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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

Question: The AICPA Special Committee on Financial Reporting proposed the following constraints related to financial reporting.

  1. Business reporting should exclude information outside of managementโ€™s expertise or for which management is not the best source, such as information about competitors.
  2. Management should not be required to report information that would significantly harm the companyโ€™s competitive position.

  3. Management should not be required to provide forecasted financial statements. Rather, management should provide information that helps users forecast themselves the companyโ€™s financial future.

  4. Other than for financial statements, management need report only the information it knows. That is, management should be under no obligation to gather information it does not have, or does not need, to manage the business.

  5. Companies should present certain elements of business reporting only if users and management agree they should be reported- a concept of flexible reporting.

  6. Companies should not have to report forward-looking information unless there are effective deterrents to unwarranted litigation that discourages companies from doing so.

Instructions

For each item, briefly discuss how the proposed constraint addresses concerns about the costs and benefits of financial reporting.

According to the FASB conceptual framework, the objective of financial reporting for business enterprises is based on the needs of the users of financial statements. Explain the level of sophistication that the Board assumes about the users of financial statements.

What accounting assumption, principle, or constraint would Target Corporation use in each of the situations below?

(a) Target was involved in litigation over the last year. This litigation is disclosed in the financial statements.

(b) Target allocates the cost of its depreciable assets over the life it expects to receive revenue from these assets.

(c) Target records the purchase of a new Dell PC at its cash equivalent price.

Briefly describe how the organization of the FASB Codification corresponds to the elements of financial statements.

BE2-9 (L05) If the going concern assumption is not made in accounting, discuss the differences in the amounts shown in thefinancial statements for the following items.

(a) Land. (d) Inventory.

(b) Unamortized bond premium. (e) Prepaid insurance.(c) Depreciation expense on equipment.

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