FR 1 – PRACTICE QUIZCOLLAPSE ALL ANSWERS  

 Question 11 mark

Which of the following is not an enhancing qualitative characteristic of useful financial information as
identified in The Conceptual Framework?

A. Timeliness.
B. Verifiability.
C. Consistency.
D. Understandability.

You selected C - This is correct

TOTAL MARKS : 1MARKS OBTAINED  1

Consistency of accounting methods contributes to the goal of comparability, however it is not an

enhancing characteristic in its own right.

 Question 20 marks

Which of the following about the application of IFRS in accordance with The Conceptual Framework
is the mostcorrect?
 
 

A. Entities that are not expected to continue in the foreseeable future are to prepare
their accounts on the net realisable value assumption.
B. Entities may change the valuation and measurement of assets provided they
disclose the change and its effects in the financial report.
C. Entities within the scope of the Corporations Act can choose to apply Australian or
International accounting standards when preparing their financial reports.
D. Entities may prepare financial statements on a cash flow basis provided that they
meet the characteristics of comparability, understandability, timeliness and verifiability.

You selected A - This is incorrect. The correct answer is B

TOTAL MARKS : 1MARKS OBTAINED  0

The second option is correct because disclosing accounting policies that were used in preparing the
financials would improve comparability. The first option is incorrect because where an entity is not
expected to continue into the foreseeable future, it is required to use another basis for preparing its
financial statements. This is usually the liquidation basis that is used. The third option is incorrect because
where a reporting entity falls within the scope of the Corporations Act, its general purpose financial
reports shall apply Australian Accounting Standards. They are also subject to other relevant legislation
and should also apply IFRS, as Australia adopted IFRSs for reporting periods commencing on or after 1
January 2005. The fourth option is incorrect because the financial statements should always be prepared
on an accrual basis.
 Question 30 marks

What effect does a framework have on an accountant’s need to exercise professional judgment?
 

A. Reduces the scope for professional judgment.

B. Increases the scope for professional judgment.
C. Eliminates the scope for professional judgment.
D. Has no impact on the scope for professional judgment.

You selected B - This is incorrect. The correct answer is A

TOTAL MARKS : 1MARKS OBTAINED  0

The development of a framework is an attempt to discourage, among other things, a subjective approach
to accounting standard setting. The conceptual framework does not increase the scope of professional
judgment. Frameworks are not developed with the intention of eliminating professional judgment. Those
charged with developing conceptual frameworks are likely to deny any intention to interfere with the
judgment of professional accountants. However, despite any such potential denials, the essential point
still stands - Conceptual Frameworks aim to reduce diversity in professional judgments.

 Question 40 marks

Which of the following statements about enhancing qualitative characteristics of financial statements
is not correct?

A. Fair values of assets that cannot be verified in an active market should not be
disclosed in the financial statements.
B. The financial statements of similar entities adopting different asset measurement
bases can be adequately compared.
C. The value of invoices not yet received from suppliers for services should be
estimated at financial year end for reporting purposes.
D. Financial statements should be presented with the assumption that a reasonable and
informed third person will know how to analyse financial information.

You selected B - This is incorrect. The correct answer is A

TOTAL MARKS : 1MARKS OBTAINED  0

Option 1 is incorrect, while all the other statements are correct.

 Question 51 mark

Which of the following are not enhancing qualitative characteristics of useful financial information as

identified in The Conceptual Framework?
Item I        Predictive.
Item II       Influencing.
Item III     Comparable.
Item IV      Relevance.
  
 

A. I, II and III only

B. I, II and IV only
C. I, III and IV only
D. II, III and IV only

You selected B - This is correct

TOTAL MARKS : 1MARKS OBTAINED  1

Comparability is an enhancing characteristic per The Conceptual Framework QC paras 4 and 19)
Predictive and influencing are not enhancing characteristics per The Conceptual Framework. Relevance
is a fundamental qualitative characteristic. Comparability is an enhancing characteristic per The
Conceptual Framework QC paras 4 and 19) Comparability is an enhancing characteristic per The
Conceptual Framework QC paras 4 and 19)

 Question 60 marks

WHICH OF THE FOLLOWING WOULD NOT  BE AN EXAMPLE OF A USER

WHO MAY RELY ON GENERAL PURPOSE FINANCIAL REPORTS?
A. Henry who is given $5 000 on his 18th birthday by his grandfather to invest in the
share market.
B. Singh who manufactures sugar free muesli bars hopes to secure long term sales
contracts with school canteens all over the county.
C. Milly who runs a successful organic food café is keen to expand into the food truck
industry by obtaining finance via crowd-funding.
D. Van who owns a fishing and camping store is keen to expand his product range by
approaching his suppliers to ask about increasing his credit limit.

You selected C - This is incorrect. The correct answer is B

TOTAL MARKS : 1MARKS OBTAINED  0

The second option is correct because the user is a potential customer (school canteens) and is not
included in the range of users as per the Conceptual Framework. The first option is incorrect because
Henry is a potential investor who would rely on the financial information provided by entities to make his
investment choice decisions. The third option is incorrect because the crowd funders are potential lenders
who would rely on the financial information provided by Milly in order to make their lending decisions. The
fourth option is incorrect because the suppliers are existing creditors who would rely on the financial
information provided by Van to assess raising his credit limit.

 Question 70 marks

Which of the following is not an objective of general purpose financial statements?

A. Provides useful financial information to a range of users.

B. Supports the decision making needs of potential and existing users.
 C. Explains why different measurement bases have been applied to various groups of
assets.
D. Holds management accountable for how they have used resources entrusted to them
by shareholders.

You selected D - This is incorrect. The correct answer is C

TOTAL MARKS : 1MARKS OBTAINED  0

The third option is not an objective of general purpose reporting while all the other options are.

 Question 81 mark

Which of the following is not a role of The Conceptual Framework (The Framework)? The
Framework:

A. It is the foundation that standard-setters use when developing accounting standards.

B. It enables the external auditors to evaluate compliance with IFRS and then form an
opinion.
C. It enables consistency when the existing accounting standards do not provide
guidance on a particular issue.
D. It is an alternative to the detailed accounting standards as it is much easier to
understand by users of financial statements.

You selected D - This is correct

TOTAL MARKS : 1MARKS OBTAINED  1

Accounting standards are developed using The Framework as guidance. It is not an alternative to the
accounting standards.

 Question 91 mark

Which of the following is not an objective of The Conceptual Framework?

A. Addresses the common needs of users of financial reports.

B. Enables consistency of qualitative characteristics in financial reports.
C. Enables implementation of one universal set of accounting standards.
D. Provides guidance for transactions not addressed in existing accounting standards.

You selected C - This is correct

TOTAL MARKS : 1MARKS OBTAINED  1

A conceptual framework is not a universal set of accounting standards. It is the framework that is
essentially a theory of accounting. The conceptual framework assists in the development of consistent
accounting standards.

 Question 101 mark

Which of the following statements about the primary purpose of financial reporting is
the most correct?
 
 

A. Provides information that can help with decision making.

B. The individual needs of users can be satisfied by tailoring of financial reports.
C. Enables accountability since managers would have to account for resources used.
D. Identifies a range of existing and potential users dependant on financial statements
to make decisions.

You selected A - This is correct

TOTAL MARKS : 1MARKS OBTAINED  1

The primary purpose of financial reporting is enable proper and informed decision-making by providing
relevant information. The second option is an objective of financial reporting whereby financial statements
can be tailored to specific information needs of certain users. This is an important role of financial
reporting but is not the primary purpose. The fourth option is an objective of general purpose financial
reports.

Total Marks5 / 10