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Chapter 2: Question 1E (page 65)

(Usefulness, Objective of Financial Reporting) Indicate whether the following statements about the conceptual framework are true or false. If false, provide a brief explanation supporting your position.

  1. Accounting rule-making that relies on a body of concepts will result in useful and consistent pronouncements.
  2. General-purpose financial reports are most useful to company insiders in making strategic business decisions.
  3. Accounting standards based on individual conceptual frameworks generally will result in consistent and comparable accounting reports.
  4. Capital providers are the only users who benefit from general-purpose financial reporting.
  5. Accounting reports should be developed so that the users without knowledge of economics and business can become informed about the financial results of a company.
  6. The objective of financial reporting is the foundation from which the other aspects of the framework logically result.

Short Answer

Expert verified

Indication for all the given options are as follows:

  • True
  • False
  • False
  • False
  • False
  • true

Step by step solution

01

Meaning of Financial Reporting

The termfinancial reporting refers to the process whereby the information gathered by the accountant whilerecording and bookkeeping are presented to the final users who can be either internal users like managers orexternal users like the government.

02

Explanation for Statement ‘a’

The primary reasons for developing an agreed conceptual framework are that it provides a basis for establishing accounting standards, a basis for resolving accounting disputes, fundamental principles which need to be repeated in accounting standards.

Thus, the statement is true.

03

Explanation for Statement ‘b’

General-purpose financial reports reflect all of the financial reporting information that is required by a business.

General-purpose financial reports are beneficial not only to the company insiders but also to a wide variety of users, consisting of shareholders, creditors, suppliers, employees, and regulators.

Thus, the statement is false.

04

Explanation for Statement ‘c’

Accounting standards are generally accepted accounting principles that provide the basis for accounting policies and for the preparation of financial statements.

Accounting standards are based on the individual conceptual frameworks will result in different conclusions about similar problems. Therefore, the standards will not be consistent with one another, and decisions related to the past may not be indicative of future ones.

Thus, the statement is false.

05

Explanation for Statement ‘d’

Capital providers are individuals who provide capital or extend credit to a provider or an affiliate of the provider to provide certain tax benefits from the systems to such individuals in interest.

Information that is beneficial for the capital providers might also be beneficial to the users of financial reporting other than the capital providers.

Thus, the statement is false.

06

Explanation for Statement ‘e’

Accounting reports are the collection of accounting information that is obtained from the accounting records of a business.

It is assumed that the users of the accounting reports possess adequate knowledge of the business and the economic activities.

Thus, the statement is false.

07

Explanation for Statement ‘f’

Financial reporting is inclusive of all the financial statements such as income statement, balance sheet, statement of cash flows, and statement of stockholder鈥檚 equity.

The purpose of financial reporting is to examine the usage of cash flow, the performance of the business, and its financial health.

Thus, the statement is true.

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Most popular questions from this chapter

(Full Disclosure Principle) Presented below are a number of facts related to Weller, Inc. Assume that no mentionof these facts was made in the financial statements and the related notes.

Instructions

Assume that you are the auditor of Weller, Inc. and that you have been asked to explain the appropriate accounting and related disclosure necessary for each of these items.

(a) The company decided that, for the sake of conciseness, only net income should be reported on the income statement. Details as to revenues, cost of goods sold, and expenses were omitted.

(b) Equipment purchases of \(170,000 were partly financed during the year through the issuance of a \)110,000 notes payable. The company offset the equipment against the notes payable and reported plant assets at \(60,000.

(c) Weller has reported its ending inventory at \)2,100,000 in the financial statements. No other information related to inventories is presented in the financial statements and related notes.

(d) The company changed its method of valuing inventories from weighted-average to FIFO. No mention of this change was made in the financial statements.

E2-2 (L01,2,3) (Usefulness, Objective of Financial Reporting, Qualitative Characteristics) Indicate whether the following statements about the conceptual framework are true or false. If false, provide a brief explanation supporting your position.

  1. The fundamental qualitative characteristics that make accounting information useful are relevance and verifiability.
  2. Relevant information only has predictive value, confirmatory value, or both.
  3. (c)Information that is a faithful representation is characterized as having predictive or confirmatory value.
  4. Comparability pertains only to the reporting of information in a similar manner for different companies.
  5. Verifiability is solely an enhancing characteristic for faithful representation.
  6. In preparing financial reports, it is assumed that users of the reports have reasonable knowledge of business and economic activities.

Question: What are some of the costs of providing accounting information? What are some of the benefits of accounting information? Describe the cost-benefit factors that should be considered when new accounting standards are being proposed.

Question: Which of the following statements about the IASB and FASB conceptual frameworks is not correct?

  1. The IASB conceptual framework does not identify the element comprehensive income.
  2. The existing IASB and FASB conceptual frameworks are organized in similar ways.
  3. The FASB and IASB agree that the objective of financial reporting is to provide useful information to investors and creditors.
  4. IFRS does not allow use of fair value as a measurement basis.

Question: For each item below, indicate to which category of elements of financial statements it belongs.

(a) Retained earnings (f) Loss on sale of equipment

(b) Sales (g) Interest payable

(c) Additional paid-in capital (h) Dividends

(d) Inventory (i) Gain on sale of investment

(e) Depreciation (j) Issuance of common stock
See all solutions

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