Question

Due Date: 30 October 2020 Question 1 Note: you must use your own words in answering the questions; those parts copied from any source without your inputs/explanation/examples or elaborations will not be given any marks.

I . The Conceptual Framework for Financial Reporting sets and discusses the objective and fundamentals that serve as the basis for developing financial accounting and reporting standards in different countries.

The fundamentals are the underlying concepts of financial accounting that guide the selection of transactions, events, and circumstances to be accounted for; their recognition and measurement; and the means of summarizing and communicating them to interested parties. The objective identifies the purpose of financial reporting. With proper reference and citation, complete the following

Required: (total 60 marks) a Identify and discuss the benefits that can be expected to be derived from the Conceptual Framework.

b What is the most important quality for accounting information as identified in the Conceptual Framework? Explain why it is the most important.

c Assuming that the International Accounting Standards Board (IASB) is considering revising an important accounting standard. Discuss and explain the desired benefit from revising an accounting standard, and some of the possible costs that could result from a revision of an accounting standard and discuss what the IASB will do in order to assess possible benefits and costs of a proposed revision of an accounting standard

d ‘The IASB and the US Financial Accounting Standards Board (FASB) have been working together since 2002 to achieve convergence of IFRSs and US generally accepted accounting principles (GAAP).’ To date, the convergence project is not finished. Explain why the development process of international accounting harmonization is difficult and complex.

II. Accounting information provides useful information about business transactions and events. Those who provide and use financial reports must often select and evaluate accounting alternatives. The Conceptual Framework examines the characteristics of accounting information that make it useful for decision-making. It also points out that various limitations inherent in the measurement and reporting process may necessitate trade-offs or sacrifices among the characteristics of useful information.

Required: (total 40 marks) e.) For each of the following pairs of information characteristics, give an example of a situation (must use your own wordings) in which one of the characteristics may be sacrificed in return for a gain in the other. Explain in details on below with a situation; the proper reference and citation must be provided.

(i) Relevance and faithful representation. (ii) Relevance and consistency. (iii) Comparability and consistency. (iv) Relevance and understandability.

f) Determine the criterion should be used to evaluate trade-offs between information characteristics. (Kieso, 06/2020, pp. 2-34-2-35)

Answer 1

Answer:-.

a.                   According to SFAC No. 7 the bonds are distinguished by the uncertainty of their future cash flows.   The bonds would sell at the present value of their future cash flows, discounted at the market rate of interest.  The company with the better credit rating would yield a lower market rate, assuming that the stated rates for both companies are the same.  So, if the stated rates are the same, Company A’s bond might be more valuable it its credit rating were better than Company B’s.

b.                  If both companies have the same credit rating, then the one reason that Company A’s bond would have a higher market value than would Company B’s bond would be that Company A’s bond has a shorter term than Company B’s bond.  If they both have the same term, then Company A’s bond would sell for more than Company B’s bond if Company A were offering a higher stated interest rate.