MODULE 2

• Which of the following is an internal user of fianancial information?

  1. Board of Directors
  2. Shareholder
  3. Creditor with long-term contract
  4. Holder of Bonds

  Board of Directors
• Which of the following is not an enhancing qualitative characteristic?

  Timeliness

  Profit-oriented

  Understandability

  Comparability

  Profit-oriented
• The standards published by the IASB are called _.

  International Financial Reporting Standards
• In measuring financial performance, accrual accountig is used because _.

  1. It recognizes revenue when cash is recieved
  2. Cash flows are consideres less important
  3. It iss one of the imlicit assumptions
  4. It provides a better indication to generate cash flows than cash basis

  4
• Which term best describes information in financial statements that is neutral?

  1. Unbiased
  2. Understandable
  3. Relevant
  4. Comparable

  Unbiased
• An item would be considered material when _.

  1. The standard definition of materiality is met.
  2. The impact on earnings is greater than 10%.
  3. The expected benefit exceeds the additional cost
  4. Omitting, misstating, or obscuring the information would make a difference to the primariy users

  4
• Financial accouting is concerned with_.

  1. Speccial reports for inventory management
  2. Special reports for income tax computation
  3. General purpose on changes in share prices
  4. General purpose of financial position and financial performance

  4
• The standard-setting includes the correct order

  1. Research, exposure draft, discussion paper, and accounting standard
  2. Research, discussion paper, exporsure draft, and accounting standard
  3. Exposure draft, research, discssion paper, and accounting standard
  4. Discussion papeer, reseach, exposure draft, and accounting standard

  2
• It is important to remember that the Conceptual Framework is NOT an International Financial Reporting Standard (IFRS).
• Nothing in the Conceptual Framework overrides any specific IFRS.
• If a conflict occurs and there is a fight over whether to use the Conceptual Framework and IFRS, the IFRS WINS and prevails over the Conceptual Framework.
• Are the basic notions or fundamental premises on which the accounting process is based. It is also known as Postulates.

  Accounting Assumptions
• The Conceptual Framework for Financial Reporting mentions only one assumption namely Going Concern.
• However, implicit in accounting are the basic assumptions of Accounting Entity, Time Period, and Monetary Unit.
• CPA's are licensed by _.

  1. The PIPCA
  2. The SEC
  3. The City Government
  4. State government


  State Government
• 4 Basic Accounting Assumptions are:

  • Going Concern
  • Time Period
  • Accounting Entity / Business Entity
  • Monetary Unit
• 1. To help the IASB to develop IFRS Standards based on consistent concepts.
  2. To help the preparers to have a consistent accounting policy when there is no standard that applies in a transaction or where there is no issue yet addressed by an IFRS.
  3. To help preparers to develop a accounting policy when they are allowed to.
  4. To help all parties and users understand and interret the IFRS Standard.


  Purpose of Revised Conceptual Framework
• It is a complete, comprehensive, and single document promulgated by the International Accounting Standard Board (IASB)


  Conceptual Framework for Financial Reporting
• States that the business is VIEWED as Continuing in operation indefinitely.


  Going Concern
• States that the entity is SEPARATE from the owner, manager, an employees who constitute the entity.



  Accounting Entity
• Requires that the indefinite life of the entity is subdivided into time periods or accounting periods which are usually equal length for the purpose of preparing financial reports on financial position, performance, and cash flows.


  Time Period
• Every entity shall be EXPRESSED in terms of currency. Here in the Philippines, we use pesos.


  Monetary Unit
• Users that are existing and potential investors, lenders, and other creditors.

  Primary Users
• Users that are employees, customers, governments and their agencies, and the public.

  Secondary Users
• They are concerned in the inherent risk in and return providedby their investments.

  Existing and Potential Investors
• They are interested in financial information to determine whether the loans, interests, and other costs will be paid on due date.

  Lenders and other Creditors
• They are interested in information about the stability and profitability of the entity.

  Employees
• They are interested in the information about the continuance if the entity especially of they have a long-term involvement or are dependent on the entity.

  Cutomers
• They are interested in the allocation of resources and the activities of the entity.

  Government and their Agencies
• They affect the firm in many ways such as employing people from a community and patronizing their suppliers.


  Public
• Assets are economic resources while liabilities and equity are the claim against it.
• Liquidity is the availability of cash in the near future to cover currently maturing obligations.
• Solvency is the availability of cash over a long term to meet financial commitments when they fall due.
• In layman’s terms, under the ACCRUAL BASIS, the effect of the transaction is recognized when they occur and not as cash is received or paid