Professional Documents
Culture Documents
TRUE/FALSE
1.
2.
The most important new issue brought up in the discussion memorandum that
preceded the conceptual framework was predictive ability.
ANS: F
3.
4.
5.
SFAC No. 1 maintains that financial statements should be geared toward specific
needs of particular user groups.
ANS: F
6.
The conceptual framework maintains that accounting reports should become the
only relevant source of information about enterprises.
ANS: F
7.
SFAC No. 1 takes the position that users of financial statements must be assumed
to be knowledgeable about financial information and reporting.
ANS: T
8.
With regard to users, SFAC No. 1 established that financial statements should be
aimed at a common core of similar information users.
ANS: T
9.
10.
11.
12.
13.
14.
15.
SFAC No. 5 makes clear that the concepts discussed in the conceptual framework
apply to other means of disclosure in addition to financial statements.
ANS: F
16.
SFAC No. 5 appears to deny one of the main tenets of the efficient-markets
hypothesis.
ANS: T
17.
The definitions of SFAC No. 6 are virtually identical to those in SFAC No. 3
except that they are extended to non-business organizations.
ANS: T
18.
19.
Relevance and reliability are the primary characteristics that standard setters
should be concerned with.
ANS: T
20.
Timeliness and predictive value are the two main aspects of relevance.
ANS: F
21.
22.
23.
24.
25.
The jurisprudential view of the FASB is concerned with the theory embodied in
the conceptual framework.
ANS: F
MULTIPLE CHOICE
1.
Which of the following is not true regarding the FASBs conceptual framework?
a.
It is supposed to embody a system of interrelated objectives.
b.
It is an attempt to provide a metatheoretical structure for financial
accounting.
c.
It establishes generally accepted accounting principles. XXXXX
d.
It includes six statements of financial accounting concepts.
2.
Which of the following is not true regarding the discussion memorandum that
preceded the conceptual framework?
a.
It represented the end product of the FASBs deliberations related to the
conceptual framework project. XXXXX
b.
The most important new issue brought up in the document was capital
maintenance.
c.
It brought up three views of financial accounting and financial statements.
d.
It presented various definitions for basic accounting terms.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
ESSAY QUESTIONS
1.
ANSWER: The SFACs that constitute the conceptual framework do not establish
generally accepted accounting principles. This avoids the possibility of a crisis
arising from a failure to comply with the statements. Also, the process of arriving
at a workable and utilitarian metatheoretical-type structure must be acknowledged
as a slow, evolutionary process. The tentative nature of the statements may make
it easier to change components as the need arises. On the other hand, the
possibility also exists that the statements will have a purely cosmetic effect.
2.
ANSWER: SFAC No. 5 did not deal extensively with the issues of recognition
and measurement. It backed away from considering possible criteria for change,
which suggests a continued use of present measurement attributes and reliance on
an evolutionary approach. It dealt with recognition ahead of measurement, but
the issue of when to recognize an element cannot be discussed until we know the
measurement characteristics that are to be recognized. In addition, the move
toward the asset-liability viewpoint in the first three SFACs was a shift toward
current valuation and away from matching. The counterreformation of SFAC No.
5, particularly its statement to the effect that change should occur in a gradual and
evolutionary manner, effectively stymied this reform.
3.
a.
b.
ANSWER:
a.
One of the principal concerns of SFAC No. 5 was the format and
presentation of changes in owners equity that do not arise from
transactions with owners. Earnings would replace net income and
would differ from the latter by excluding the cumulative effect on prior
years of a change in accounting principle. Earnings would thus be a better
indicator of current operating performance than net income.
b.
Comprehensive income includes all changes in owners equity during the
period except for transactions with owners. A cumulative effect of a
change in accounting principle would be included in comprehensive
income as would such items as the income effect of recognized gains and
losses of marketable securities that are not classified as current assets,
foreign currency translation adjustments, and prior period adjustments.
4.
Define the elements of financial statements identified in SFAC No. 3 and SFAC
No. 6.