Deck 1: Setting the Stage

Question 1

Which of the following is true about Canadian governmental reporting standards?

A)PSAB standards are recommendations only.
B)PSAB standards are rules that must be followed.
C)PSAB standards must be applied to all provincial public utilities.
D)PSAB standards were developed by the OSC.

Answer 1

A

Question 2

Which of the following Canadian accounting standards are not included in the CICA Handbook?

A)Publicly accountable enterprises
B)Private enterprises
C)Not-for-profit organizations
D)Government

Answer 2

D

Question 3

Which of the following statements about the adoption of IFRS is true?

A)Code-law countries that adopt IFRS must adopt it completely, but common-law countries can choose to partially adopt IFRS.
B)Common-law countries that adopt IFRS must adopt it completely, but code-law countries can choose to partially adopt IFRS.
C)Both code-law and common-law countries can choose to partially adopt IFRS.
D)Both code-law and common-law countries that choose to adopt IFRS must adopt it in its entirety.

Answer 3

C

Question 4

Which of the following private companies is required to use IFRS?

A)Investment companies
B)Import/export companies
C)Manufacturing companies
D)Accounting firms

Question 5

When the International Accounting Standards Board amends a standard, what must a code-law country do to adopt the amendment?

A)The country's securities regulators must approve the amendment.
B)The country's professional accounting body must approve the amendment.
C)The country must pass new legislation to adopt the amendment.
D)The country's financial institution regulators must approve the amendment.

Question 6

What do business enterprises have that NFPs do not have?

A)Specified products or services
B)Identifiable customers or clients
C)Employees
D)Boards of directors

Question 7

Assume that a nation has fully adopted IFRS. Which of the following statements is true?

A)Since the nation has fully adopted IFRS, all standards will be applied in the same way as other nations that have fully adopted IFRS.
B)Since the nation has fully adopted IFRS, IFRS must be applied to all business enterprises in the nation.
C)Although the nation has fully adopted IFRS, standards may be applied in different ways to suit the local environment.
D)Although the nation has fully adopted IFRS, business enterprises can choose to opt out as long as they have government approval to do so.

Question 8

Which of the following is true about the standards for publicly accountable enterprises in the CICA Handbook, Part I?

A)The standards are similar to U.S. GAAP.
B)The standards are adaptations of IFRS that have been tailored to Canadian circumstances.
C)The standards are similar to ASPE.
D)The standards are identical, word for word, to IFRS.

Question 9

Which of the following statements is true about common-law countries?

A)Common-law countries must completely adopt IFRS.
B)Amendments to IFRS by common-law countries must be done legislatively.
C)Amendments to IFRS by common-law countries must be done by government regulation.
D)In common-law countries, the local non-government standard setting authority can decide which international standards to adopt.

Question 10

Which nation does not require a cash flow statement in its financial reporting?

A)United States
B)United Kingdom
C)Australia
D)Japan

Question 11

One of the components that a nation must have to effectively apply international standards is quality auditing. Which of the following statements about auditing is true?

A)Audit quality is consistently high around the world due to the implementation of International Auditing Standards.
B)Most audits around the world are conducted by the Big Four, which ensures consistency.
C)Audit quality is consistent around the world as smaller countries import well-educated auditors to ensure expertise.
D)Audit quality is inconsistent around the world.

Question 12

NFP organizations can choose among reporting approaches contained within the framework provided by the CICA Handbook. Which of the following is not a consideration in choosing the approach?

A)Nature of the NFP's operations
B)Sources of the NFP's funding
C)The NFP's reporting objectives
D)Whether or not the NFP uses the restricted fund method of accounting

Question 13

Which of the following statements about the adoption of IFRS is true?

A)Many European countries adopted IFRS prior to 2011.
B)Canada adopted IFRS in 2012.
C)All European and North American countries adopted IFRS in 2011.
D)All European, Asian, and African countries adopted IFRS in 2011.

Question 14

What accounting standards should government NFP organizations follow?

A)CICA Handbook, Part III only
B)CICA Public Sector Accounting Handbook only
C)Choice of CICA Handbook, Part III or CICA Public Sector Accounting Handbook
D)Choice of CICA Handbook, Part III; CICA Public Sector Accounting Handbook; or IFRS

Question 15

A Hong Kong-based company is listed on the Toronto Stock Exchange, but not on the Hong Kong Stock Exchange. If there are any issues about the company's reporting, the primary enforcement rests ________.

A)in Hong Kong
B)with the OSC
C)with the SEC
D)with an international tribunal

Question 16

What accounting standards are private banks and investment funds required to follow for their consolidated, general-purpose, publicly issued financial statements?

A)IFRS
B)ASPE
C)NFP accounting standards
D)PSAB recommendations

Question 17

What accounting standards are contained in the CICA Handbook, Part III?

A)IFRS
B)ASPE
C)NFP
D)Government

Question 18

A private company that is closely held and internally financed is most likely to report under ________.

A)IFRS
B)ASPE
C)NFP
D)PSAB recommendations

Question 19

For international standards to be applied effectively, a country does not require ________.

A)professional financial preparers
B)quality auditors
C)an independent enforcement agency
D)companies with ethical managers

Question 20

Why has the reputation of U.S. accounting standards decreased in recent years?

A)The U.S. deficit is at a record high.
B)Many U.S. businesses have declared bankruptcy.
C)There have been some notable American accounting scandals, such as Enron.
D)Lengthy prison sentences have been given to unethical American executives, such as Bernie Madoff.

Question 21

Which financial reporting approach has Canada decided to take with respect to private enterprises?

A)IFRS
B)Special adaptation of IFRS for small and medium enterprises
C)Canadian GAAP for private enterprises
D)Disclosed basis of accounting

Question 22

If a country uses a disclosed basis of accounting for private companies, which of the following statements is true?

A)Private companies can create their own GAAP as long as it is disclosed and the spirit of the country's GAAP standards has been followed.
B)Private companies can pick and choose which aspects of GAAP to follow.
C)Private companies must report using fair value.
D)Private companies must report using both historical and fair value.

Question 23

Why might a large private company choose to use full IFRS?

A)Its assets exceed $10,000,000.
B)It only uses debt financing.
C)It only uses equity financing.
D)It competes with public companies for financing.

Question 24

In Germany, what does a company that has no debt indicate?

A)It is a superior company with stable earnings.
B)It is a safer company to invest in than a company with debt.
C)It is highly supported by financial markets.
D)The banks do not have any faith in the company.

Question 25

Countries establish their accounting standards using one of two methods. They can be either code-law countries or common-law countries.
Required:
Explain these two separate methods used to establish reporting standards and why IFRS might not be adopted completely under either method. Provide examples of each type.

Question 26

Private companies in Canada may follow either IFRS or accounting standards for private companies.
Required:
Why did Canada adopt accounting standards for private companies? What is different about private companies and public companies that require a different set of accounting standards?

Question 27

High Traders Inc. is a private Canadian company. The company adopted accounting standards for private enterprises in 2011. However, a new CFO has just been hired and is now suggesting that the company consider adopting IFRS in the near future.
Required:
Outline four possible reasons that a private company in Canada might choose to adopt IFRS.

Question 28

Management prepares the company's financial statements. Consequently, management's objectives will dominate the selection of accounting policies.
Required:
Give examples of users that might have the power to influence the accounting policy choices made by preparers.

Question 29

Which GAAP approach for private companies would smaller countries that do not have well-established standard-setting processes be most likely to use?

A)IFRS for SMEs
B)Full IFRS
C)Disclosed basis of accounting
D)Code law requirement

Question 30

In Canada, there are many types of business and non-business organizations and four different reporting standards that might be applicable.
Required:
What types of organizations are required to follow IFRS? What types of organizations may follow IFRS if they choose to do so, and how is this choice made?

Question 31

In Canada, we have business and non-business organizations.
Required:
Explain the difference between these two types of organizations. Why should they be allowed to follow different accounting policies?

Question 32

Private companies have different users and user needs than public companies. As a result, many countries have decided to have a separate set of accounting standards that can be followed by private enterprises.
Required:
Describe the five different possible sets of GAAP that a country might adopt for private companies and briefly explain how each might be implemented. Discuss any advantages or disadvantages for these methods.

Question 33

In Canada, who developed the accounting standards for private enterprises?

A)International Accounting Standards Board
B)Accounting Standards Board
C)Financial Accounting Standards Board
D)Ontario Securities Commission

Question 34

XY Co. is a Canadian company that recently received approval for a loan from a bank in Europe. The bankers require statements prepared "in accordance with IFRS as adopted by the EU." The CEO recently stated that now that Canada has adopted IFRS, the company only needs to prepare one set of financial statements for issuance.
Required:
As the CFO, reply to this CEO's statement. Why might this not be the case in this situation? In what areas might there be differences? How would this report have to be prepared and issued?

Question 35

What is one of the primary reasons why securities commissions are often ineffective enforcement agencies for accounting standards?

A)Lack of knowledge
B)Lack of financing
C)Lack of independence
D)Lack of support from professional accounting bodies

Question 36

Both Canada and Japan have adopted IFRS even though the two countries differ in many ways. What is one area in which the two countries differ?

A)Corporate structure
B)Issuance of consolidated financial statements
C)Use of common law
D)Ability to select accounting policies

Question 37

France, Germany, Japan, and Canada are four countries that have adopted International Financial Reporting Standards. As a result, auto companies from these nations have similar statements, statement components, disclosures, and measurement methods.
Required:
Discuss the "invisible differences" that may cause statements from these countries to be less comparable, and give examples.

Question 38

What is the effect of a nation's high inflation on its business enterprises?

A)There would not be any impact on the long-term earnings of companies.
B)It could cause a revaluation of assets.
C)It could decrease companies' reliance on net monetary liabilities.
D)It could lead companies to hold more monetary investments.

Question 39

Which of the following statements is not true about private companies?

A)Private companies usually have easily identifiable user groups.
B)User groups of a private company are not permitted to request additional information, outside of the issued financial statements, from the company.
C)Private companies are not required to issue "general-purpose" financial statements.
D)Private companies often report to specific user groups for specific purposes.

Question 40

Many countries around the world have adopted International Financial Reporting Standards as their accounting standards. As a result, companies competing in the same industry, but operating in different countries, should use the same accounting policies. This, in turn, makes interpretation and analysis of peers' statements listed on different exchanges far easier than in the past.
Required:
Is the above statement true? Explain.