FINANCIAL REPORTING PRACTICE EXAM 2026
CPA & IFRS – 200+ Questions with Verified Answers
& Detailed Rationales
SECTION 1: CONCEPTUAL FRAMEWORK & STANDARD SETTING (Questions 1-20)
Question 1
Which of the following is NOT a fundamental qualitative characteristic of useful
financial information under the IASB Conceptual Framework?
A) Relevance
B) Faithful representation
C) Materiality
D) Comparability
Correct Answer: D
Rationale: The fundamental qualitative characteristics are relevance and faithful
representation. Comparability, verifiability, timeliness, and understandability are
enhancing qualitative characteristics. Materiality is an aspect of relevance.
Question 2
Under IFRS, the overriding principle of financial reporting is:
A) True and fair view / fair presentation
B) Legal compliance with local statutes
C) Maximizing profit
D) Minimizing tax liability
Correct Answer: A
Rationale: IFRS requires that financial statements present a true and fair view (or
fair presentation) of the entity's financial position, performance, and cash flows.
Question 3
The going concern assumption means that:
A) The entity will continue in operation for the foreseeable future
1|Page
,B) The entity will be liquidated next year
C) Assets are recorded at liquidation value
D) Liabilities are recorded at settlement value
Correct Answer: A
Rationale: Going concern assumes the entity will continue operating for at least
12 months from the reporting date. If not, liquidation basis is used.
Question 4
Under IFRS, which of the following is an enhancing qualitative characteristic?
A) Relevance
B) Faithful representation
C) Verifiability
D) Materiality
Correct Answer: C
Rationale: Enhancing characteristics include comparability, verifiability,
timeliness, and understandability.
Question 5
The accrual basis of accounting requires that:
A) Revenue is recorded only when cash is received
B) Expenses are recorded only when cash is paid
C) Transactions are recorded when they occur, not when cash is exchanged
D) Only cash transactions are recorded
Correct Answer: C
Rationale: Accrual accounting recognizes economic events regardless of cash flow
timing, matching revenues with expenses in the period incurred.
Question 6
Which of the following best describes "materiality"?
A) Information that could influence the economic decisions of users
B) All information must be disclosed regardless of size
C) Only large transactions matter
D) Information that is difficult to verify
2|Page
,Correct Answer: A
Rationale: Materiality is an entity-specific aspect of relevance. Information is
material if omitting or misstating it could affect user decisions.
Question 7
Under IFRS, which body sets international financial reporting standards?
A) FASB
B) IASB
C) SEC
D) PCAOB
Correct Answer: B
Rationale: The International Accounting Standards Board (IASB) issues IFRS. FASB
sets US GAAP.
Question 8
The concept of "prudence" (conservatism) under IFRS means:
A) Always recognize losses before they occur
B) Never recognize gains until realized
C) Exercise caution when making estimates under conditions of uncertainty
D) Minimize reported profit
Correct Answer: C
Rationale: Prudence is the exercise of caution when making estimates. It does not
permit intentional understatement of assets/income or overstatement of
liabilities/expenses.
Question 9
Which of the following is NOT a component of a complete set of IFRS financial
statements?
A) Statement of financial position
B) Statement of profit or loss and other comprehensive income
C) Statement of cash flows
D) Auditor's management letter
3|Page
, Correct Answer: D
Rationale: Complete financial statements include: SFP, SOCI (or two statements),
statement of changes in equity, statement of cash flows, and notes. Auditor's
opinion is separate.
Question 10
Under IFRS, which measurement basis is used for most non-financial assets after
initial recognition?
A) Historical cost
B) Fair value (revaluation model) or cost model depending on policy choice
C) Net realizable value
D) Present value
Correct Answer: B
Rationale: For property, plant, and equipment, IFRS allows either cost model or
revaluation model (fair value). Intangibles similarly allow revaluation only if active
market exists.
Question 11
Which of the following is a required financial statement under IFRS for a small
private company?
A) Statement of changes in equity
B) Statement of comprehensive income
C) Statement of cash flows (subject to exemption for some small entities)
D) All of the above may be required or exempted based on IFRS for SMEs
Correct Answer: D
Rationale: IFRS for SMEs has reduced disclosure requirements but still requires
SFP, SOCI, SOCE, and statement of cash flows (with certain exemptions).
Question 12
The element "income" includes both:
A) Revenue and gains
B) Cash and receivables
C) Assets and liabilities
D) Expenses and losses
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CPA & IFRS – 200+ Questions with Verified Answers
& Detailed Rationales
SECTION 1: CONCEPTUAL FRAMEWORK & STANDARD SETTING (Questions 1-20)
Question 1
Which of the following is NOT a fundamental qualitative characteristic of useful
financial information under the IASB Conceptual Framework?
A) Relevance
B) Faithful representation
C) Materiality
D) Comparability
Correct Answer: D
Rationale: The fundamental qualitative characteristics are relevance and faithful
representation. Comparability, verifiability, timeliness, and understandability are
enhancing qualitative characteristics. Materiality is an aspect of relevance.
Question 2
Under IFRS, the overriding principle of financial reporting is:
A) True and fair view / fair presentation
B) Legal compliance with local statutes
C) Maximizing profit
D) Minimizing tax liability
Correct Answer: A
Rationale: IFRS requires that financial statements present a true and fair view (or
fair presentation) of the entity's financial position, performance, and cash flows.
Question 3
The going concern assumption means that:
A) The entity will continue in operation for the foreseeable future
1|Page
,B) The entity will be liquidated next year
C) Assets are recorded at liquidation value
D) Liabilities are recorded at settlement value
Correct Answer: A
Rationale: Going concern assumes the entity will continue operating for at least
12 months from the reporting date. If not, liquidation basis is used.
Question 4
Under IFRS, which of the following is an enhancing qualitative characteristic?
A) Relevance
B) Faithful representation
C) Verifiability
D) Materiality
Correct Answer: C
Rationale: Enhancing characteristics include comparability, verifiability,
timeliness, and understandability.
Question 5
The accrual basis of accounting requires that:
A) Revenue is recorded only when cash is received
B) Expenses are recorded only when cash is paid
C) Transactions are recorded when they occur, not when cash is exchanged
D) Only cash transactions are recorded
Correct Answer: C
Rationale: Accrual accounting recognizes economic events regardless of cash flow
timing, matching revenues with expenses in the period incurred.
Question 6
Which of the following best describes "materiality"?
A) Information that could influence the economic decisions of users
B) All information must be disclosed regardless of size
C) Only large transactions matter
D) Information that is difficult to verify
2|Page
,Correct Answer: A
Rationale: Materiality is an entity-specific aspect of relevance. Information is
material if omitting or misstating it could affect user decisions.
Question 7
Under IFRS, which body sets international financial reporting standards?
A) FASB
B) IASB
C) SEC
D) PCAOB
Correct Answer: B
Rationale: The International Accounting Standards Board (IASB) issues IFRS. FASB
sets US GAAP.
Question 8
The concept of "prudence" (conservatism) under IFRS means:
A) Always recognize losses before they occur
B) Never recognize gains until realized
C) Exercise caution when making estimates under conditions of uncertainty
D) Minimize reported profit
Correct Answer: C
Rationale: Prudence is the exercise of caution when making estimates. It does not
permit intentional understatement of assets/income or overstatement of
liabilities/expenses.
Question 9
Which of the following is NOT a component of a complete set of IFRS financial
statements?
A) Statement of financial position
B) Statement of profit or loss and other comprehensive income
C) Statement of cash flows
D) Auditor's management letter
3|Page
, Correct Answer: D
Rationale: Complete financial statements include: SFP, SOCI (or two statements),
statement of changes in equity, statement of cash flows, and notes. Auditor's
opinion is separate.
Question 10
Under IFRS, which measurement basis is used for most non-financial assets after
initial recognition?
A) Historical cost
B) Fair value (revaluation model) or cost model depending on policy choice
C) Net realizable value
D) Present value
Correct Answer: B
Rationale: For property, plant, and equipment, IFRS allows either cost model or
revaluation model (fair value). Intangibles similarly allow revaluation only if active
market exists.
Question 11
Which of the following is a required financial statement under IFRS for a small
private company?
A) Statement of changes in equity
B) Statement of comprehensive income
C) Statement of cash flows (subject to exemption for some small entities)
D) All of the above may be required or exempted based on IFRS for SMEs
Correct Answer: D
Rationale: IFRS for SMEs has reduced disclosure requirements but still requires
SFP, SOCI, SOCE, and statement of cash flows (with certain exemptions).
Question 12
The element "income" includes both:
A) Revenue and gains
B) Cash and receivables
C) Assets and liabilities
D) Expenses and losses
4|Page
