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Chapter 2: Q1ISTQ (page 75)

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.

Short Answer

Expert verified

Answer

The correct optionis (d) IFRS does not allow the use of fair value as a measurement basis.

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 correct because the IFRS allows the use of fair value for measurement basis. The fair value measurement basis is described under IFRS 13. IFRS 13 provides information about the fair value measurement and its disclosure

03

Explanation for incorrect options

  1. This option is incorrect because the IASB conceptual framework does not identify the element of comprehensive income. Rather, it identifies the element changes in equity.
  2. This option is incorrect because the conceptual framework of both IASB and FASB are organized in similar ways to
  3. This option is incorrect because the IASB and FASB both believe that the main users of the financial statement and also believe that these are prepared to provide useful information to them only.

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Most popular questions from this chapter

Question: Describe the major constraint inherent in the presentation of accounting information.

Question: BE2-5 (L03) Presented below are three different transactions related to materiality. Explain whether you would classify these transactions as material.(

a) Blair Co. has reported a positive trend in earnings over the last 3 years. In the current year, it reduces its bad debt allowance to ensure another positive earnings year. The impact of this adjustment is equal to 3% of net income.

(b) Hindi Co. has an unusual gain of \(3.1 million on the sale of plant assets and a \)3.3 million loss on the sale of investments. It decides to net the gain and loss because the net effect is considered immaterial. Hindi Co.'s income for the current year was \(10 million.

(c) Damon Co. expenses all capital equipment under \)25,000 on the basis that it is immaterial. The company has followed this practice for a number of years.

Do the IASB and FASB conceptual frameworks differ in terms of the role of financial reporting? Explain.

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?

Question: (Qualitative Characteristics) Recently, your uncle, Carlos Beltran, who knows that you always have your eye out for a profitable investment, has discussed the possibility of your purchasing some corporate bonds. He suggests that you may wish to get in on the “ground floor” of this deal. The bonds being issued by Neville Corp. are 10-year debentures which promise a 40% rate of return. Neville manufactures novelty/party items.

You have told Uncle Carlos that, unless you can take a look at Neville’s financial statements, you would not feel comfortable about such an investment. Believing that this is the chance of a lifetime, Uncle Carlos has procured a copy of Neville’s most recent, unaudited financial statements which are a year old. These statements were prepared by Mrs. Andy Neville. You peruse these statements, and they are quite impressive. The balance sheet showed a debt-to-equity ratio of 0.10 and, for the year shown, the company reported net income of $2,424,240.

The financial statements are not shown in comparison with amounts from other years. In addition, no significant note disclosures about inventory valuation, depreciation methods, loan agreements, etc. are available.

Instructions

Write a letter to Uncle Carlos explaining why it would be unwise to base an investment decision on the financial statements that he has provided to you. Be sure to explain why these financial statements are neither relevant nor representationally faithful.
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