Question 1

What are the two fundamental qualitative characteristics of useful financial information under the FASB Conceptual Framework?

Accepted Answer

Relevance and faithful representation. Information must be capable of making a difference in decisions and must accurately depict what it purports to represent.

Question 2

Under the FASB Conceptual Framework, what is the primary objective of general-purpose financial reporting?

Accepted Answer

To provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity.

Question 3

What does the going concern assumption mean in financial reporting?

Accepted Answer

It assumes the entity will continue to operate indefinitely and will not be forced to liquidate assets, allowing costs to be deferred and assets to be recorded at historical cost rather than liquidation value.

Question 4

Which enhancing qualitative characteristic of financial information means that independent knowledgeable observers could reach consensus that a depiction is faithful?

Accepted Answer

Verifiability. It helps assure users that information faithfully represents the economic phenomena it purports to represent.

Question 5

Under the FASB Conceptual Framework, how is 'materiality' related to relevance?

Accepted Answer

Materiality is an entity-specific aspect of relevance. Information is material if omitting or misstating it could influence decisions made by users of a specific entity's financial reports.

Financial Reporting – CPA Exam Flashcards

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