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THEORY OF ACCOUNTS C. Gonzaga

TOPIC: IFRS Conceptual Framework
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CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING 2010

HISTORY OF THE FRAMEWORK

September 2010 Conceptual Framework for Financial Reporting 2010 (the IFRS Framework) approved by the IASB

PURPOSE AND STATUS OF THE FRAMEWORK

The IFRS Framework describes the basic concepts that underlie the preparation and presentation of financial statements
for external users. The IFRS Framework serves as a guide to the Board in developing future IFRSs and as a guide to
resolving accounting issues that are not addressed directly in an International Accounting Standard or International Financial
Reporting Standard or Interpretation.

In the absence of a Standard or an Interpretation that specifically applies to a transaction, management must use its
judgment in developing and applying an accounting policy that results in information that is relevant and reliable. In making
that judgment, IAS 8.11 requires management to consider the definitions, recognition criteria, and measurement concepts
for assets, liabilities, income, and expenses in the IFRS Framework. This elevation of the importance of the [IFRS]
Framework was added in the 2003 revisions to IAS 8.

THE IFRS FRAMEWORK

Scope

The IFRS Framework addresses:

the objective of financial reporting

the qualitative characteristics of useful financial information
the reporting entity
the definition, recognition and measurement of the elements from which financial statements are constructed
concepts of capital and capital maintenance
[IFRS Framework, Scope]

The Objective of general purpose financial reporting

The objective of general purpose financial reporting is to provide financial information about the reporting entity that
is useful to existing and potential investors, lenders and other creditors in making decisions about providing
resources to the entity.

The primary users of general purpose financial reporting are present and potential investors, lenders and other
creditors, who use that information to make decisions about buying, selling or holding equity or debt instruments and
providing or settling loans or other forms of credit.

The primary users need information about the resources of the entity not only to assess an entitys prospects for future net
cash inflows but also how effectively and efficiently management has discharged their responsibilities to use the entitys
existing resources (i.e., stewardship).

The IFRS Framework notes that general purpose financial reports cannot provide all the information that users may
need to make economic decisions. They will need to consider pertinent information from other sources as well. [F OB6]

The IFRS Framework notes that other parties, including prudential and market regulators, may find general purpose financial
reports useful. However, the Board considered that the objectives of general purpose financial reporting and the objectives
of financial regulation may not be consistent. Hence, regulators are not considered a primary user and general purpose
financial reports are not primarily directed to regulators or other parties.

Information about a reporting entitys economic resources, claims, and changes in resources and claims

Economic resources and claims

Information about the nature and amounts of a reporting entitys economic resources and claims assists users to assess
that entitys financial strengths and weaknesses; to assess liquidity and solvency, and its need and ability to obtain financing.
Information about the claims and payment requirements assists users to predict how future cash flows will be distributed
among those with a claim on the reporting entity.

A reporting entitys economic resources and claims are reported in the statement of financial position.

Changes in economic resources and claims

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Changes in a reporting entitys economic resources and claims result from that entitys performance and from other events
or transactions such as issuing debt or equity instruments. Users need to be able to distinguish between both of these
changes.

Information about a reporting entitys financial performance during a period, representing changes in economic resources
and claims other than those obtained directly from investors and creditors, is useful in assessing the entitys past and future
ability to generate net cash inflows. Such information may also indicate the extent to which general economic events have
changed the entitys ability to generate future cash inflows.

The changes in an entitys economic resources and claims are presented in the statement of comprehensive income.

Financial performance reflected by past cash flows

Information about a reporting entitys cash flows during the reporting period also assists users to assess the entit ys ability
to generate future net cash inflows. This information indicates how the entity obtains and spends cash, including information
about its borrowing and repayment of debt, cash dividends to shareholders, etc.

The changes in the entitys cash flows are presented in the statement of cash flows.

Changes in economic resources and claims not resulting from financial performance

Information about changes in an entitys economic resources and claims resulting from events and transactions other than
financial performance, such as the issue of equity instruments or distributions of cash or other assets to shareholders is
necessary to complete the picture of the total change in the entitys economic resources and claims.

The changes in an entitys economic resources and claims not resulting from financial performance is presented in the
statement of changes in equity.

Qualitative characteristics of useful financial information

The qualitative characteristics of useful financial reporting identify the types of information are likely to be most useful to
users in making decisions about the reporting entity on the basis of information in its financial report. The qualitative
characteristics apply equally to financial information in general purpose financial reports as well as to financial information
provided in other ways.

Financial information is useful when it is relevant and represents faithfully what it purports to represent. The usefulness
of financial information is enhanced if it is comparable, verifiable, timely and understandable.

Fundamental qualitative characteristics

Relevance and faithful representation are the fundamental qualitative characteristics of useful financial information.

Relevance Relevant financial information is capable of making a difference in the decisions made by users. Financial
information is capable of making a difference in decisions if it has predictive value, confirmatory value, or both. The
predictive value and confirmatory value of financial information are interrelated.

Materiality is an entity-specific aspect of relevance based on the nature or magnitude (or both) of the items to which the
information relates in the context of an individual entitys financial report.

Faithful representation. General purpose financial reports represent economic phenomena in words and numbers, To be
useful, financial information must not only be relevant, it must also represent faithfully the phenomena it purports to
represent. This fundamental characteristic seeks to maximize the underlying characteristics of completeness, neutrality
and freedom from error. Information must be both relevant and faithfully represented if it is to be useful.

Enhancing qualitative characteristics. Comparability, verifiability, timeliness and understandability are qualitative
characteristics that enhance the usefulness of information that is relevant and faithfully represented.

Comparability. Information about a reporting entity is more useful if it can be compared with a similar information about
other entities and with similar information about the same entity for another period or another date. Comparability enables
users to identify and understand similarities in, and differences among, items.

Verifiability. Verifiability helps to assure users that information represents faithfully the economic phenomena it purports to
represent. Verifiability means that different knowledgeable and independent observers could reach consensus, although
not necessarily complete agreement, that a particular depiction is a faithful representation.

Timeliness. Timeliness means that information is available to decision-makers in time to be capable of influencing their
decisions.
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Understandability. Classifying, characterizing and presenting information clearly and concisely makes it understandable.
While some phenomena are inherently complex and cannot be made easy to understand, to exclude such information would
make financial reports incomplete and potentially misleading. Financial reports are prepared for users who have a
reasonable knowledge of business and economic activities and who review and analyze the information with diligence.

Applying the enhancing qualitative characteristics

Enhancing qualitative characteristics should be maximized to the extent necessary. However, enhancing qualitative
characteristics (either individually or collectively) render information useful if that information is irrelevant or not represented
faithfully.

The cost constraint on useful financial reporting

Cost is a pervasive constraint on the information that can be provided by general purpose financial reporting. Reporting
such information imposes costs and those costs should be justified by the benefits of reporting that information. The IASB
assesses costs and benefits in relation to financial reporting generally, and not solely in relation to individual reporting
entities. The IASB will consider whether different sizes of entities and other factors justify different reporting requirements
in certain situations.

The Framework: Underlying Assumption

The IFRS Framework states that the going concern assumption is an underlying assumption. Thus, the financial
statements presume that an entity will continue in operation indefinitely or, if that presumption is not valid, disclosure and a
different basis of reporting are required.

The Elements of Financial Statements

Financial statements portray the financial effects of transactions and other events by grouping them into broad classes
according to their economic characteristics. These broad classes are termed the elements of financial statements.

The elements directly related to financial position (balance sheet) are:

Assets
Liabilities
Equity

The elements directly related to performance (income statement) are:

Income
Expenses

The cash flow statement reflects both income statement elements and some changes in balance sheet elements.

Definitions of the elements relating to financial position

Asset. An asset is 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.
Liability. A liability is 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 embodying economic benefits.
Equity. Equity is the residual interest in the assets of the entity after deducting all its liabilities.

Definitions of the elements relating to performance

Income. Income is increases in economic benefits during the accounting period in the form of inflows or
enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to
contributions from equity participants.
Expense. Expenses are decreases in economic benefits during the accounting period in the form of outflows or
depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to
distributions to equity participants.

The definition of income encompasses both revenue and gains. Revenue arises in the course of the ordinary activities of
an entity and is referred to by a variety of different names including sales, fees, interest, dividends, royalties and rent. Gains
represent other items that meet the definition of income and may, or may not, arise in the course of the ordinary activities
of an entity. Gains represent increases in economic benefits and as such are no different in nature from revenue. Hence,
they are not regarded as constituting a separate element in the IFRS Framework.

The definition of expenses encompasses losses as well as those expenses that arise in the course of the ordinary activities
of the entity. Expenses that arise in the course of the ordinary activities of the entity include, for example, cost of sales,
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wages and depreciation. They usually take the form of an outflow or depletion of assets such as cash and cash equivalents,
inventory, property, plant and equipment. Losses represent other items that meet the definition of expenses and may, or
may not, arise in the course of the ordinary activities of the entity. Losses represent decreases in economic benefits and as
such they are no different in nature from other expenses. Hence, they are not regarded as a separate element in this
Framework.

Recognition of the Elements of Financial Statements

Recognition is the process of incorporating in the balance sheet or income statement an item that meets the definition of
an element and satisfies the following criteria for recognition:

It is probable that any future economic benefit associated with the item will flow to or from the entity; and
The item's cost or value can be measured with reliability.

Based on these general criteria:

An asset is recognized in the balance sheet when it is probable that the future economic benefits will flow to the
entity and the asset has a cost or value that can be measured reliably.
A liability is recognized in the balance sheet when it is probable that an outflow of resources embodying economic
benefits will result from the settlement of a present obligation and the amount at which the settlement will take place
can be measured reliably.
Income is recognized in the income statement when an increase in future economic benefits related to an increase
in an asset or a decrease of a liability has arisen that can be measured reliably. This means, in effect, that
recognition of income occurs simultaneously with the recognition of increases in assets or decreases in liabilities
(for example, the net increase in assets arising on a sale of goods or services or the decrease in liabilities arising
from the waiver of a debt payable).
Expenses are recognized when a decrease in future economic benefits related to a decrease in an asset or an
increase of a liability has arisen that can be measured reliably. This means, in effect, that recognition of expenses
occurs simultaneously with the recognition of an increase in liabilities or a decrease in assets (for example, the
accrual of employee entitlements or the depreciation of equipment).

Measurement of the Elements of Financial Statements

Measurement involves assigning monetary amounts at which the elements of the financial statements are to be recognized
and reported.

The IFRS Framework acknowledges that a variety of measurement bases are used today to different degrees and in varying
combinations in financial statements, including:

Historical cost
Current cost
Net realizable (settlement) value
Present value (discounted)

Historical cost is the measurement basis most commonly used today, but it is usually combined with other measurement
bases. The IFRS Framework does not include concepts or principles for selecting which measurement basis should be
used for particular elements of financial statements or in particular circumstances. Individual standards and interpretations
do provide this guidance, however.

Current Cost is the measurement basis when assets are carried at an amount of cash or cash equivalents that would have
to be paid if the same or an equivalent asset was acquired currently. Liabilities are carried at the undiscounted amount of
cash or cash equivalents that would be required to settle the obligation currently.

Realizable (Settlement) Value. Assets are carried at the amount of cash and cash equivalents that could currently be
obtained by selling an asset in an orderly disposal. Liabilities are carried at the undiscounted amounts of cash or cash
equivalents expected to be paid to satisfy the liabilities in the normal course of business.

Present value. Assets are carried at the present discounted value of the future net cash inflows that the item is expected
to generate in the normal course of business. Liabilities are carried at the present discounted value of the future net cash
outflows that are expected to be required to settle the liabilities in the normal course of business.

CONCEPT OF CAPITAL AND CAPITAL MAINTENANCE:

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The framework distinguishes between a financial capital and a physical concept of capital.

Under Financial Capital maintenance, profit is earned if the financial amount of the net assets at the end of the period
exceeds the financial amount at the beginning of that period, after excluding distributions to and contributions from the
owners during the period. Financial capital is the absolute monetary value of the net assets contributed by shareholders
and the value of the increase in net assets resulting from earnings retained by the entity. Financial capital is based on
historical cost, a concept that is adopted by most entities.

Under physical capital maintenance concept, a profit is earned if the physical productive capacity (or operating
capabilities) of the entity (or the resources or funds needed to achieve that capacity) at the end of the period exceeds the
productive capacity at the beginning of that period after excluding any distributions to and contributions from the owners
during that period. For example, physical productive capacity may be based on the units of output per day or physical
capacity to produce goods and services (such as inventories, property, plant and equipment). This concept requires the use
of the current cost. Physical capital is therefore, equal to the net assets of the entity expressed in terms of current cost.

MULTIPLE CHOICE

1. This is a complete, comprehensive and single document promulgated by the IASB establishing the concepts that
underlie financial reporting.
a. Conceptual Framework for Financial Statements.
b. Conceptual Framework for Financial Accounting.
c. Conceptual Framework for Financial Reporting.
d. Conceptual Framework for Reporting Entities.

2. Philippine Financial Reporting Standards include which of the following?

I. Philippine Financial reporting Standards corresponding to IFRS issued by IASB.
II. Philippine Accounting Standards corresponding to IAS issued by IASC.
III. Philippine Interpretations corresponding to IFRIC and SIC Interpretations, and Interpretations developed by
PIC.
a. I only
b. I and II only
c. I and III only
d. I, II and III

3. Which is a basic purpose of the IASB Framework?

I. To assist FRSC in developing accounting standards that represent GAAP in the Philippines.
II. To assist FRSC in reviewing and adopting existing international accounting standards.
III. To assist preparers of financial statements in applying accounting standards and in dealing with topics that
have yet to form the subject of accounting standards.

a. I and II only.
b. I and III only.
c. II and III only.
d. I, II, and III.

4. The objectives of financial reporting business enterprises are based on

a. The need for conservatism
b. The need of users of information
c. Generally accepted accounting principle
d. reporting on managements stewardship

5. Which accounting process is the recognition or non-recognition of business activities as accountable events?
a. Identifying
b. Measuring
c. Recording
d. Communicating

6. What is the purpose of the information presented as notes to the financial statements?
a. To provide disclosures required by generally accepted accounting principles
b. To correct improper presentation in the financial statements
c. To provide recognition of amounts not included in the totals of the financial statements
d. To present managements responses to the auditors comments

7. These are accounting information users who are interested in information that enables them to determine whether
their loans, and the interest attaching to them, will be paid when due
a. Investors
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b. Lenders
c. Customers and suppliers
d. General public

8. The main objective of financial statements is

a. To comply with government reportorial requirements
b. To provide information about the financial position, performance, and cash flows of a business enterprise
c. To showcase a companys achievements in business enterprise
d. To make a forecast about the companys future viability as a business undertaking

9. It is the financial flexibility if the enterprise that is portrayed in the balance sheet.
a. Liquidity
b. Solvency
c. Financial structure
d. Capacity for adaptation

10. Solvency is defined

a. Ability of the enterprise to pay current maturing obligations
b. Ability of the enterprise to meet obligations as they fall due
c. Invested capital of the enterprise
d. Borrowed capital of the enterprise

11. Which among of the following quotations best exemplifies the accounting objective entity theory that so geared
toward proper income determination
a. Assets= Liabilities + Capital
b. Assets +Capital = Liabilities
c. Assets Liabilities = Capital
d. Assets Liabilities = Capital

12. What is the conceptual framework of accounting?

a. It is a financial statement that shows a companys financial position
b. It is considered as the Philippine Financial Reporting Standard (PFRS) that constitutes generally accepted
accounting practice in the Philippines
c. It is theoretical foundation that guides standard-setters, preparers and users in the preparation and
presentation of financial statements
d. It is to prevail any provision of the Philippine Financial Reporting Standards, especially in areas where there is
a conflict between PFRS and the framework

13. What are the two underlying accounting assumptions mentioned by the Conceptual Framework?
a. Accrual and periodicity
b. Going concern
c. Going concern and periodicity
d. Time period and monetary unit

14. The body mandated by law promulgates rules and regulations affecting the practice of Accountancy.
a. Professionals Regulation Commission (PRC)
b. Professional Regulatory Board of Accountancy (BoA)
c. Philippine Institute of Certified Public Accountants (PICPA)
d. Accounting Standards Council (ASC)

15. It is a term that means the process of reporting an asset, liability, income or expense on the face of the financial
statements of an enterprise
a. Realization
b. Recognition
c. Allocation
d. Matching

16. It is the process of determining the monetary amounts at which the elements of the financial statements are
recognized and carried in the financial statements.
a. Measurement
b. Presentation
c. Disclosure
d. Recognition

17. These are related to the economic resources (assets), economic obligations (liabilities), residual interest (equity) and
changes in them (income and expense)
a. Basic elements
b. Basic principles
c. Basic objectives
d. Basic concepts

18. Expense is recognized

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a. When it has been paid

b. When it is probable that the outflow of economic benefit has occurred
c. When it is probable that an outflow of economic benefit has occurred and can be measured reliably
d. When it is probable that economic benefit can be measured reliably

19. If an asset provides benefits for several periods, its cost is allocated to the periods benefited in the absence of a more
direct basis for relating the cost to revenue
a. Associating cause and effect
b. Systematic and rational allocation
c. Immediate recognition
d. Installment method

20. Which of the following terms best describes information that influences the economic decisions of users?
a. Reliable
b. Prospective
c. Relevant
d. Understandable
21. Which of the following is the best description of reliability in relation to information in financial statements?
a. Influence on the economic decisions of users.
b. Inclusion of a degree of caution
c. Freedom from material error
d. Comprehensibility to users

22. Which of the following terms best describes information in financial statements that is neutral?
a. Understandable
b. Reliable
c. Relevant
d. Unbiased

23. When information about two different entities has been prepared and presented in a similar manner, the information
exhibits the characteristic of
a. Relevance
b. Reliability
c. Consistency
d. Comparability

24. Which financial statement would a potential investor primarily use to assess the companys liquidity and financial
flexibility
a. Statement of Financial Position
b. Statement of Comprehensive Income
c. Statement of Retained Earnings
d. Cash Flow Statement

25. Which of the following statements regarding the term profit is true?
I. Profit is any amount over and above that required to maintain the capital at the beginning of
the period.
II. Profit is the residual amount that remains after expenses have been deducted from income.

a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.

26. Which of the following terms best describes the relationship of the assets, liabilities and equity of an entity?
a. Financial performance
b. Financial position
c. Future economic benefit
d. Obligation

27. Which of the following is true of the qualitative characteristic of understandability in relation to information in financial
statements?
a. Users should be willing to study the information with reasonable diligence.
b. Users are expected to have significant business knowledge.
c. Financial statements should exclude complex matters.
d. Financial statements should be free from material error.

28. Which of the following terms best describes financial statements whose basis of accounting recognizes transactions
and other events when they occur?
a. Accrual basis of accounting
b. Going concern basis of accounting
c. Cash basis of accounting
d. Invoice basis of accounting
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29. Which of the following terms best describes information that influences the economic decisions of users?
a. Reliable
b. Prospective
c. Relevant
d. Understandable

30. Which of the following statements regarding recognition is true?

I. Recognition is the process of incorporating in the financial statements an item that meets the definition of
an element.
II. Recognition is the process of determining the amounts at which elements of the financial statements are
to be recognized.

a. Both I and II
b. I only
c. II only
d. Neither I nor II

31. Which of the following is an example of expense?

a. A loss on the disposal of a noncurrent asset.
b. A decrease in equity arising from a distribution to equity participants.
c. An increase in economic benefits during the accounting period.
d. A reduction in income for the accounting period.

32. Which of the following statements concerning the Framework is incorrect?

a. The Framework provides that transactions must be accounted for in accordance with their legal form.
b. Primary responsibility for the preparation and presentation of the financial statements of the entity rests with
management.
c. Financial statements must not exclude complex matters in order to achieve understandability.
d. Where any conflict arises between the Framework and a PFRS, the requirements of the PFRS prevail.

33. Which of the following statements in relation to materiality is true?

I. Materiality of items depends on their individual or collective influence on the economic decisions of users.
II. Materiality of an item depends on its absolute size and nature.

a. Neither I nor II
b. Both I and II
c. I only
d. II only

34. Which of the following statements is true?

I. Dividends paid should be recognized in the statement of comprehensive income.
II. A loss on disposal of assets should be recognized in the statement of changes in equity.

a. I only.
b. II only
c. Both I and II
d. Neither I nor II

35. Which of the following is included in a complete set of financial statements?

a. A statement by the board of directors of compliance with local legislation.
b. A statement of changes in equity.
c. Summarized statements of financial position for the last 5 years.
d. Value added statements.

36. The Conceptual Framework is intended to assist

a. The FRSC
b. The users of financial statements
c. CPAs in public practice
d. All of these

37. Which of the following statements in incorrect regarding the conceptual framework of accounting?
a. The framework assists the FRSC in developing accounting standards
b. The framework is not a Philippine Financial Reporting Standards
c. The framework overrides a specific Philippine Financial Reporting Standard
d. The framework does not define standards for any particular measurement issue

38. Which of the following situations violates the concept of reliability?

a. Data on segments having the same expected risk and growth rates are reported to analyst
estimating future profits
b. Financial statements are issued nine months late
c. Management reports to stockholders regularly refer to new projects undertaken, but the FS
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never report project results

d. FS include property with a carrying amount increased to managements estimate of market
value

39. Which among the following conditions results in a misleading comparison?

a. No change in accounting principles
b. The same items from underlying accounting records are classified under same captions
c. The arrangement within the financial statements is identical
d. Changes in the nature on the underlying transactions are not disclosed

40. Which is not a requisite of reliability of financial statement?

a. The statements are presented in accordance with GAAP
b. The statements are examined by independent auditors who prepare adequate statements
c. An effective system of internal control is maintained
d. Income tax returns are properly filed

41. The objectives of financial reporting business enterprises are based on

a. The need for conservatism
b. The need of users of information
c. Generally accepted accounting principle
d. reporting on managements stewardship

42. These statement users need information that will assist them in determining general trends and recent development in
the prosperity of the enterprise and the range of its activities.
a. Investors
b. Lenders
c. General public
d. Customers

43. Generally accepted accounting principles

a. Are fundamental truths or axioms that can be derive from laws if nature
b. Derive their authority from legal court proceedings
c. Derive their credit and authority from general recognition and acceptance by the accounting
profession
d. Have been specified in detail in the FRSC conceptual framework

44. Which accounting process is the recognition or non-recognition of business activities as accountable events?
a. Identifying
b. Measuring
c. Recording
d. Communicating

45. This accounting objective is geared toward proper income determination of fair performance of the enterprise and
therefore emphasizes the importance of the income statement.
a. Entity theory
b. Fund theory
c. Propriety theory
d. Residual equity theory

46. Which of the following statements about financial statements is incorrect?

a. They provide information about the financial position, performance and cash flows of an enterprise that is
useful to a wide range of users of making economic decisions
b. They show the results of the stewardship of the management for the resources of the management for the
resources entrusted to it by the capital providers
c. They are the primary responsibility of the management of the enterprise
d. They are prepared at least annually and are directed to the both the common and specific information needs
of a wide range of statement users.

47. Which of the following is part of the reserves section of the statement of changes equity?
a. Revaluation surplus
b. Dividends paid to shareholders
c. Prior period error correction
d. Cumulate effect of change in accounting policy

48. All of the following limit the usefulness of the balance sheet except:
a. Assets, liabilities, and equity are stated in terms of unequal purchasing power
b. Variations among companies in balance sheet classification, terminology and detail of presentation
c. Use of supporting schedules and parenthetical notation
d. Adherence to the historical cause of accounting

49. The overall principles of the presentation include the following, except
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a. The financial statements should present fairly the financial position, performance and cash flows of the
enterprise
b. Management should select and apply accounting policies that are inconformity with FRSC standards
c. There is no instance when offsetting is allowed in the presentation of the financial information
d. Financial statement should be prepared on a going concern basis

50. What is the purpose of the information presented as notes to the financial statements?
a. To provide disclosures required by generally accepted accounting principles
b. To correct improper presentation in the financial statements
c. To provide recognition of amounts not included in the totals of the financial statements
d. To present managements responses to the auditors comments

51. Which of the following should be disclosed in the summary of significant accounting policies?
a. Refinancing of debt subsequent to the balance sheet
b. Guarantees of indebtedness of others
c. Criteria for determining which investments are treated as cash equivalent
d. Adequacy of pension plan assets relative to vested benefits

52. Which of the following phrases is not part of the fundamental purpose of accounting
a. Financial in nature
b. Making economic decisions
c. Qualitative information
d. Intended to be useful
53. The information provided by financial reporting pertains to
a. Individual business enterprises, rather than to industries or an economy as a whole or to members of society
as consumers
b. Business industries, rather than to individual enterprises or an economy as a whole or to members of society
as consumers
c. Individual business enterprises, industries, and an economy as a whole, rather than to members of society as
consumers
d. An economy as a whole and to members of society as consumers, rather than to individual enterprises or
industries
54. During a period when an enterprise is under the direction of a particular management, financial reporting will directly
provide information about
a. Both enterprise performance and management performance
b. Management performance but not management performance
c. Enterprise performance but not management performance
d. Neither enterprise performance nor management performance
55. One of the basic features of financial accounting is the
a. Direct measurement of economic resources and obligations and changes in them in terms of money and
sociological and psychological impact
b. Direct measurement of economic resources and obligations and changes in them in terms of money
c. Direct measurement of economic resources and obligations and changes in them in terms of money and
sociological impact
d. Direct measurement of economic resources and obligations and changes in them in terms of money and
psychological impact
56. External audit is
a. The branch of accounting that focuses on general purpose reports on financial position, performance and
cash flows
b. The area of public accounting that involves the examination of financial statements of a CPA for the
expression of an opinion as to fairness of the financial statements
c. The branch of accounting wherein accountants are employed in business activities in various capacities , as
accounting staff, chief accountant or controller
d. The same as the branch of accounting known as government accounting
57. Financial accounting is the area of accounting that emphasizes reporting to
a. Management
b. Regularity bodies
c. Internal auditors
d. Creditors and investors
58. These are accounting information users who are interested in information that enables them to determine whether
their loans, and the interest attaching to them, will be paid when due
a. Investors
b. Lenders
c. Customers and suppliers
d. General public
59. Which of the following is a direct user of financial accounting information?
a. Stock exchange
b. Registration authorities
c. Creditors
d. Lawyers
60. Which of the following is an indirect user of financial accounting information?
a. Management b. Prospective investors c. Labor unions d. Stockholders
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61. The main objective of financial statements is

a. To comply with government reportorial requirements
b. To provide information about the financial position, performance, and cash flows of a business enterprise
c. To showcase a companys achievements in business enterprise
d. To make a forecast about the companys future viability as a business undertaking
62. Which among the following does not form part of the complete set of financial statements?
a. Statement of financial position
b. Statement in changes in financial position
c. Value-added statements
d. Notes and supplementary schedules
63. It is the financial flexibility if the enterprise that is portrayed in the balance sheet.
a. Liquidity b. Solvency c. Financial structure d. Capacity for adaptation
64. Solvency is defined
a. Ability of the enterprise to pay current maturing obligations
b. Ability of the enterprise to meet obligations as they fall due
c. Invested capital of the enterprise
d. Borrowed capital of the enterprise
65. Which among of the following quotations best exemplifies the accounting objective entity theory that so geared
toward proper income determination
a. Assets= Liabilities + Capital
b. Assets +Capital = Liabilities
c. Assets Liabilities = Capital
d. Assets Liabilities = Capital
66. What is the conceptual framework of accounting?
a. It is a financial statement that shows a companys financial position
b. It is considered as the Philippine Financial Reporting Standard (PFRS) that constitutes generally accepted
accounting practice in the Philippines
c. It is theoretical foundation that guides standard-setters, preparers and users in the preparation and
presentation of financial statements
d. It is to prevail any provision of the Philippine Financial Reporting Standards, especially in areas where there is
a conflict between PFRS and the framework
67. One of the following is NOT a basic purpose of the conceptual framework of accounting
a. To assist preparers of financial statements in applying the accounting standards
b. To assist the Financial Reporting Standards Council (FRSC) in developing accounting standards
c. To assist the Board of Accountancy (BoA) in promulgating rules and regulations affecting the practice of
accountancy in the Philippines
d. To assist FRSC in reviewing and adopting International Accounting and Financial Reporting Standards
68. The Conceptual Framework is intended to assist
a. Financial Reporting Standards Council
b. Investors
c. Certified Public Accountants (CPAs) in public practice
d. All of these
69. The conceptual Framework of Accounting is applicable to all of the following, except
a. General purpose financial statements
b. Special purpose financial statements
c. Commercial, industrial and business enterprise
d. Public enterprise
70. Which is not included in the financial scope of the ASC Conceptual Framework?
a. Objectives of financial statements
b. Qualitative characteristic that determine the usefulness of the financial accounting information
c. Definition, recognition and measurement of the elements of financial statements
d. Generally accepted accounting enterprise
71. What are the two underlying accounting assumptions mentioned by the Conceptual Framework?
a. Accrual and periodicity
b. Going concern
c. Going concern and periodicity
d. Time period and monetary unit
72. These are the qualities or attributes that make financial accounting information useful except
a. Quantitative techniques
b. Management objectives
c. Qualitative characteristics
d. Financial objectives

73. The underlying theme of the IASB Conceptual Framework is

a. Timeliness b. Decision usefulness c. Comparability d. Understandability

TOA-1-14 CONFRAM-001