Quiz 1

What is due process in the context of standard setting at the IASB? All of these answers are correct IASB operates in full view of the public Public hearings are held on proposed accounting standards Interested parties can make their views known

All of these answers are correct

The following are the enhancing qualitative characteristics EXCEPT: Timeliness Understandability Consistency Verifiability

Consistency Comparability Verifiability Timeliness Understandability

IFRSs are Standards and Interpretations issued by the International Accounting Standards Board (IASB). They comprise the choices EXCEPT: IFRIC Interpretations Generally Accepted Accounting Principles SIC Interpretations International Reporting Standards (IFRS)

Generally Accepted Accounting Principles

Which of the following would not be classified as a current liability on the statement of financial position? Unearned revenue Mandatorily redeemable preference share The currently maturing portion of long-term debt Accrued salaries payable to management

Mandatorily redeemable preference share

Information whose omission or misstatement could influence decisions that the primary users of general purpose financial reports make on the basis of those reports, which provide financial information about a specific reporting entity. Relevant information Faithful information Accurate information Material information

Material information

To move towards IFRS is essentially to achieve the goal of one uniform and globally accepted financial reporting standards. Factors considered are in the choices EXCEPT: 1. Support of IAS by Philippine organizations such as SEC, BOA and PICPA. 2. Removal of free choices of accounting treatments as a way of improving accounting standards. 3. None in the choices 4. Request for a common language of business by the international business community as a result of globalization.

None in the choices

Which of the following is an ingredient of relevance? Verifiability Predictive value Neutrality Timeliness

Predictive value

A complete set of Financial Statement includes statement of financial position as at the beginning of the preceding period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements.

True

The second level of the International Accounting Standards Board's (IASB's) Conceptual Framework all of the choices are correct provides conceptual building blocks that explain the qualitative characteristics of accounting information serves as a bridge between the "why" of accounting and the "how" of accounting defines the elements of financial statements

all of the choices are correct

A soundly developed conceptual framework of concepts and objectives should allow new and emerging practical problems to be more quickly solved enhance comparability among companies' financial statements all of these answers are correct increase financial statement users' understanding of and confidence in financial reporting

all of these answers are correct

An entity shall present a third statement of financial position as at the beginning of the preceding period in addition to the minimum comparative financial statements required if: I - It applies an accounting policy retrospectively, makes a retrospective restatement of items in its financial statements or reclassifies items in its financial statements; and II - The retrospective application, retrospective restatement or the reclassification has a material effect on the information in the statement of financial position at the beginning of the preceding period. I only both I and II Neither I nor II II only

both I and II

Which is the pervasive constraint in the Conceptual Framework for Financial Reporting? timeliness accrual basis cost going concern

cost

The underlying theme of the conceptual framework is decision usefulness understandability comparability faithful representation

decision usefulness

Accrual accounting is used because None of these answers are correct it recognizes revenues when cash is received and expenses when cash is paid it provides a better indication of ability to generate cash flows than the cash basis cash flows are considered less important

it provides a better indication of ability to generate cash flows than the cash basis.

The auditor's report does not ______. provide the auditor's opinion on the fairness of the financial statements describe the scope of the audit provide the auditor's opinion on the efficiency of the company's operations state management's responsibility for the financial statements

provide the auditor's opinion on the efficiency of the company's operations

Revenue should be recognized when when realized when the performance obligation is satisfied at the end of production at the time of cash collection

when the performance obligation is satisfied

Expenses in a statement of profit or loss prepared under International Financial Reporting Standards (IFRS) ______. can be classified either by function or by natural description must not be classified must be classified by function must be classified by natural description

can be classified either by function or by natural description

External decision makers would not look primarily to financial accounting information to assist them in making decisions on ______. Mergers and acquisitions Selecting shares Granting credit capital budgeting

capital budgeting

To be a perfectly faithful representation, a depiction would have the following characteristics EXCEPT: complete free from error conservatism neutral

conservatism

The objective of general purpose financial reporting is to provide financial and non-financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity.

False

The rules-based standards of IASB are more detailed than the simpler, principles-based standards of U.S. GAAP

False

An identified feature—for example, historical cost, fair value or fulfilment value—of an item being measured. Measurement uncertainty Measurement Measurement basis Measure

Measurement basis

Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the economy? Periodicity assumption Monetary unit assumption Going-concern assumption Economic entity assumption

Monetary unit assumption

Which of the following is an ingredient of faithful representation? Predictive value Neutrality Confirmatory value Materiality

Neutrality

Information is obscured if it is communicated in a way that would have a similar effect for primary users of financial statements to omitting or misstating that information. The following choices are examples of circumstances that may result in material information being obscured EXCEPT: 1. information regarding a material item, transaction or other event is disclosed in the financial statements but the language used is vague or unclear 2. information regarding a material item, transaction or other event is scattered throughout the financial statements 3. None in the choices 4. dissimilar items, transactions or other events are inappropriately aggregated

None in the choices

Executory Contract is a contract, or a portion of a contract, that is equally unperformed—neither party has fulfilled any of its obligations, or both parties have partially fulfilled their obligations to an equal extent.

True

Financial statements are the principal means through which financial information is communicated to those outside an enterprise

True

Financial statements provide information about transactions and other events viewed from the perspective of the reporting entity as a whole, not from the perspective of any particular group of the entity's existing or potential investors, lenders or other creditors.

True

IFRS Standards contribute to economic efficiency by helping investors to identify opportunities and risks across the world, thus improving capital allocation. Use of a single, trusted accounting language lowers the cost of capital and reduces international reporting costs for businesses.

True

IFRS are a product of careful logic or empirical findings and are not influenced by political action

True

IFRS tends to be simpler and more flexible in the accounting and disclosure requirements than U.S. GAAP

True

International financial reporting interpretations are considered authoritative and must be followed

True

Many existing and potential investors, lenders and other creditors cannot require reporting entities to provide information directly to them and must rely on general purpose financial reports for much of the financial information they need. Consequently, they are the primary users to whom general purpose financial reports are directed.

True

Material errors in prior periods' statements of profit or loss are corrected by making an adjustment to the beginning balance of the current period's retained earnings.

True

The Conceptual Framework is not a Standard. Nothing in the Conceptual Framework overrides any Standard or any requirement in a Standard.

True

The Norwalk Agreement is a memorandum of agreement made between IASB and FASB (US) with the goal of achieving comparability in financial reporting standards by eliminating or minimizing differences between IFRS and US GAAP

True

Users of the financial information provided by a company use that information to make capital allocation decisions

True

General-purpose financial statements are the product of managerial accounting financial accounting both financial and managerial accounting neither financial nor managerial accounting

financial accounting

It is ___ to know the identity of the party/parties to whom the obligation is owed suggested ideal not necessary necessary

not necessary

Earnings quality refers to the ability of reported earnings (income) to predict future earnings.

True

The International Accounting Standards Board (IASB) follows specific steps in developing International Financial Reporting Standards (IFRS); the first step in the process is holding a public hearing

False

Which of the following statements is INCORRECT concerning the Elements of Financial Statements? 1. Liability is a present obligation of the entity to transfer an economic resource as a result of past events 2. Equity is the residual interest in the asset of the entity after deducting all its current liabilities 3. Asset is a present economic resource controlled by the entity as a result of past events. An economic resources is a right that has the potential to produce economic benefits 4. Expenses are decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims.

Equity is the residual interest in the assets of the entity after deducting all its current liabilities.

Which of the following statements about fair value is CORRECT? 1. Fair value reflects entity-specific assumptions rather than assumptions by market participants. 2.Because fair value is derived, even in part, from the price of the transaction or other event that gave rise to the asset or liability, fair value is not increased by the transaction costs incurred when acquiring the asset and is not decreased by the transaction costs incurred when the liability is incurred or taken on. 3. Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. 4. Fair value does reflect the transaction costs that would be incurred on the ultimate disposal of the asset or on transferring or settling the liability.

Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.

A qualitative characteristic that makes useful information more useful. The enhancing qualitative characteristics are relevance and faithful representation.

False

A statement of profit or loss that uses the function of expense method classifies expenses by their nature while a statement of profit or loss that uses the nature of expense method classifies expenses by their function within the company.

False

Accounting standards are now less likely to require the recording or disclosure of fair value information due to its inherent subjectivity

False

Aggregation is grouping an asset and liability that are recognised and measured as separate units of account into a single net amount in the statement of financial position.

False

Although an economic resource derives its value from its present potential to produce future economic benefits, the economic resource is the future right that contains that potential, not the present economic benefits that the right may produce.

False

General purpose financial statements are those intended to meet the needs of users who are in a position to require an entity to prepare reports tailored to their particular information needs.

False

International Accounting Standards are no longer considered applicable because they have been replaced by International Financial Reporting Standards

False

Only items that meet the definition of an asset, a liability or equity are recognised in the statement of financial position. Similarly, only items that meet the definition of income or expenses are recognised in the statement(s) of financial performance. Thus, all items that meet the definition of one of those elements are recognised.

False

The Accounting Standards Council (ASC) is the successor of the Financial Reporting Standards Council (FRSC).

False

The IFRS Foundation is an independent, privately organized, not-for-profit organization, operating to serve the vested interest of stakeholders around the world.

False

The first level of the conceptual framework identifies the recognition and measurement concepts used in establishing accounting standards

False

The _______________________ provides advice and counsel to the Trustees and the Board, whilst the Board also consults extensively with a range of other standing advisory bodies and consultative groups. This is the formal advisory body to the International Accounting Standards Board (Board) and the Trustees of the IFRS Foundation. IASB Advisory Council IFRS Foundation Council IFRS Advisory Council IFRS Advisory Committee

IFRS Advisory Council

When comparing U.S. GAAP and International Financial Reporting Standards (IFRS) IFRS contain more implementation guidance than U.S. GAAP IFRS are considered more principles-based than U.S. GAAP All of the choices are correct regarding U.S. GAAP and IFRS IFRS are considered more comprehensive than U.S. GAAP

IFRS are considered more principles-based than U.S. GAAP.

What is meant by comparability when discussing financial accounting information? Information has predictive or feedback value Information is timely Information that is measured and reported in a similar fashion across companies Information is reasonably free from error

Information that is measured and reported in a similar fashion across companies

Which of the following is a fundamental quality of useful accounting information? Comparability Relevance Materiality Neutrality

Relevance

Which of the following items is not among the basic features in the preparation and presentation of financial statements under IAS1? Reliability Materiality & Aggregation Fair Presentation & Compliance with IFRSs Frequency of Reporting

Reliability

The International Accounting Standards Board (IASB) follows specific steps in developing International Financial Reporting Standards (IFRS). Choose the correct order of steps. 1. Research Projects then Standard-Setting Projects then Setting the Agenda then Maintenance 2.Setting the Agenda then Research Projects then Standard-Setting Projects then Maintenance 3.Setting the Agenda then Standard-Setting Projects then Research Projects then Maintenance 4. Research Projects then Standard-Setting Projects then Setting the Agenda then Maintenance

Setting the Agenda then Research Projects then Standard-Setting Projects then Maintenance

The process of establishing GAAP is a ____________________ which incorporates political actions of various interested user groups as well as professional judgment, logic and research. Professional process Social process Political process Logical process

Social process

Combined Financial Statements are financial statements of a reporting entity that comprises two or more entities that are not all linked by a parent-subsidiary relationship while Consolidated Financial Statements are financial statements of a reporting entity that comprises both the parent and its subsidiaries.

True

The major financial statements include all of the following except: Statement of changes in equity Statement of changes in cash flows Statement of comprehensive income Statement of financial position

Statement of changes in cash flows

The International Accounting Standards Board's (IASB's) Conceptual Framework includes all of the following EXCEPT: Qualitative characteristics of accounting information Elements of financial statements Objective of financial reporting Supplementary information

Supplementary information

Classification is applied to the unit of account selected for an asset or liability. However, it may sometimes be appropriate to separate an asset or liability into components that have different characteristics and to classify those components separately. That would be appropriate when classifying those components separately would enhance the usefulness of the resulting financial information.

True