Q1: Conceptual Framework for Financial Reporting 2018

1. Qualitative characteristic that financial information must possess to be useful to the primary users of
general purpose financial reports include
a. Timeliness
b. Verifiability
c. Understandability
d. Faithful representation

2. Accounting information is considered to be relevant when it

a. Is capable of making a difference in a decision
b. Is verifiable and neutral
c. Can be depended on to represent the economic conditions and events that it is intended to
represent
d. Is understandable by reasonably informed users of accounting information

3. Which of the following remained unchanged in the 2018 Conceptual Framework?

a. The reporting entity
b. Derecognition
c. Presentation and disclosure
d. Concepts of capital and capital maintenance

4. What is an entity-specific aspect of relevance?

a. Predictive value
b. Confirmatory value
c. Timeliness
d. Materiality

5. Which statement is incorrect regarding the Conceptual Framework for Financial Reporting?
a. Serves as a guide in developing future PFRSs
b. Serves as a guide in resolving accounting issues that are not addressed directly in existing PFRSs
c. Is not a PFRS and hence does not define standards for any particular measurement or disclosure
issue
d. Prevails in cases where there is conflict with a PFRS

6. How does the Conceptual Framework explain the role of stewardship?

a. Providing information needed to assess management's stewardship is identified as an additional
objective of financial reporting, equal in prominence to providing financial information useful to users
in making decisions relating to providing resources to the entity
b. Decisions relating to providing resources to the entity depend on users' assessment of the amount,
timing and uncertainty of the prospects for future net cash inflows to the entity and on their
assessment of management's stewardship
c. Providing information needed to assess stewardship is more important than providing information
needed to assess the prospects for future cash inflows to the entity
d. Financial reports are not intended to provide information needed to assess stewardship

7. Which factors may indicate that recognition of an item meeting the definition of an asset or a liability may
not provide useful information?
a. Uncertainty about whether an asset or liability exists
b. Low probability of an inflow or outflow of economic benefits
c. Other factors
d. All of the above
e. None of the above
8. To be a faithful representation as described in the Conceptual Framework, information must be all of the
following, except
a. Complete
b. Free from error
c. Confirmatory
d. Neutral

9. Which statements is false concerning users and their information needs

a. Lenders are interested in information that enables them to determine whether their loans and the
interest on these loans will be paid when due
b. The providers of risk capital and their advisers are concerned with the risk inherent in, and return
provided by their investment
c. Government and its agencies have an interest in information about the continuance of an enterprise
especially when they have long-term involvement or are dependent on the enterprise
d. Employees and their representative groups are interested in information about the stability and
profitability of the entity

10. The decisions of the ‘primary users’ involve

a. Buying equity and debt instruments
b. Selling or holding equity and debt instruments
c. Providing or settling loans and other forms of credit
d. All of the above

11. Decision makers vary widely in the types of decisions they make, the methods of decision making they
employ, the information they already possess or can obtain from other sources, and their ability to
process information. Consequently, for information to be useful there must be a linkage between these
users and the decisions they make. This link is
a. Relevance
b. Reliability
c. Understandability
d. Materiality

12. Which of the following is the foundation of the Conceptual Framework?

a. The objective of general purpose financial reporting
b. A reporting entity concept
c. The qualitative characteristics of, and the constraint on, useful financial information
d. The elements of financial statements

13. Qualitative characteristics that make useful information more useful include
a. Relevance
b. Faithful representation
c. Comparability
d. All of these

14. Which statement is incorrect regarding prudence?

a. Neutrality is supported by the exercise of prudence
b. Prudence is the exercise of caution when making judgments under conditions of uncertainty
c. Prudence does not allow for overstatement of assets, liabilities, income or expenses
d. Prudence allows for understatement of assets, liabilities, income or expenses

15. The IASB revised the Conceptual Framework because the previous version is
a. no longer relevant
b. no longer useful
c. useful but needed improvements
d. useful but is required to be revised by legislation
16. The “fundamental” qualitative characteristics are
a. Relevance and reliability
b. Relevance and faithful representation
c. Timeliness and verifiability
d. Understandability and comparability

TRUE/FALSE

17. When a reporting entity is not a legal entity and does not comprise only legal entities all linked by a
parent-subsidiary relationship, the boundary of the reporting entity can contain an incomplete set of
economic activities if that entity provides a description of how the boundary was determined

18. Revision of the Conceptual Framework will automatically lead to changes in Standards that are
inconsistent with the revised concepts

19. For a right to meet the definition of an asset, it needs to be likely that the right will produce economic
benefits for the entity

20. An entity may decide to include income or expenses in other comprehensive income when doing so
would result in the statement of profit or loss providing more relevant information, or providing a more
faithful representation of the entity's performance for the period

Q1 - ANSWERS
1. D. The question says "MUST" possess, therefore 12. A. Like most things, everything stems from the
it should refer to the fundamental principles of objective. It is the source and the inspiration for all
relevance and faithful representation. other provisions in the Framework.
2. A. 13. C. It makes the useful "more useful". This refers
to the enhancing qualitative characteristics of
3. D. comparability, verifiability, timeliness, and
4. D. understandability.

5. D. The Framework is not a standard. Standards 14. D.

are more powerful.
6. B. Remember: General purpose reports are not
designed to show the value of the entity. They simply
help the primary users when making estimates about
the value of the entity.
7. D.
8. C. Confirmatory value is an ingredient of relevance.
9. C. The government is concerned about the
regulation of these businesses, including the
collection of taxes and compliance with laws and
regulations.
10. D.
11. C.
15. C.
16. B.
17. FALSE. Considering that the reporting entity is
not a legal entity, it could be difficult to appropriate
boundary (inclusions and exclusions) but can still be
done
18. FALSE.
19. FALSE. Remember: It doesn't have to be certain;
it doesn't even have to be likely.
20. FALSE. An entity cannot just easily transfer
income and expenses from the income statement to
the OCI if it does not mean the criterion for inclusion
as OCI. It has first to qualify as an OCI item first
because it can be reported as such.
Q2: Conceptual Framework for Financial Reporting 2018

1. The objective of general purpose financial reporting as described in the Conceptual Framework is to
a. Provide information to regulators
b. Support the entity's tax return
c. Meet the information needs of an entity's stakeholders
d. Provide financial information about the reporting entity that is useful to existing and potential
investors, lenders and other creditors in making decisions relating to providing resources to the
entity

2. A reporting entity can be

a. A portion of an entity
b. A single entity
c. More than one entity
d. All of the above
e. None of the above

3. Which statement is included in the Conceptual Framework?

a. Relevance is a fundamental qualitative characteristic of useful financial information
b. Financial information without both relevance and faithful representation is not useful
c. Enhancing qualitative characteristics cannot make information useful if that information is irrelevant
or does not provide a faithful representation of what it purports to represent
d. All of the above
e. None of the above

4. Entities have to apply the revised Conceptual Framework

a. Immediately after it is issued
b. For annual reporting periods beginning on or after 1 January 2020, with early application permitted
c. Never - the Conceptual Framework is only used by the International Accounting Standards Board
d. Whenever they want to

5. All of the following represent costs of providing financial information, except

a. Preparing
b. Disseminating
c. Auditing
d. Accessing capital

6. General purpose financial statements

a. Are those intended to meet the needs of users who are not in a position to require an entity to
prepare reports tailored to their particular information needs
b. Provide all of the information that financial statements’ users need
c. Are designed to show the value of a reporting entity since they provide information to help existing
and potential investors, lenders and other creditors to estimate the value of the reporting entity
d. All of the above

7. Which statement is incorrect regarding the definition of an asset?

a. An asset is a present economic resource controlled by the entity as a result of past events
b. An economic resource is a right that has the potential to produce economic benefits
c. It clarified that an asset is the economic resource, not the ultimate inflow of economic benefits
d. It needs to be certain or likely that economic benefits will arise

8. Information about income and expenses is

a. Less important as information about assets and liabilities
b. More important as information about assets and liabilities
c. Just as important as information about assets and liabilities
d. Not important
9. In accordance with the Conceptual Framework, historical cost
a. Provides information derived, at least in part, from the price of the transaction or other event that
gave rise to the item being measured
b. Is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly
transaction between market participants at the measurement date
c. Reflects entity-specific current expectations about the amount, timing and uncertainty of future cash
flows
d. Reflects the current amount that would be paid to acquire an equivalent asset or received to take on
an equivalent liability

10. Which concept of capital should be adopted by an entity if the users of financial statements are primarily
concerned with the maintenance of nominal invested capital or the purchasing power of invested capital?
a. Financial concept
b. Physical concept
c. Contemporary capital
d. Traditional capital

11. Which capital maintenance concept requires the adoption of the current cost basis of measurement?
a. Financial concept
b. Physical concept
c. Contemporary capital
d. Traditional capital

TRUE/FALSE

12. In selecting a measurement basis for an asset or liability, it is more important to consider the nature of
the information that the measurement basis will produce in the statement(s) of financial performance
than in the statement of financial position.

13. An analysis of income and expenses recognised in the statement of profit or loss is sufficient to
understand an entity's financial performance for the period.

14. A high level of measurement uncertainty associated with an asset always results in the asset not being
recognised.

15. Some items that do NOT meet the definition of an asset, a liability or equity may be recognised in the
statement of financial position.

Q2 - ANSWERS
1. D 11. B
2. D 12. FALSE
3. D 13. FALSE
4. B 14. FALSE. Not always. It is possible for reasonable
estimates to be made even when there is a high level
5. D of measurement uncertainty. Only when it is not
6. A possible to have a reasonable estimate it will not be
recognized.
7. D
15. FALSE. Those do not meet the recognition of an
8. C asset cannot be recognized as such. If it MEETS the
definition but is either not relevant or not capable of
9. A
faithful representation, consider whether such
10. A unrecognized asset or liability is to be included in the
notes