Practice exam Corporate Financial
Reporting: Spring 2019
Created based on notes/slides.
1. During the financial crisis of 2007, banks such as Bear Sterns took irresponsible risks. They
expected that governments will prevent them from bankruptcy (government bailouts). What
describes a situation whereby one or more parties can observe their actions in fulfillment of
the contract but other parties cannot?
A. Information symmetry
B. Adverse selection
C. Moral hazard
2. Which of the following statements is correct?
A. Members of the Federal Accounting Standards Board appoint members of the International
Accounting Standards Board.
B. The International Accounting Standards Board are represented by the countries of the largest
economies (US, UK, France, Australia, Brazil, China, India, Japan and Sweden).
C. The IASB and IFRS Advisory Council report to the IFRS Foundation.
3. What is a disadvantage of harmonized accounting standards?
A. Harmonized accounting standards decrease the attractiveness of local capital markets for
foreign firms.
B. Accounting quality does not only depend on accounting standards, but also on the
enforcement of the rules.
C. Decreased comparability of international financial statements (understandability)
4. Why was the concept of prudence reintroduced in the Conceptual Framework (2018)?
A. Prudence, according tot the Conceptual Framework, justifies creating high reserves.
B. The revised Conceptual Framework should acknowledge that the exercise of prudence implies
a need for asymmetry.
C. Prudence supports neutrality.
5. What is a fundamental qualitative characteristic of faithful representation?
A. A faithful representation will always result in useful information.
B. The financial information has predictive and/or confirmatory value.
C. The financial information contains no errors or omissions in the description of the
phenomenon.
, 6. What is the main purpose the IASB keeps the Conceptual Framework and doesn’t introduce
very active realtime interpretations?
A. The Conceptual Framework provides guidance and direction to the standard setters, and
therefore will lead to consistency among the standards.
B. The Conceptual Framework will always retain a ‘Going Concern Assumption’ which means that
the entity will continue to operate for the foreseeable future.
C. Both of the above.
7. Which example represents fair value?
A. A competitor in the same market, Entity Y offers Entity X $ 1 million for its Radiator Division.
B. Entity X offers to sell its Radiator Division to Entity Y, which is a competitor in the same market,
for $ 1.2 million.
C. Entity X purchased the Radiator Division for $ 900,000 last year and the profit for this year was
$ 50,000.
8. On Market A, a truck selling price is $25,000 with $ 2,000 Transactions costs and $1,000
Transportation costs. On Market B, the same truck selling price is $ 22,000 with $ 4,000
Transaction costs and $2,500 Transportation costs. What is the fair value of the truck if you
know that Market A is the principal market?
A. $ 28,000
B. $ 26,000
C. $ 24,500
9. A donor contributes land in an otherwise developed residential area to a not-for-profit
neighborhood association. The land is currently used as a playground. The donor specifies that
the land must continue to be used by the association as a playground in perpetuity. Without
the restriction on the use of the land by the association, the land could be used as a site for
residential development. Should the association take the donor’s restriction into account for
measuring the fair value of the playground?
A. Yes, since the association should measure the land as playground.
B. No, since the donor’s restriction is not transferrable when the association sells the land.
C. No, since the association can ignore the donor’s restriction.
10. What is an example of a Level 2 input?
A. Interest rates that are observable at commonly quoted intervals.
B. Quoted prices for similar assets and liabilities in markets that are active.
C. Valuation models with input based on internal estimates (e.g., future cash flows).
Reporting: Spring 2019
Created based on notes/slides.
1. During the financial crisis of 2007, banks such as Bear Sterns took irresponsible risks. They
expected that governments will prevent them from bankruptcy (government bailouts). What
describes a situation whereby one or more parties can observe their actions in fulfillment of
the contract but other parties cannot?
A. Information symmetry
B. Adverse selection
C. Moral hazard
2. Which of the following statements is correct?
A. Members of the Federal Accounting Standards Board appoint members of the International
Accounting Standards Board.
B. The International Accounting Standards Board are represented by the countries of the largest
economies (US, UK, France, Australia, Brazil, China, India, Japan and Sweden).
C. The IASB and IFRS Advisory Council report to the IFRS Foundation.
3. What is a disadvantage of harmonized accounting standards?
A. Harmonized accounting standards decrease the attractiveness of local capital markets for
foreign firms.
B. Accounting quality does not only depend on accounting standards, but also on the
enforcement of the rules.
C. Decreased comparability of international financial statements (understandability)
4. Why was the concept of prudence reintroduced in the Conceptual Framework (2018)?
A. Prudence, according tot the Conceptual Framework, justifies creating high reserves.
B. The revised Conceptual Framework should acknowledge that the exercise of prudence implies
a need for asymmetry.
C. Prudence supports neutrality.
5. What is a fundamental qualitative characteristic of faithful representation?
A. A faithful representation will always result in useful information.
B. The financial information has predictive and/or confirmatory value.
C. The financial information contains no errors or omissions in the description of the
phenomenon.
, 6. What is the main purpose the IASB keeps the Conceptual Framework and doesn’t introduce
very active realtime interpretations?
A. The Conceptual Framework provides guidance and direction to the standard setters, and
therefore will lead to consistency among the standards.
B. The Conceptual Framework will always retain a ‘Going Concern Assumption’ which means that
the entity will continue to operate for the foreseeable future.
C. Both of the above.
7. Which example represents fair value?
A. A competitor in the same market, Entity Y offers Entity X $ 1 million for its Radiator Division.
B. Entity X offers to sell its Radiator Division to Entity Y, which is a competitor in the same market,
for $ 1.2 million.
C. Entity X purchased the Radiator Division for $ 900,000 last year and the profit for this year was
$ 50,000.
8. On Market A, a truck selling price is $25,000 with $ 2,000 Transactions costs and $1,000
Transportation costs. On Market B, the same truck selling price is $ 22,000 with $ 4,000
Transaction costs and $2,500 Transportation costs. What is the fair value of the truck if you
know that Market A is the principal market?
A. $ 28,000
B. $ 26,000
C. $ 24,500
9. A donor contributes land in an otherwise developed residential area to a not-for-profit
neighborhood association. The land is currently used as a playground. The donor specifies that
the land must continue to be used by the association as a playground in perpetuity. Without
the restriction on the use of the land by the association, the land could be used as a site for
residential development. Should the association take the donor’s restriction into account for
measuring the fair value of the playground?
A. Yes, since the association should measure the land as playground.
B. No, since the donor’s restriction is not transferrable when the association sells the land.
C. No, since the association can ignore the donor’s restriction.
10. What is an example of a Level 2 input?
A. Interest rates that are observable at commonly quoted intervals.
B. Quoted prices for similar assets and liabilities in markets that are active.
C. Valuation models with input based on internal estimates (e.g., future cash flows).
