Deck 19: Further Financial Reporting Issues

Question 1

The treatment of items that clearly belong to past reporting period is a long standing problem.One way to handle this problem is to make adjustments to the retained earnings.The problem with this approach is that:

A) it could lead to manipulation of profit for the period
B) revenue and expenses are matched inappropriately
C) revenue and expenses are matched appropriately
D) none of the above

Answer 1

A

Question 2

All of the following entities are reporting entities,except:

A) government controlled business organisations
B) small proprietary companies
C) public companies
D) listed property trusts

Answer 2

B

Question 3

Events after the reporting date are of two types:
Type 1 Those that provide new evidence about conditions that existed at the reporting date
Type 2 Those that relate to new conditions arising after the reporting date
Which of the following statements is correct?

A) Only type 1 events affect the figures in the financial statements of the previous period
B) Only type 2 events affect the figures in the financial statements of the previous period
C) Both type 1 and type 2 events affect the figures in the financial statements of the previous period
D) Neither type 1 nor type 2 events affect the figures in the financial statements of the previous period

Answer 3

A

Question 4

Which of the following is not a 'related party' as defined by AASB 124?

A) A company in which 72% of the shares are owned by the chief executive officer's husband
B) A company in which 72% of the shares are owned by a non-executive director's husband
C) A company in which 72% of the shares are owned by a non-executive director's husband's self-managed superannuation plan
D) All of the above are related parties

Question 5

A business shows the following figures for the current financial year:
$$\begin{array} { l r } \text { Total assets } & \$ 80.0 \\\text { Total liabilities } & \$ 40.0 \\\text { (a) Long-term debentures } & \$ 2.5 \\\text { (b) Cash on deposit } & \$ 3.5 \\\text { (c) Asset revaluation reserve } & \$ 2.5 \\\text { (d) Provision for doubtful debts } & \$ 3.0\end{array}$$ The items that are least likely to be considered as material are:

A) (b) and (d)
B) (a), (c) and (d)
C) (a), (b) and (c)
D) (a) and (c)

Question 6

A small proprietory company:

A) has operating revenue of $25 million or more
B) has assets of less than $12.5 million
C) has more than 50 employees
D) A and C above

Question 7

Which of the following is not classified as a prior period error according to AASB 108?

A) A mistake in estimating warranty costs
B) Fraud
C) Mistakes in applying accounting policies
D) Oversights or misinterpretations of facts

Question 8

Where a business makes a change in an accounting policy,it must disclose:

A) only the nature of the change and the reasons for it
B) the nature of the change, the reasons for it and the financial effects of the change if it will affect the results of future periods
C) the nature of the change, the reasons for it and the financial effects of the change if it has affected the current period's results or may affect the results of future periods
D) the nature of the change, the reasons for it and the financial effects of the change if it has affected the current period's results

Question 9

In deciding whether an error or omission is material,it is usually necessary to consider:

A) the size of the error or omission
B) the nature of the account which is the subject of the error or omission
C) both A and B
D) none of the above

Question 10

Transactions between related parties should be of special interest to users of financial information for which of the following reasons?

A) Income tax liabilities may be illegitimately or artificially lowered
B) Senior executives' personal friends may be favoured unduly
C) Profit amounts or asset values may be inflated
D) All of the above

Question 11

Events after the reporting date are of two types:
Type 1 Those that provide new evidence about conditions that existed at the reporting date
Type 2 Those that relate to new conditions arising after the reporting date
Which of the following statements is correct?

A) Only type 1 events will affect the contents of the full annual report of the previous period
B) Only type 2 events will affect the contents of the full annual report of the previous period
C) Both type 1 and type 2 events will affect the contents of the full annual report of the previous period
D) Neither type 1 nor type 2 events will affect contents of the full annual report of the previous period

Question 12

A business shows the following figures for the current financial year (all amounts in $millions):
$$\begin{array} { l r } \text { Total sales } & \$ 38.0 \\\text { Operating profit } & \$ 12.0 \\\text { (a) Bad debts expense } & \$ 1.0 \\\text { (b) Interest expense } & \$ 2.0 \\\text { (c) Auditor's remuneration } & \$ 0.5 \\\text { (d) Repairs and maintenance expense } & \$ 2.5\end{array}$$ The items that are most likely to be considered as material are:

A) (b) and (d)
B) (a), (b) and (d)
C) (b), (c) and (d)
D) (a) and (b)

Question 13

Which of the following events occurring after the reporting date may need to be disclosed in the financial statements of a business for that previous period?

A) The bankruptcy of a major debtor
B) A loss caused by fire or flood
C) The announcement of a business merger
D) All of the above may need to be disclosed

Question 14

Which of the following is not a primary feature of a 'reporting entity'?

A) The extent of government regulation of the business
B) Its political or economic influence or importance
C) Financial characteristics such as size or level of indebtedness
D) Separation of management from ownership

Question 15

'Continuous reporting' requirements in Australia involve:

A) promptly notifying the Australian Securities Exchange (ASX) and shareholders of any information likely to affect a listed company's share price
B) promptly notifying the ASX and shareholders of any information likely to affect a listed company's profits
C) promptly notifying the ASX of any information likely to affect a listed company's share price
D) promptly notifying the ASX of any information likely to affect a listed company's profits

Question 16

Detailed disclosure of information about a company's transactions with 'related parties' is required:

A) for all material transactions with related parties
B) for all material transactions with related parties other than those occurring within a normal employee, customer or supplier relationship
C) only for transactions involving directors of the company and/or their immediate family
D) for all material transactions with related parties other than those who are regular customers of the company

Question 17

Which of the following statements is not true of Special Purpose financial statements?

A) They are implicitly the reports prepared by non-reporting entities
B) They must state that the financial statements are special purpose financial statements
C) They must disclose the significant accounting policies adopted in the preparation and presentation of the Special Purpose Financial Statements
D) None; all statements are true

Question 18

All of the following are usually seen as valid reasons for having different reporting standards for different business entities,except:

A) information needs of users may be different for different entities
B) costs of designing and installing an accounting information system may be different for different entities
C) investors in smaller entities generally do not read financial reports
D) users of the reports of some entities can obtain special purpose reports for their own use as required

Question 19

The Australian Securities Exchange requires listed companies to prepare and file financial reports:

A) quarterly
B) half-yearly
C) annually only
D) monthly

Question 20

Australian Accounting Standard AASB 108 provides that a change in an accounting policy:

A) can be made only if it is necessary so as to comply with another accounting standard
B) may be made for any reason provided the full effects of the change are disclosed
C) can be made if it improves the relevance and reliability of financial information and does not conflict with another accounting standard
D) cannot be made unless an accounting standard permits alternative policies

Question 21

Discuss how modern electronic means of communication,such as e-mail and the Internet,might assist continuous reporting and interim reporting requirements.Are there any possible disadvantages in using such electronic means of communication?

Question 22

The Corporations Act 2001 and Australian Accounting Standard AASB 1039 require that 'concise financial reports':

A) need not include detailed notes to the financial statements
B) need not show comparative figures for the previous period
C) need to include a condensed income statement and balance sheet only
D) need not include the directors' and the auditor's reports

Question 23

Australian Accounting Standard AASB 134 requires that interim (such as half-yearly)financial reports:

A) need not show comparative figures for the previous period
B) must take account of material events expected to arise in the remainder of the financial year
C) need to include a condensed income statement and balance sheet only
D) must clearly indicate that it is to be read in conjunction with the most recent annual financial report

Question 24

Discuss the concept of the reporting entity and the rationale for the revisions to the International Financial Reporting Standards for small and medium sized entities.

Question 25

Identify stakeholders in large public companies and discuss their information needs.How can the stakeholders be assured that the information they are provided can be relied upon? Do you think some stakeholders can command more reliable information than others? If so,which stakeholders,and why?

Question 26

Concise financial reports:

A) must be drawn up in accordance with AASB's
B) must achieve consistency with the changes in terminology contained in AASB 101
C) must include a statement of comprehensive income, a statement of financial position, a statement of cash flows and a statement of changes in equity
D) all of the above

Question 27

Why have accountants always put so much emphasis on the concept of materiality? How does this concept affect accountants,if at all,in their day-to-day work and in the preparation of periodical financial reports?