CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

QUIZ #1

1. Accounting has been given various definitions, which of the following is not one of those definitions?
a. Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature,
about economic entities that is intended to be useful in making economic decisions.
b. Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms of money,
transactions and events which are, in part of at least, of a financial character and interpreting the results
thereof.
c. Accounting is a systematic process of objectively obtaining and evaluating evidence regarding assertions
about economic actions and events to ascertain the degree of correspondence between these assertions and
established criteria and communicating the results to interested users.
d. Accounting is the process of identifying, measuring, and communicating economic information to permit
informed judgment and decisions by users of information.

2. Which of the following statements is true?

a. The basic purpose of accounting is to provide information about economic activities intended to be useful in
making economic decisions.
b. All events and transactions of an entity are recognized in the books of accounts.
c. General purpose financial statements are those statements that cater to the common and specific needs of a
wide range of external users.
d. The accounting process of assigning numbers, commonly in monetary terms, to the economic transactions
and events is referred to as classifying.

3. The accounting standards used in the Philippines are adapted from the standards issued by the
a. Federal Accounting Standards Board (FASB).
b. International Accounting Standards Board (IASB).
c. Philippine Institute of Certified Public Accountants (PICPA).
d. Democratic People's Republic of Korea Accounting Standards Committee (DPKRASC).

4. Which of the following statements is incorrect regarding the basic accounting concepts?
a. One of ABC Co.’s delivery trucks was involved in an accident. Although no lawsuits have yet been filed against
ABC, ABC recognized a liability for the probable loss on the event. This is an application of the prudence or
conservatism concept.
b. Under the consistency concept, the financial statements should be prepared on the basis of accounting
principles which are followed consistently.
c. Under the entity theory, the business is viewed as a separate entity. Therefore, the personal transactions of
the business owners are not recorded in the business’ accounting records.
d. The time period concept means that financial statements are prepared only at the end of the life of a business.

5. Entity A appropriates ₱1M to fund employee benefits for the last quarter of the following year. Entity A deposits the
₱1M fund in a payroll account. This economic activity is most appropriately referred to as
a. production. c. exchange.
b. savings. d. investment.

6. It is the branch of accounting that focuses on the preparation of general purpose financial statements.
a. Financial accounting c. All-purpose Accounting
b. General Accounting d. All-around accounting

7. These are events that do not involve an external party.

a. external events c. internal events
b. nonreciprocal d. special event

8. Entity A computes for its profit or loss periodically instead of waiting until the end of the life of the business before
doing so. This is an application of which of the following accounting concepts?
a. historical cost c. accrual basis
b. stable monetary unit d. time period or reporting period

9. This refers to the use of caution in the exercise of judgments needed in making estimates required under conditions
of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated.
a. faithful representation c. consistency
b. prudence d. relevance

10. The bottom part of each of Entity A’s financial statements states the following “This statement should be read in
conjunction with the accompanying notes.” This is most likely an application of which of the following accounting
concepts?
a. articulation c. accrual basis
b. consistency d. time period

11. Which of the following events is considered as an internal event?

a. sale of inventory on account d. conversion of raw materials into finished
b. provision of capital by owners goods
c. borrowing of money
12. This concept defines the area of interest of the accountant. It determines which transactions are recognized in the
books of accounts and which are not.
a. Articulation c. Separate entity
b. Matching d. Full disclosure

13. A CPA employed as an accountant in a government agency is considered to be in

a. private practice. c. academe.
b. public practice. d. service.

14. Which of the following statements about the Norwalk Agreement is correct?
a. The Norwalk Agreement requires all domestic companies in the U.S. to prepare financial statements in
accordance with the IFRSs.
b. The Norwalk Agreement is a short-term convergence between the FASB and the IASB which has long-time
been abolished.
c. The Norwalk Agreement is a convergence between the FASB and the IASB to make their existing financial
reporting standards compatible and coordinate their future work programs to ensure that once achieved,
compatibility is maintained.
d. The Norwalk Agreement does not affect the financial reporting standards in the Philippines.

15. The PFRS Accounting Standards consist of all of the following except
a. PFRS. c. Interpretations.
b. PAS. d. Conceptual Framework.

16. It is the official accounting standard setting body in the Philippines.

a. Financial Reporting Standards Committee (FRSC)
b. Financial and Sustainability Reporting Standards Committee (FSRSC)
c. Accounting Standards Committee (ASC)
d. Accounting Standards Council (ASC)

17. Financial reporting standards continuously change primarily in response to

a. users’ needs. c. government regulations.
b. political influence. d. changes in social environments.

18. Accounting is often called the "language of business" because

a. it is easy to understand.
b. it is fundamental to the communication of financial information.
c. all business owners have a good understanding of accounting principles.
d. accountants in many companies share financial information.

19. You are the accountant of ABC Co. During the period, your company purchased staplers worth ₱1,500. Although
the staplers have an estimated useful life of 10 years, you have charged their cost as expense. Which of the
following is most likely to be true?
a. You are applying the concept of matching.
b. You are applying the concepts of materiality and cost-benefit consideration.
c. You are applying the concept of verifiability.
d. You are just lazy to compute for the periodic depreciation. 

20. All of the following statements incorrectly refer to the concepts in the Conceptual Framework except
a. The Conceptual Framework is concerned with all-purpose financial statements.
b. Financial statements are prepared and presented at least annually and are directed toward both the common
and specific information needs of a wide range of users.
c. The objective of general purpose financial statements is similar to the objective of general purpose financial
reporting.
d. The financial statements prepared by a reporting entity comprising a parent and its subsidiaries are referred
to as ‘combined financial statements’.

21. What is the authoritative status of the Conceptual Framework?

a. It has the highest level of authority. In case of a conflict between the Conceptual Framework and a Standard,
the Conceptual Framework overrides that Standard.
b. If there is a Standard that specifically applies to a transaction, that Standard overrides the Conceptual
Framework. In the absence of such a Standard, the requirement of the Conceptual Framework should be
followed.
c. If there is a Standard that applies to a transaction, that Standard overrides the Conceptual Framework. In the
absence of such a Standard, the entity’s management should consider the applicability of the Conceptual
Framework in developing and applying an accounting policy that will result in useful information.
d. The Conceptual Framework applies only to the IASB when developing or amending Standards. A reporting
entity should never use the Conceptual Framework.

22. The foundation of the Conceptual Framework is formed from

a. the qualitative characteristics that makes information useful to users.
b. the objective of general purpose financial reporting.
c. the concept of reporting entity.
d. the principles and objectives of presentation and disclosure of financial information.

23. What is the objective of general purpose financial statements according to the Conceptual Framework?
a. To provide information about the financial position, financial performance, and changes in financial position of
an entity that is useful to primary users in making economic decisions.
 b. To prepare and present a balance sheet, an income statement, a cash flow statement, and a statement of
changes in equity.
c. To prepare and present comparable, relevant, reliable, and understandable information for investors and
creditors.
d. To prepare financial statements in accordance with all applicable Standards and Interpretations.

24. The primary users of financial statements under the Conceptual Framework include
I. Existing and potential investors
II. Employees
III. Lenders and other creditors
IV. Suppliers and other trade creditors
V. Customers
VI. Governments and their agencies
VII. Public
VIII. Professional accountants, including auditors
a. I and III
b. I, II, III, IV, V, VI, VII
c. I, II, III, IV, V, VI
d. all of these

25. The Conceptual Framework broadly classifies the qualitative characteristics into
a. primary and secondary qualitative characteristics.
b. major and minor qualitative characteristics.
c. fundamental and enhancing qualitative characteristics.
d. cold and hot qualitative characteristics.

26. Identify the fundamental qualitative characteristics under the Conceptual Framework.
I. Relevance
II. Reliability
III. Faithful representation
IV. Comparability
V. Verifiability
VI. Timeliness
VII. Understandability

a. I and II
b. I and III
c. I, II, III, IV, V and VI
d. IV, V, VI and VII

27. Identify the qualitative characteristics that enhance the usefulness of financial information.
I. Relevance V. Verifiability
II. Reliability VI. Timeliness
III. Faithful representation VII. Understandability
IV. Comparability

a. I and II
b. I and III
c. II, III, IV, V and VII
d. IV, V, VI and VII

28. Which of the following are considered aspects of the qualitative characteristic of relevance under the Conceptual
Framework?
I. Predictive value III. Timeliness
II. Confirmatory value IV. Materiality

a. I and II
b. I, II and III
c. I, II and IV
d. I, II, III and IV

29. Under this qualitative characteristic, users are assumed to have a reasonable knowledge of business activities and
willingness to study the information with reasonable diligence.

a. Relevance c. Understandability
b. Faithful representation d. Comparability

30. Which of the following statements is incorrect concerning materiality?

a. Materiality can be assessed quantitatively or qualitatively
b. There are no specific materiality thresholds provided under the PFRSs
c. Materiality is a matter of judgment
d. Materiality is a quantitative matter. It should never be assessed qualitatively.