CFAS - Chapter 3: Multiple Choice

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1. a What are the attributes that make the information provided 7. a Which best describes the cost-benefit
in the financial statement useful to readers? constraint?

a. Qualitative characteristics of financial information a. the benefit of the information must be greater
b. Quantitative characteristics of financial information than the cost of providing it
c. Elements of financial statements b. financial information should be free from cost
d. Objectives of financial reporting to users
c. cost of providing financial information is not
2. a Which of the following is true in relation to the enhancing
always evident or measurable but must be
quality of understandability?
considered
d. all of these
a. Users have a reasonable knowledge of business and
economic activities and review the information with 8. a Which is an argument against historical cost?
reasonable diligence.
b. Users are expected to have significant business a. fair value is more relevant
knowledge. b. historical cost is based on exchange
c. Financial statements shall exclude complex matters. transaction
d. Financial statements shall be free from material error. c. historical cost is verifiable and reliable
d. fair value is subjective
3. a The fundamental qualitative characteristics are
9. a What is meant by consistency when discussing
a. Relevance and faithful representation financial accounting information?
b. Relevance and faithful representation and materiality
c. Relevance and reliability a. Information is measured and reported in a
d. Faithful representation and materiality similar fashion across points in time
b. Information is timely
4. a What is the underlying concept governing the GAAP
c. Information is measured similarly across the
pertaining to recording gain contingencies?
industry
d. Information is verifiable
a. conservatism
b. relevancce 10. a According to the Conceptual Framework,
c. consistency predictive value and confirmatory value are
d. reliability ingredients of
5. a The ingredients of relevant financial information are
a. Relevance
b. Faithful representation
a. Predictive value and confirmatory value
c. Understandability
b. Predictive value, confirmatory value and timeliness
d. Comparability
c. Predictive value, confirmatory value and materiality
d. Predictive value, confirmatory value, timeliness and 11. a Which of the following relates to both relevance
materiality (according and faithful representation?
to Dr. D)
6. a Proponents of historical cost maintain that in comparison
a. Comparability
with all other valuation alternatives for general purpose
b. Feedback value
financial reporting, statements prepared using historical
c. Verifiability
cost are more
d. Timeliness
a. objective 12. b The consistency standard requires that
b. relevant
c. indicative of purchasing power a. expenses should be reported when incurred
d. conservative b. the effect of accounting changes upon income
should be properly disclosed
c. gains and losses should not be recognized
d. accounting procedures should be adopted
when the result is a consistent rate of return
13. b Which of the following accounting concets states that an 19. b What is the quality of information that gives assurance
accounting transaction shall be supported by sufficient that it is reasonably free of error and bias?
evidence to allow two or more qualified individuals to
arrive at essentially similar conclusion? a. Relevance
b. Faithful representation
a. conservatism c. Verifiability
b. objectivity d. Neutraility
c. periodicity
20. b An entity issuing the annual financial reports within one
d. stable monetary unit
month after the end of the reporting period is an example
14. b The ability through consensus among measurers to ensure of which enhancing enhancing quality of accounting
that information represents what it purports to represent information?

a. relevance a. Neutrality
b. verifiability b. timeliness
c. comparability c. predictive value
d. feedback value d. representational faithfulness
15. b When an entity applies the same accounting treatment to 21. b To achieve faithful representation, the financial statements
similar events from period to period, the entity is
exhibiting which of the following qualities? a. must have predictive and confirmatory value
b. must be complete, neutral and reasonably free from
a. Verifiability error
b. Consistency c. are understandable, comparable, timely and verifiable
c. Predictive value d. must posses all of these
d. All are correct
22. b Which concept of accounting holds that, to the maximum
16. b Which of the following is not an enhancing qualitative extent possible, financial statements shall be based on
characteristic? arm's length transactions?

a. Understandability a. Revenue realization

b. Profit-oriented b. Verifiability
c. Timeliness c. Monetary unit
d. Comparability d. Matching
17. b The usefulness of providing information in financial 23. b In the event of conflict between the economic substance
statements is subject to the constraint of of a transaction and the legal form, the economic
substance shall prevail.
a. consistency
b. cost-benefit a. Form over substance
c. reliability b. Substance over form
d. representational faithfulness c. Relevance
d. Completeness
18. b Accounting information is considered to be relevant when
it 24. c The conceptual framework includes which of the
following constraints?
a. can be depended on to represent the economic
conditions and events that it is intended to represent a. Prudence
b. is capable of making a difference in a decision b. Conservatism
c. is understandable by reasonably informed users of c. cost/ cost-benefit
accounting information d. all of these
d. is verifiable and neutral
25. c For the information to be useful, the linkage between the 31. c What is an enhancing quality of accounting information?
users and the decisions made is
a. Information must be decision-useful to all users
a. Relevance b. General purpose financial reporting is the primary
b. Faithful representation source of information for statement users
c. Understandability c. Users need reasonable knowledge of business and
d. Verifiability financial accounting matters to understand the information
contained in financial statements
26. c Which of the following violates the concept of faithful
d. All of these
representation?
32. c The characteristic that is demonstrated when a high
a. financial statements were issued nine months late degree of consensus can be secured among independent
b. date on segments having the same expected risks are measurers using the same measurement method is
reported to analysts estimating future profit
c. financial statements included an item of PPE with a. Relevance
carrying amount increased to management estimate of b. Understandability
market value c. Verifiability
d. management reports to shareholder regularly refer to d. Neutrality
new projects undertaken
33. c What is meant by comparability when discussing financial
27. c Which of the following is the best description of "faithful accounting information?
representation" in relation to information in financial
statements? a. Information has predictive and confirmatory value
b. Information is reasonably free from error
a. Influence on the economic decisions of users c. Information is measured and reported in a similar
b. Inclusion of a degree of caution fashion across entities
c. Freedom from material error d. Information is timely
d. Comprehensibility to users
34. c Which of the following terms best describes information
28. c Objectivity is assumed to be achieved when a transaction that influences the economic decisions of users?

a. is recorded in a fixed amount of pesos a. Reliable

b. involves payment or receipt of cash b. Prospective
c. involves an arm's length transaction between two c. Relevant
independent parties d. Understandable
d. allocates revenue and expenses in a rational and
35. c Allowing entities to estimate rather than physically count
systematic manner
inventory at interim periods is an example of a trade-off
29. c The financial accounting information is directed toward the between
common needs of users and is independent f
presumptions about particular needs and desires of a. Verifiability and comparability
specific users. b. Timeliness and comparability
c. Timeliness and verifiability
a. Relevance d. Neutrality and consistency
b. Verifiability
36. d Which of the following qualitative characteristics of
c. Neutrality
financial information requires that information should not
d. Completeness
be biased in favor of one group of users to the detriment
30. c Financial information exhibits consistency when of others?

a. accounting procedures are adopted which smooth net a. Relevance

income and make results consistent between years b. Free from error
b. gains and losses are shown separately on the income c. Completeness
statements d. Neutrality
c. accounting entities give similar events the same
accounting treatment each period
d. expenditures are reported as expenses
37. d Which statement about materiality is true? 43. d Qualitative characteristics

a. an item must make a difference or it need not be a. are considered either fundamental or enhancing
disclosed b. contribute to the decision-usefulness of financial
b. materiality is a matter of relative size or importance reporting information
c. an item is material if the inclusion/omission would c. distinguish better information from inferior information
influence the the judgement of a reasonable person for decision-making purposes
d. All of these d. all of these
38. d When information about two different entities engaged in 44. d The overriding qualitative characteristic of accounting
the same industry has been prepared and presented in information is
similar manner, the information exhibits the enhancing
qualitative characteristic of a. Relevance
b. Understandability
a. Relevance c. Faithful representation
b. Faithful representation d. Decision usefulness
c. Consistency
45. d What is the quality of information that enables users to
d. Comparability
better forecast future operations?
39. d The enhancing qualitative characteristics of financial
information are a. Faithful representation
b. Materiality
a. Comparability and understandability c. Comparability
b. Verifiability and timeliness d. Relevance
c. Comparability, understandability and verifiability
d. Comparability, understandability, timeliness and
verifiability
40. d Changing the method of inventory valuation should be
reported in the financial statements under what enhancing
quality of accounting information?

a. Understandability
b. Verifiability
c. Timeliness
d. Comparability
41. d The principle of objectivity includes the concept of

a. summarization
b. classification
c. conservatism
d. verifiability
42. d Which of the following terms best describes information
in financial statements that is unbiased?

a. Understandable
b. Comparable
c. Relevant
d. Neutral