CPA Exam Review – Conceptual Framework &
Qualitative Characteristics (FASB & IASB)
*Question CPA..o0001*
According to the FASB and IASB conceptual frameworks, the primary users of financial reports
include all of the
follolwing, except:
a. Lenders.
b. Investors.
c. Regulators.
d. Creditors. ✔✔*Choice "c" is correct.* The FASB and IASB conceptual frameworks indicates
that regulators are not considered to
be primary users.
Choice "b" is incorrect. Imestors are primary users.
Choice "d" is incorrect. Creditors are primary users.
Choice "a" is incorrect. Lenders are primary users
*Question CPA..o0004*
According to the FASB and IASB conceptual frameworks, useful information must exhibit the
fundamental
qualitative characteristics of:
a. Neutrality and verifiability.
b. Understandability and timeliness.
c. Comparability and materiality.
d. Faithful representation and relevance. ✔✔Choice "d" is correct. The fundamental qualitative
characteristics of useful financial information are relevance and faithful representation.
Choice "c" is incorrect. Comparability is an enhancing qualitative characteristic. Materiality is a
component of
relevance, in addition 10 predictive value and confirming value.
Choice "b" is incorrect. Understandability and timeliness are enhancing qualitative
characteristics of useful
financial information.
Choice "a" is incorrect. Verifiability is an enhancing qualitative characteristic. Neutrality is a
component of faithful
representation.
,*Question CPA-00005*
What is the underlying concept governing the recording of gain contingencies?
a. Conservatism.
b. Reliability.
c. Relevance.
d. Consistency. ✔✔Choice "a" is correct. Gain contingencies should not be recognized prior to
realization as a prudent reaction to the
uncertainty surrounding the realization of the gain as reflected in the convention of
conservatism.
Choice "c" is incorrect. Overall, the qualities of information apply equally to all accounting
information, not just
gain contingencies. Relevance is a primary quality of information, Which dictates that any
information relative to
the entity should be reported if it might be useful to the third party user (that is the information
is timely with
predictive and feedback value).
Choice "d" is incorrect. Overall, the qualities of information apply equally to all accounting
information, not just
gain contingencies. This includes consistency, an element of comparability, the secondary
quality of information,
which specifies that, when a choice of accounting principles has been made, the same principle
be used in
accounting for subsequent years' transactions.
Choice "b" is incorrect. Overall, the qualities of information apply equally to all accounting
information, not just
gain contingencies. This includes reliability, a primary quality, Which requires that information
be verifiable, neutral,
and representationally faithful.
*Question CPA 00006*
According to the FASB conceptual framework, Which of the following attributes would not be
used to measure
inventory?
a. Replacement cost.
b. Net realizable value.
c. Historical cost.
, d. Present value of future cash flows. ✔✔Choice "d" is correct. The present value of future cash
flows is used to measure long·term receivables or payables, not inventory, because inventory is
a short·term asset, which has more immediate cash flows. SFAC 5 para. 67
Choice "c" is incorrect. Historical cost can be used to measure inventory because it is a relevant
and reliable measurement attribute of current assets such as inventory.
Choice "a" is incorrect. Replacement (or current) cost can be used to measure inventory
because it is a relevant and reliable measurement attribute of current assets such as inventory.
Choice "b" is incorrect. Net realizable value can be used to measure inventory because it is a
relevant and reliable measurement attribute of current assets such as inventory.
*Question CPA 00007*
According to the FASB and IASB conceptual frameworks, the objective of general purpose
financial reporting is
to:
a. Comply with the need for conservatism.
b. Comply with generally accepted accounting principles.
c. Report on how effectively and efficiently management has used the entity's resources.
d. Provide financial information that is useful to primary users. ✔✔Choice "d" is correct. The
objective of general purpose financial reporting is to provide financial information about the
reporting entity that is useful to the primary users of general purpose financial reports in
making decisions about providing resources to the reporting entity.
Choice "b" is incorrect. Generally accepted accounting principles are derived from and based on
the objective of financial reporting, not the other my around.
Choice "c" is incorrect. Information concerning how effectively and efficiently management has
discharged its responsibility to use the entity's resources is only one aspect of the information
financial reporting is intended to provide.
Choice "a" is incorrect. Conservatism is not the objective of financial reporting, although it is an
underlying concept.
*Question CPA-00010*
According to the FASS and lASS conceptual frameworks, completeness is an ingredient of:
Relevance/Faithful Representation
a. No/No
b. Yes/Yes
c. No/Yes
d. Yes/No ✔✔Choice "c" is correct. Completeness is an ingredient of faithful representation.
Other ingredients of faithful representation include neutrality and freedom from error.
Qualitative Characteristics (FASB & IASB)
*Question CPA..o0001*
According to the FASB and IASB conceptual frameworks, the primary users of financial reports
include all of the
follolwing, except:
a. Lenders.
b. Investors.
c. Regulators.
d. Creditors. ✔✔*Choice "c" is correct.* The FASB and IASB conceptual frameworks indicates
that regulators are not considered to
be primary users.
Choice "b" is incorrect. Imestors are primary users.
Choice "d" is incorrect. Creditors are primary users.
Choice "a" is incorrect. Lenders are primary users
*Question CPA..o0004*
According to the FASB and IASB conceptual frameworks, useful information must exhibit the
fundamental
qualitative characteristics of:
a. Neutrality and verifiability.
b. Understandability and timeliness.
c. Comparability and materiality.
d. Faithful representation and relevance. ✔✔Choice "d" is correct. The fundamental qualitative
characteristics of useful financial information are relevance and faithful representation.
Choice "c" is incorrect. Comparability is an enhancing qualitative characteristic. Materiality is a
component of
relevance, in addition 10 predictive value and confirming value.
Choice "b" is incorrect. Understandability and timeliness are enhancing qualitative
characteristics of useful
financial information.
Choice "a" is incorrect. Verifiability is an enhancing qualitative characteristic. Neutrality is a
component of faithful
representation.
,*Question CPA-00005*
What is the underlying concept governing the recording of gain contingencies?
a. Conservatism.
b. Reliability.
c. Relevance.
d. Consistency. ✔✔Choice "a" is correct. Gain contingencies should not be recognized prior to
realization as a prudent reaction to the
uncertainty surrounding the realization of the gain as reflected in the convention of
conservatism.
Choice "c" is incorrect. Overall, the qualities of information apply equally to all accounting
information, not just
gain contingencies. Relevance is a primary quality of information, Which dictates that any
information relative to
the entity should be reported if it might be useful to the third party user (that is the information
is timely with
predictive and feedback value).
Choice "d" is incorrect. Overall, the qualities of information apply equally to all accounting
information, not just
gain contingencies. This includes consistency, an element of comparability, the secondary
quality of information,
which specifies that, when a choice of accounting principles has been made, the same principle
be used in
accounting for subsequent years' transactions.
Choice "b" is incorrect. Overall, the qualities of information apply equally to all accounting
information, not just
gain contingencies. This includes reliability, a primary quality, Which requires that information
be verifiable, neutral,
and representationally faithful.
*Question CPA 00006*
According to the FASB conceptual framework, Which of the following attributes would not be
used to measure
inventory?
a. Replacement cost.
b. Net realizable value.
c. Historical cost.
, d. Present value of future cash flows. ✔✔Choice "d" is correct. The present value of future cash
flows is used to measure long·term receivables or payables, not inventory, because inventory is
a short·term asset, which has more immediate cash flows. SFAC 5 para. 67
Choice "c" is incorrect. Historical cost can be used to measure inventory because it is a relevant
and reliable measurement attribute of current assets such as inventory.
Choice "a" is incorrect. Replacement (or current) cost can be used to measure inventory
because it is a relevant and reliable measurement attribute of current assets such as inventory.
Choice "b" is incorrect. Net realizable value can be used to measure inventory because it is a
relevant and reliable measurement attribute of current assets such as inventory.
*Question CPA 00007*
According to the FASB and IASB conceptual frameworks, the objective of general purpose
financial reporting is
to:
a. Comply with the need for conservatism.
b. Comply with generally accepted accounting principles.
c. Report on how effectively and efficiently management has used the entity's resources.
d. Provide financial information that is useful to primary users. ✔✔Choice "d" is correct. The
objective of general purpose financial reporting is to provide financial information about the
reporting entity that is useful to the primary users of general purpose financial reports in
making decisions about providing resources to the reporting entity.
Choice "b" is incorrect. Generally accepted accounting principles are derived from and based on
the objective of financial reporting, not the other my around.
Choice "c" is incorrect. Information concerning how effectively and efficiently management has
discharged its responsibility to use the entity's resources is only one aspect of the information
financial reporting is intended to provide.
Choice "a" is incorrect. Conservatism is not the objective of financial reporting, although it is an
underlying concept.
*Question CPA-00010*
According to the FASS and lASS conceptual frameworks, completeness is an ingredient of:
Relevance/Faithful Representation
a. No/No
b. Yes/Yes
c. No/Yes
d. Yes/No ✔✔Choice "c" is correct. Completeness is an ingredient of faithful representation.
Other ingredients of faithful representation include neutrality and freedom from error.
