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Question: The issues that the FASB and IASB must address in developing a conceptual framework include all of the following except:

(a) should the characteristic of relevance be traded-off in favor of information that is verifiable?

(b) should a single measurement method such as historical cost be used?

(c) what are the key elements of asset and liability definitions?

(d) should the role of financial reporting focus on internal decision-making as well as providing information to assist users in decision-making?

Short Answer

Expert verified

Answer

The correct option is(d)

Step by step solution

01

Definition of Conceptual Framework

Conceptual frameworks can be defined as the fundamentals and the principles that must be followed to achieve the targeted objective of the financial reporting.

02

Explanation for correct options

Option (d) is the correct option because the conceptual framework does not focus on the role of financial reporting. Instead, it focuses on the quality and elements of the financial reports.

03

Explanation for incorrect options

  1. Option (a) is incorrect because the conceptual frameworks are established to increase the relevancy of the financial reporting of the business entity.
  2. Option (b) is incorrect because the conceptual framework focuses on the comparability of the financial statement; therefore, it determines the measurement method used for financial reporting.
  3. Option (c) is incorrect because the conceptual framework also defines the elements of the financial statement, such as assets, liabilities, equity, revenue, and expenses. Such definition is used to make classification between the various line items.

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Most popular questions from this chapter

What is the distinction between comparability and consistency?

What is the definition of fair value?

(Elements of Financial Statements) Ten interrelated elements that are most directly related to measuring the performance and financial status of an enterprise are provided below.

Assets Distributions to owners Expenses Liabilities Comprehensive Income Gains Equity Revenues Losses Investments by owners

Instructions

Identify the element or elements associated with the 12 items below.(a) Arises from peripheral or incidental transactions.

(b) Obligation to transfer resources arising from a past transaction.

(c) Increases ownership interest.

(d) Declares and pays cash dividends to owners.

(e) Increases in net assets in a period from nonowner sources.

(f) Items characterized by service potential or future economic benefit.

(g) Equals increase in assets less liabilities during the year, after adding distributions to owners and subtracting investments by owners.

(h) Arises from income statement activities that constitute the entityโ€™s ongoing major or central operations.

(i) Residual interest in the assets of the enterprise after deducting its liabilities.

(j) Increases assets during a period through sale of product.

(k) Decreases assets during the period by purchasing the companyโ€™s own stock.(l) Includes all changes in equity during the period, except those resulting from investments by owners and distributions to owners.

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 two assumptions are central to the IASB conceptual framework?

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