Financial Reporting Standards

Question 1

What are the two primary standard setting bodies for financial reporting standards?

Answer 1

1. International Accounting Standards Board (IASB)
2. Financial Accounting Standards Board (FASB) *In the US

Question 2

What does the IFRS “Conceptual Framework for Financial Reporting” define?

Answer 2

The fundamental and enhancing qualitative characteristics of financial statements, specifies the required reporting elements, and notes the constraints and assumptions involved in preparing financial statements.

Question 3

What are the two fundamental characteristics of financial statements?

Answer 3

1. Relevance
2. Faithful representation

Question 4

What are the four enhancing characteristics of financial statements?

Answer 4

1. Comparability,
2. Verifiability,
3. Timeliness, and
4. Understandability.

Question 5

What are the elements of financial statements?

Answer 5

Assets, liabilities, and owners’ equity (for measuring financial position) and income and expenses (for measuring performance).

Question 6

What are two constraints to financial statement preparation?

Answer 6

Cost versus benefit and the difficulty of capturing non-quantifiable information in financial statements.

Question 7

What are the two primary assumptions that underlie the preparation of financial statements?

Answer 7

1. Accrual basis
2. Going concern assumption.

Question 8

What are the five required financial statements?

Answer 8

1. Balance sheet,
2. comprehensive income statement,
3. cash flow statement,
4. statement of changes in owners’ equity
5. explanatory notes.

Question 9

What are the nine general features of financial statements according to IAS No. 1?

Answer 9

1. Fair presentation.
2. Going concern.
3. Accrual accounting.
4. Consistency.
5. Materiality.
6. Aggregation.
7. No offsetting.
8. Reporting frequency.
9. Comparative information.

Question 10

What are three of the remaining differences between IASB and FASB?

Answer 10

1. The IASB lists income and expenses as performance elements, while the FASB lists revenues, expenses, gains, losses, and comprehensive income.
2. There are minor differences in the definition of assets. Also, the FASB uses the word probable when defining assets and liabilities.
3. The FASB does not allow the upward revaluation of most assets.

Question 11

A coherent financial reporting framework should exhibit what three characteristics?

Answer 11

1. Transparency,
2. Comprehensiveness, and
3. Consistency.

Question 12

What are three barriers to creating a coherent framework?

Answer 12

1. Issues of valuation,
2. standard setting, and
3. measurement.