scenario and whether it was satisfied or violated.
Scenario Enhancing Characteristics Satisfied or Violated
R Hood Corporation reports

the historical cost of its
archery park on the balance
sheet.
RR Wood Company switched

to fair value accounting for
standing timber, which is the
method used by most
companies in the industry.

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CLASS 2 Conceptual Framework and Regulatory Framework

Put the missing words

2. Making an allowance for receivables is an example of which concept?

3. The cost or value of items in the financial statements is never estimated.

Accounting in society (www.pathwayscommission.org)

3. Using of accounting Information identify fundamental characteristic and its attribute

Use of accounting information Fundamental characteristic Attribute

2. Potential creditors review a company’s

3. A corporation discloses both favorable and

4. A financial analyst computes a company’s

A. (i) and (iii)

6. Which one of the following would NOT be an advantage of adopting IFRS?

8. Which of the following statements is/are true?

9. What is the role of the IASB?

Assessment progress test (Class 2)  18 min

Scenario Fundamental Characteristics Attribute

TNT Inc.'s accountant has

TLR Studios discloses

Scenario Enhancing Characteristics Satisfied or Violated

R Hood Corporation reports

RR Wood Company switched

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