Conceptual Framework: The Quiz
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The International Accounting Standards Board published a revised version of its Conceptual Framework for Financial Reporting in March 2018. The document sets out the fundamental concepts of financial reporting guiding the IASB in developing IFRS Standards. Take the quiz to check whether you are a Conceptual Framework expert! You will be asked to answer eight randomly selected questions from a pool of more than 40 questions. You can take the quiz multiple times. You will be able to review your answers before final submission. After you submit your answers, you will immediately get a grade and will see the correct answers. If you quit before answering all eight questions, you will not be graded. Visit our dedicated page to view supporting mate
- 1.The purpose of the Conceptual Framework is:
- A.
To assist the International Accounting Standards Board to develop IFRS Standards
- B.
To assist preparers of IFRS financial statements to develop consistent accounting policies when no IFRS Standard applies to a particular transaction or other event, or when a Standard allows a choice of accounting policy
- C.
To assist all parties to understand and interpret IFRS Standards
- D.
All of the above
- 2.The Conceptual Framework can override requirements in a Standard.
- A.
True
- B.
False
- 3.Revision of the Conceptual Framework will automatically lead to changes in Standards that are inconsistent with the revised concepts.
- A.
True
- B.
False
- 4.When developing requirements for IFRS Standards, can the International Accounting Standards Board depart from the Conceptual Framework?
- A.
No
- B.
Yes, the Board is not required to use the Conceptual Framework when developing Standards
- C.
Yes, but only from aspects of the Conceptual Framework and only if doing so is needed to meet the objective of financial reporting
- 5.If an IFRS Standard sets out requirements that are inconsistent with the Conceptual Framework, preparers have to apply the Conceptual Framework for affected transactions.
- A.
True
- B.
False
- 6.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
- 7.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
- 8.Which of the following does the Conceptual Framework identify as the primary users of general purpose financial reports?
- A.
Employees, investors and trade union representatives
- B.
Existing and potential investors, lenders and other creditors
- C.
Lenders and other creditors and customers
- D.
Existing and potential investors, government agencies and the general public
- 9.Information needed to assess management's stewardship is always different from information needed to assess the prospects for future net cash inflows to the entity.
- A.
True
- B.
False
- 10.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
- 11.The fundamental qualitative characteristics of useful financial information are:
- A.
Comparability and relevance
- B.
Relevance and reliability
- C.
Relevance, reliability and comparability
- D.
Relevance and faithful representation
- E.
Comparability, relevance and faithful representation
- 12.For information to be relevant, it has to possess:
- A.
Only predictive value
- B.
Only confirmative value
- C.
Both predictive and confirmatory value
- D.
Either predictive or confirmatory value, or both
- 13.A trade-off between the fundamental qualitative characteristics of relevance and faithful representation may need to be made in order to meet the objective of financial reporting.
- A.
True
- B.
False
- 14.Consolidated financial statements provide information about the assets, liabilities, equity, income and expenses of both the parent and its subsidiaries as:
- A.
Separate reporting entities
- B.
A partnership
- C.
A single reporting entity
- D.
A legal entity
- 15.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.
- A.
True
- B.
False
- 16.The Conceptual Framework defines a liability as:
- A.
A present obligation of the entity to transfer an economic resource as a result of past events
- B.
A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodyiong economic benefits
- C.
An amount the entity may have to pay after the end of the reporting period
- D.
None of the above
- 17.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.
- A.
True
- B.
False
- 18.In explaining the meaning of the term ‘obligation’ in the definition of a liability, the Conceptual Framework states:
- A.
That an obligation is a duty or responsibility that an entity has no practical ability to avoid
- B.
That an obligation can arise from a duty or responsibility conditional on a future action that the entity itself may take, if the entity has no practical ability to avoid taking that action
- C.
That an obligation can arise from an entity’s customary practices, published policies or specific statements, if the entity has no practical ability to avoid those practices, policies or statements
- D.
All of the above
- E.
None of the above
- 19.The residual interest in the assets of an entity after deducting all its liabilities is:
- A.
Income
- B.
Profit or loss
- C.
Equity
- D.
Other comprehensive income
- 20.Recognition is the process of:
- A.
Capturing, for inclusion in the statement of financial position or the statement(s) of financial performance, an item that meets the definition of one of the elements of the financial statements—an asset, a liability, equity, income or expenses
- B.
Determining where an item should be presented in the financial statements
- C.
Sorting assets, liabilities, equity, income or expenses on the basis of shared characteristics
- D.
Adding together of assets, liabilities, equity, income or expenses that have shared characteristics
- 21.Some items that do NOT meet the definition of an asset, a liability or equity may be recognised in the statement of financial position.
- A.
True
- B.
False
- 22.Which factors may indicate that recognition of an item meeting the definition of an asset or a liability may not provide relevant 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
- 23.What does the Conceptual Framework state about derecognition?
- A.
For an asset, derecognition normally occurs when the entity loses control of all or part of the recognised asset
- B.
For a liability, derecognition normally occurs when the entity no longer has a present obligation for all or part of the recognised liability
- C.
Derecognition is the removal of all or part of a recognised asset or liability from an entity's statement of financial position
- D.
All of the above
- 24.Financial reports need to provide information useful in making decisions relating to providing resources to the entity. Those decisions include decisions about exercising rights to vote on, or otherwise influence, management’s actions that affect the use of the entity’s economic resources.
- A.
True
- B.
False
- 25.The Conceptual Framework describes prudence as:
- A.
The exercise of caution when making judgements under conditions of uncertainty
- B.
A bias towards understating assets or income and towards overstating liabilities or expenses
- C.
A preference towards the earlier recognition of expenses and liabilities than of income and assets
- D.
A mechanism for smoothing profits over time (understate profits in good years and overstate profits in bad years)
- E.
A form of accounting conservatism
- 26.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
- 27.Only a legal entity can be a reporting entity.
- A.
True
- B.
False
- 28.What drives the determination of the boundary of a reporting entity that is not a legal entity and does not comprise only legal entities all linked by a parent-subsidiary relationship?
- A.
Management's choice
- B.
Legal form of the reporting entity
- C.
Information needs of the primary users of the reporting entity
- D.
All of the above
- E.
None of the above
- 29.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
- 30.The Conceptual Framework defines an asset as:
- A.
A resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity
- B.
A present economic resource controlled by the entity as a result of past events
- C.
A right to receive income or reduce expenses in the future
- D.
None of the above
- 31.If an entity has a legal ownership of a physical object, its asset is:
- A.
The set of rights arising from legal ownership of the physical object
- B.
The physical object
- C.
The economic benefits that may flow from the physical object
- D.
All of the above
- E.
None of the above
- 32.A high level of measurement uncertainty associated with an asset always results in the asset not being recognised.
- A.
True
- B.
False
- 33.Which measurement bases are categorised as current value measurement bases in the Conceptual Framework?
- A.
Value in use
- B.
Fair value
- C.
Fulfilment value
- D.
Current cost
- E.
All of the above
- 34.Which of the following factors is (or are) considered in selecting a measurement basis?
- A.
Variability of cash flows of the asset or liability
- B.
How the asset or liability contributes to future cash flows, which depends in part on the nature of an entity's business activities
- C.
The level of measurement uncertainty associated with a particular measurement basis
- D.
All of the above
- E.
None of the above
- 35.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.
- A.
True
- B.
False
- 36.The Conceptual Framework identifies a preferred measurement basis for all assets and liabilities.
- A.
True
- B.
False
- 37.In principle, all income and expenses are included in the statement of profit or loss.
- A.
True
- B.
False
- 38.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.
- A.
True
- B.
False
- 39.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.
- A.
True
- B.
False
- 40.Income and expenses included in other comprehensive income:
- A.
Are never reclassified (recycled) from other comprehensive income into the statement of profit or loss
- B.
Are recycled into the statement of profit or loss if the International Accounting Standards Board decides that doing so results in the statement of profit or loss providing more relevant information, or providing a more faithful representation of the entity’s financial performance for that period
- C.
Are always recycled into the statement of profit or loss at the end of the holding period of the related asset or liability
- 41.What does the Conceptual Framework say about profit or loss?
- A.
The statement of profit or loss is the only source of information about an entity’s financial performance for the period
- B.
In principle, all income and expenses are included in the statement of profit or loss
- C.
All income and expenses included in profit or loss arise from ordinary activities of the entity
- D.
All of the above
- E.
None of the above
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