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9 Jul 2019

COSO has published integrated frameworks for both internalcontrol and for enterprise risk management. Which of the followingstatements about the frameworks is most true?

a. The internal control framework is more useful than theenterprise risk management framework.

b. The enterprise risk management framework is more useful thanthe internal control framework.

c. Management attitudes are an element of both frameworks.

d. Both frameworks are required by the SEC.

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Deanna HettingerLv2

10 Jul 2019

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Chapter 2 Conceptual Framework for Financial Reporting LO 2.1Describe the usefulness of a conceptual framework.

A _____________________ in accounting is important becauserule-making should be built on and relate to an established body ofconcepts.

The benefits of a soundly developed conceptual framework are asfollows: a) ______________________________________________________b) ______________________________________________________

Which of the following is not true concerning a conceptualframework in accounting? A. It should be a basis forstandard-setting. B. It should allow practical problems to besolved more quickly by reference to it. C. It should be based onfundamental truths that are derived from the laws of nature. D. Allof these answer choices are true.

LO 2.2 Understand the objective of financial reporting. Toprovide financial information about the reporting entity that is_______________ to present and potential equity_________________________________in making decisions aboutproviding resources to the entity.

In other words the objective is_________________________________________________________________________________________________________________________________________.

LO 2.3 Identify the qualitative characteristics of accountinginformation. The qualitative characteristics of accountinginformation distinguish better and more useful information frominferior and less useful information.

a.Fundamental qualities of useful accounting information.

Relevance._______________________________________________________________________________________________________________________________________________________________

(a)Predictive value.:_____________________________________________________________________________________.

(b)Confirmatory value:_________________________________________________________________________________.

(c)Materiality.:_________________________________________________________________________________.

FaithfulRepresentation.___________________________________________________________________________________________________________________________________________________

(a)Completeness_________________________________________________________

(b)Neutrality_______________________________________________________

(c)Free from error___________________________________________________

b.Enhancing Qualities Enhancing qualities complement thefundamental qualities and include:

Comparability__________________________________________________________________.

Consistency_____________________________________________________________________________________________________________________ Verifiability__________________________________________________________________.

Timeliness__________________________________________________________________.Understandabili_____________________________________________________________________________________________________________________

Select the qualitative characteristics for the followingstatements.

(a) Quality of information that assures users that informationrepresents the economic phenomena that it purports torepresent.

(b) Information about an economic phenomenon that corrects pastor present expectations based on previous evaluations.

(d) Includes all the information that is necessary for afaithful representation of the economic phenomena that it purportsto represent.

(e) Quality of information that allows users to comprehend itsmeaning.

SFAC No. 8 identifies the qualitative characteristics that makeaccounting information useful. Presented below are a number ofquestions related to these qualitative characteristics andunderlying constraint.

(a) What is the quality of information that enables users toconfirm or correct prior expectations?

(b) Identify the pervasive constraint developed in theconceptual framework.

(c) The chairman of the SEC at one time noted, âIf it becomesaccepted or expected that accounting principles are determined ormodified in order to secure purposes other than economicmeasurement, we assume a grave risk that confidence in thecredibility of our financial information system will beundermined.â Which qualitative characteristic of accountinginformation should ensure that such a situation will not occur? (Donot use faithful representation.)

(d) Muruyama Corp. switches from FIFO to averagecost to FIFOover a 2-year period. Which qualitative characteristic ofaccounting information is not followed?

(e) Assume that the profession permits the savings and loanindustry to defer losses on investments it sells because immediaterecognition of the loss may have adverse economic consequences onthe industry. Which qualitative characteristic of accountinginformation is not followed? (Do not use relevance or faithfulrepresentation.)

(f) What are the two fundamental qualities that make accountinginformation useful for decisionmaking?

(g) Watteau Inc. does not issue its first-quarter report untilafter the second quarterâs results are reported. Which qualitativecharacteristic of accounting is not followed? (Do not userelevance.)

(h) Predictive value is an ingredient of which of the twofundamental qualities that make accounting information useful fordecision-making purposes?

(i) Duggan, Inc. is the only company in its industry todepreciate its plant assets on a straight-line basis. Whichqualitative characteristic of accounting information may not befollowed?

(j) Roddick Company has attempted to determine the replacementcost of its inventory. Three different appraisers arrive atsubstantially different amounts for this value. The president,nevertheless, decides to report the middle value for externalreporting purposes. Which qualitative characteristic of informationis lacking in these data? (Do not use relevance or faithfulrepresentation.)

If the LIFO inventory method was used last period, it should beused for the current and following periods because of A.consistency. B. verifiability. C. materiality. D. timeliness.

According to the FASB's conceptual framework, what does theconcept of faithful representation include? A. Predictive value B.Materiality C. Verifiability D. Neutrality

Which of the following is not a basic assumption underlying thefinancial accounting structure? A. Going concern assumption B.Economic entity assumption C. Historical cost assumption D.Periodicity assumption

Under current GAAP, inflation is ignored in accounting due tothe A. periodicity assumption. B. economic entity assumption. C.going concern assumption. D. monetary unit assumption.

Valuing assets at liquidation values rather than cost isinconsistent with the A. historical cost principle. B. materialityconstraint. C. periodicity assumption. D. expense recognitionprinciple.

tealox448

Lew Pherson and Vera Collier are friends who are employed bydifferent CPA firms. One day during lunch they are discussing theimportance of internal control in determining the amount of auditevidence required for an engagement. Pherson expresses the viewthat internal control must be evaluated carefully in all companies,regardless of their size or whether they are publicly held, in asimilar manner. His CPA firm requires a standard internal controlquestionnaire on every audit as well as a flowchart of everytransaction area. In addition, he says the firm requires a carefulevaluation of the system and a modification in the evidenceaccumulated based on the controls and deficiencies in the system.Collier responds by saying she believes that internal controlcannot be adequate in many of the small companies she audits;therefore, she simply ignores internal control and acts under theassumption of inadequate controls. She goes on to say, "Why shouldI spend a lot of time obtaining an understanding of internalcontrol and assessing control risk when I know it has all kinds ofweaknesses before I start? I would rather spend the time it takesto fill out all those forms in testing whether the statements arecorrect."

a.Express in general terms the most important difference betweenthe nature of the potential controls available for large and smallcompanies.

b. Criticize the positions taken by Pherson and Collier, andexpress your own opinion about the similarities and differencesthat should exist in understanding internal control and assessingcontrol risk for different-sized companies.

c.Discuss whether Collier's approach is acceptable underexisting auditing standards for either public or non-publiccompanies.

Chapter 2 Conceptual Framework for Financial Reporting

In other words the objective of financial reporting is_________________________________________________________________________________________________________________________________________.