CONCEPTUAL FRAMEWORK
FINANCIAL ACCOUNTING AND REPORTING
1. What are the qualitative characteristics of financial
statements?
a. Qualitative characteristics are the attributes that make
the information provided in financial statements useful
to users
b. Qualitative characteristics are broad classes of financial
effects of transactions and other events
c. Qualitative characteristics are nonqualitative aspects of
an entity’s position and performance and changes in
financial position
d. Qualitative characteristics measure the extent to which
an entity has complied with all relevant standards and
interpretations
2. Qualitative characteristics:
a. Are considered either fundamental or enhancing
b. Contribute to the decision-usefulness of financial
reporting information
c. Distinguish better information from inferior
information for decision-making purposes
d. All of the choices are correct
3. The fundamental qualitative characteristics are
a. Relevance and faithful representation
b. Relevance, faithful representation and materiality
c. Relevance and reliability
d. Faithful representation and materiality
4. Accounting information is considered relevant when it
a. Can be depended upon to represent the economic
conditions an events that it is intended to represent
b. Is capable of making a difference in a decision
c. Is understandable by reasonably informed users of
accounting information
d. Is verifiable and neutral
5. The ingredients of relevant financial information are
a. Predictive value and confirmatory value
b. Predictive value, confirmatory value and timeliness
c. Predictive value, confirmatory value and materiality
d. Predictive value, confirmatory value, timeliness and
materiality
6. What is the quality of information that gives assurance that it
is reasonably free from error and bias?
a. Relevance
b. Faithful representation
c. Verifiability
d. Neutrality
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7. Which of the following is the best description of faithful
representation in relation to information in financial
statements?
a. Influence on the economic decision of users
b. Inclusion of a degree of caution
c. Freedom from material error
d. Comprehensibility to users
8. The ingredients of faithful representation are
a. Completeness and neutrality
b. Completeness and free from error
c. Completeness, neutrality and free from error
d. Completeness, neutrality, free from error and
conservatism
9. In the event of conflict between the economic substance of
a transaction and the legal form, the economic substance shall
prevail. This concept is known as
a. Form over substance
b. Substance over form
c. Faithful representation
d. Completeness
10. The financial accounting information is directed toward the
common needs of users and is independent of presumptions
about particular needs and desires of specific users
a. Relevance
b. Verifiability
c. Neutrality
d. Completeness
11. The enhancing qualitative characteristics of financial
information are
a. Comparability and understandability
b. Verifiability and timeliness
c. Comparability, understandability and verifiability
d. Comparability, understandability, verifiability and
timeliness
12. The financial information exhibits consistency when
a. Accounting procedures are adopted which smooth net
income and make results consistent between years
b. Gains and losses are shown separately in the income
statement
c. Accounting entities give similar events the same
accounting treatment each period
d. Expenditures are reported as expenses and netted
against revenue in the period when paid
13. When information about two different entities engaged in the b. Users are expected to have significant business
same industry has been prepared and presented in similar knowledge
manner, the information exhibits the enhancing qualitative c. Financial statements shall exclude complex matters
characteristics of d. Financial statements shall be free from material error
a. Relevance
b. Faithful representation 20. The conceptual framework includes which of the following
c. Consistency constraints
d. Comparability a. Prudence
b. Substance over form
14. Financial information does not demonstrate consistency c. Cost
when d. All of the choices are constraints
a. Entities in the same industry use different accounting
method to account for the same type of transaction 21. The overriding qualitative characteristics of accounting
b. An entity changes the estimate of residual value of an information is
equipment a. Relevance
c. An entity fails to adjust the financial statements for b. Understandability
change in value of the measuring unit. c. Faithful representation
d. None of these d. Decision usefulness

15. The characteristic that is demonstrated when a high degree 22. Which of the following terms describes information that
of consensus can be secured among independent measures influences the economic decisions of users?
using the same measurement method is a. Reliable
a. Relevance b. Prospective
b. Understandability c. Relevant
c. Verifiability d. Understandable
d. Neutrality
23. What is the quality of information that enables users to better
16. Which concept of accounting holds that, to the maximum forecast future operations?
extent possible, financial statements shall be based on arm’s a. Faithful representation
length transactions? b. Materiality
a. Revenue realization c. Comparability
b. Verifiability d. Relevance
c. Monetary unit
d. Matching 24. According to the conceptual framework, predictive value and
confirmatory value are ingredients of
17. An entity issuing the financial reports within one month at a. Relevance
the end of the reporting period is an example of which b. Faithful representation
enhancing quality of accounting information? c. Understandability
a. Neutrality d. Comparability
b. Timeliness
c. Predictive value 25. Which of the following terms best describes information in
d. Representational faithfulness financial statements that is neutral?
a. Understandable
18. Allowing entities to estimate rather than physically count b. Comparable
inventory at an interim period is an example of a tradeoff c. Relevant
between d. Unbiased
a. Verifiability and comparability
b. Timeliness and comparability 26. Under the conceptual framework, neutrality is an ingredient
c. Timeliness and verifiability of:
d. Neutrality and consistency a. Relevance
b. Faithful representation
19. Which of the following statements is true in relation to the c. Both a and b
enhancing qualitative characteristic of understandability of d. Neither a nor b
financial statements?
a. Users has a reasonable knowledge of business and
economic activities and review the information with
reasonable diligence
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27. Historical cost has been the valuation basis most commonly 34. Which of the following is not an enhancing qualitative
used in financial accounting because of: characteristic?
a. Timeliness a. Understandability
b. Conservatism b. Profit-oriented
c. Verifiability c. Timeliness
d. Accuracy d. Comparability

28. Which of the following qualitative characteristics of financial 35. Changing the method of inventory valuation should be
information requires that information should not be biased reported in the financial statements under what enhancing
in favor of one group of users to the detriment of others? quality of accounting information?
a. Relevance a. Understandability
b. Reliability b. Verifiability
c. Verifiability c. Timeliness
d. Neutrality d. Comparability

29. An item would be considered material and therefore would 36. When an entity applies the same accounting treatment to
be disclosed in the financial statements if: similar events from period to period, the entity is exhibiting
a. The expected benefits of disclosure exceed the which of the following qualities?
additional costs a. Verifiability
b. The impact on earnings is greater than 10% b. Consistency
c. The standard definition of materiality is met c. Predictive value
d. The omission or misstatement of the amount would d. Conservatism
make a difference to the users
37. An enhancing quality of accounting information is
30. For information to be useful, there must be a linkage between a. Predictive value
users and the decisions they make. What is this link? b. Free from error
a. Relevance c. Timeliness
b. Reliability d. Confirmatory value
c. Understandability
d. Materiality 38. An ingredient of the fundamental qualitative characteristic of
faithful representation is
31. An implicit assumption of the qualitative characteristic of a. Neutrality
understandability is that: b. Understandability
a. Information must be decision-useful to all potential c. Verifiability
users of financial statements d. Timeliness
b. General-purpose financial reporting is the primary
source of information for users of financial statements 39. The conceptual framework
c. Users need reasonable knowledge of business and a. Includes prudence or conservatism which means that
financial accounting matters to understand the when in doubt, choose the solution that will be least
information in the financial statements likely to overstate assets and income
d. All of the choices are correct b. Includes prudence or conservatism which means when
in doubt, choose the solution that will be least likely to
32. What is meant by comparability when discussing financial understate liabilities and expenses
accounting information? c. Includes prudence or conservatism as a desirable but not
a. Information has predictive and confirmatory value required quality of accounting information
b. Information is reasonably free from error d. Excludes prudence or conservatism because it is
c. Information is measured and reported in a similar inconsistent with neutrality
fashion across entities
d. Information is timely 40. The ability through consensus among measures to ensure
that information represents what is purports to represent is
33. What is meant by consistency when discussing financial an example of the concept of:
accounting information? a. Relevance
a. Information is measured and reported in a similar b. Verifiability
fashion across points in time c. Comparability
b. Information is timely d. Feedback value
c. Information is measured similarly across the industry
d. Information is verifiable
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41. Which of the following accounting concepts states that an
accounting transaction shall be supported by sufficient
evidence to allow two or more qualified individuals to arrive
at essentially similar conclusions?
a. Conservatism
b. Objectivity
c. Periodicity
d. Stable monetary unit
42. Objectivity is assumed to be achieved when an accounting
transaction
a. Is recorded in a fixed amount of pesos
b. Involves the payment of receipt of cash
c. Involves an arm’s length transaction between two
independent parties
d. Allocates revenue or expenses in a rational and
systematic manner
43. The principle of objectivity includes the concept of
a. Summarization
b. Classification
c. Conservatism
d. Verifiability
44. Proponents of historical costs maintain that in comparison
with all other valuation alternatives for general purpose
financial reporting, statements prepared using historical costs
are more
a. Objective
b. Relevant
c. Indicate of the entity’s purchasing power
d. Conservative
45. The consistency standard requires that
a. Expenses should be reported as charges against the
period when incurred
b. The effect of changes in accounting upon income should
be properly disclosed
c. Gains and losses should not appear in the income
statement
d. Accounting procedures should be adopted when the
result is a consistent rate of return
46. Which of the following situations violate the concept of
faithful representation?
a. Financial statements were issued nine months late
b. Data on segments having the same expected risks and
growth rates are reported to analysts estimating future
profits.
c. Financial statements included an item of property, plant
and equipment with carrying amount increased to
management estimate of market value
d. Management reports to shareholders regularly refer to
new projects undertaken, but the financial statements
never report project results
47. What is the underlying concept governing the generally
accepted accounting principles pertaining to recording gain
contingencies?
a. Conservatism
b. Relevance
c. Consistency
d. Reliability
48. The usefulness of providing information in financial
statements is subject to the constraints of
a. Consistency
b. Cost-benefit
c. Going-concern
d. Accrual basis
49. Consistency is an important factor in comparability within a
single entity which require that:
a. Some costs should be recognized as expenses on the
basis of a presumed direct association with specific
revenue
b. Assets whose prices are increased by external events
other than transfers should be retained in the accounting
records at their recorded amounts until they are
exchanged
c. Historical costs should be primary basis in measuring
intangible assets and property, plant and equipment
d. Changes in circumstances or in the nature of the
underlying transactions should be disclosed.
50. Application of the full disclosure principle
a. Is theoretically desirable but not practical because the
cost of complete disclosure exceeds the benefit
b. Is violated when important financial information is
buried in the notes to the financial statements
c. Is demonstrated by the use of supplementary
information presenting the effects of changing prices
d. Requires that the financial statements be consistent and
comparable
51. Identify the pervasive constraint and underlying assumption
mentioned in the conceptual framework
a. Constraint – Cost ; Underlying Assumption – Accrual
basis
b. Constraint – Cost ; Underlying Assumption – Going-
concern
c. Constraint – Timeliness ; Underlying Assumption –
Accrual basis
d. Constraint – Timeliness ; Underlying Assumption –
Going-concern