Deck 6: Financial Reporting Principles, accounting Standards and Auditing

Question 1

Which of the following is NOT included in the corporate governance statement required under stock exchange regulations?

A) Composition of the audit committee
B) Audit report
C) Remuneration policy for directors
D) Statement of ethical standards

Answer 1

B

Question 2

Which of the following is/are included in the corporate governance statement required under stock exchange regulations?

A) (i)and (ii)only
B) (i)and (iii)only
C) (ii)and (iii)only
D) (i), (ii)and (iii)

Answer 2

D

Question 3

Which of the following opinions is NOT included in the directors' statement accompanying the financial statements?

A) Whether the company can pay its debts when they fall due
B) Whether the financial statements give a true and fair view of the financial performance of the company
C) Whether the cash budget fairly indicates the anticipated cash flows from operations
D) Whether the financial statements comply with the requirements of the Corporations Act 2001

Answer 3

C

Question 4

Identify the accounting concept or principle that relates to the statement in the following question: The financial statements need to contain information that is useful to decision-makers.

A) Relevance
B) Faithful representation
C) Materiality
D) Comparability

Question 5

The agency charged with the administration and enforcement of the Corporations Act 2001 is the:

A) Australian Accounting Standards Board.
B) Australian Securities Exchange.
C) Australian Securities and Investments Commission.
D) Australian Accounting Research Foundation.

Question 6

The practice by Woolworths Ltd of presenting their financial statements in millions of dollars is an application of the concept of:

A) relevance.
B) materiality.
C) understandability.
D) disclosure.

Question 7

Which of the following is not a key point of the Framework?

A) Relevance and faithful representation are the primary qualitative characteristics that financial information should possess.
B) Consistency should not be an end in itself.
C) The concept of prudence should always take precedence over reliability.
D) Financial information may lose its relevance if there is undue delay in reporting it.

Question 8

In reporting on its liability for long service leave to employees,a company is obliged to trade off:

A) understandability and consistency.
B) relevance and faithful representation.
C) materiality and disclosure.
D) comparability and relevance.

Question 9

Assets are usually reported in the balance sheet at:

A) liquidation value.
B) value in use.
C) current or market value.
D) historical cost.

Question 10

Which of the following is NOT true? The external auditor's report provides the auditor's opinion that:

A) the financial statements give a true and fair view.
B) the financial statements are in accordance with the provisions of the Corporations Act 2001.
C) the financial statements are in accordance with applicable accounting standards.
D) the financial statements are accurate.

Question 11

Which of the following statements about comparability is true?

A) A company has to use the same accounting methods in all parts of a company.
B) The same depreciation method should be employed for all assets of a company.
C) The same accounting methods must be used as those used by other companies in the industry.
D) None of the answers provided.

Question 12

Which accounting concept is involved in the requirement that financial statements contain information that is useful to those who are making decisions?

A) Consistency
B) Comparability
C) Faithful representation
D) Relevance

Question 13

Identify the accounting concept or principle that relates to the statement in the following question: If a particular item is,by reason of its nature or its size,significant to a proper understanding of the situation,it should be separately stated.

A) Relevance
B) Faithful representation
C) Materiality
D) Comparability

Question 14

Identify the accounting concept or principle that relates to the statement in the following question: Information should have predictive value and/or feedback value.

A) Relevance
B) Faithful representation
C) Materiality
D) Comparability

Question 15

The agency empowered to prepare and issue accounting standards for the purposes of the Corporations Act 2001 is the:

A) Australian Accounting Research Foundation.
B) Australian Securities Exchange.
C) Australian Securities and Investments Commission.
D) Australian Accounting Standards Board.

Question 16

Use of the same accounting methods over time facilitates:

A) disclosure.
B) relevance.
C) comparability.
D) faithful representation.

Question 17

Which of the following items is/are generally NOT included in a directors' report to shareholders?

A) Names of directors
B) Principal activities of the company
C) Budgeted net profit for following year
D) Significant changes in the company's state of affairs

Question 18

The preparation of financial statements in a similar form to those of other companies facilitates:

A) comparability.
B) materiality.
C) faithful representation.
D) understandability.

Question 19

Which of the following statements about accounting regulation is NOT true?

A) The Financial Reporting Council is responsible for providing broad oversight of the accounting standard-setting process in the private and public sectors.
B) One of the key functions of the Australian Accounting Standards Board is to oversee the operation of the Financial Reporting Council.
C) The Australian Securities and Investments Commission monitors compliance with accounting standards.
D) ASIC promotes honesty and fairness in financial markets.

Question 20

The decision by a motor repair company to expense small tools immediately on acquisition rather than depreciate them over their useful lives is an application of the concept of:

A) timeliness.
B) materiality.
C) disclosure.
D) understandability.

Question 21

Systemic effects on the share prices of companies are:

A) changes arising from the installation of a new accounting system.
B) market-wide price changes coming from the economic system.
C) changes resulting from government legislation.
D) changes in accounting policies.

Question 22

An asset should be recognised in the financial statements when:

A) (i)and (ii)only
B) (i)and (iii)only
C) (ii)and (iii)only
D) (i), (ii)and (iii)

Question 23

Which of the following statements about agency theory is true?

A) Accounting information is viewed as something that is 'right'.
B) Conflicts of interest are regarded as unnatural.
C) It tends to focus on the future-oriented,decision-making role of accounting information.
D) It is concerned with contractual relationships among people.

Question 24

The standard version of the audit report does NOT state that:

A) the financial statements are the responsibility of management.
B) the auditor's responsibility is to express an opinion on the financial statements.
C) the company will remain a going concern.
D) the financial statements give a true and fair view.

Question 25

The external auditor renders an 'except for' opinion when he/she:

A) is unable to express an opinion either way because of a limitation in the work he or she was able to do.
B) considers that the financial statements are not presented fairly in accordance with GAAP.
C) is generally satisfied except for a specified departure from GAAP in the statements.
D) is unable to obtain sufficient reliable audit evidence.

Question 26

A liability should only be recognised in the financial statements when:

A) (i)and (ii)only
B) (i)and (iii)only
C) (ii)and (iii)only
D) (i), (ii)and (iii)

Question 27

Which of the following is an essential requirement for an asset to exist for accounting purposes?

A) An asset must be tangible.
B) An asset must have been exchanged for another asset.
C) An asset must be under the control of the entity.
D) An asset must have been acquired at a cost to the entity.

Question 28

The return you earn by owning a share is:

A) the cash from dividends.
B) the current price of the share on the Australian Securities Exchange.
C) the change in the market price of the share.
D) cash from dividends plus the change in the market price of the share.

Question 29

Which of the following statements about liabilities is NOT true?

A) An intention to repair a machine in six months' time does not give rise to a liability.
B) If a liability is to be reliably measured,estimation procedures cannot be used.
C) For a liability to exist,the entity must not be able to avoid the sacrifice of economic resources.
D) A liability is a present obligation arising from past events.

Question 30

Which of the following statements about capital markets is true?

A) Systematic risk refers to the risk arising from a firm's financing decision.
B) Returns of high-beta stocks tend to vary less than overall market prices.
C) The efficient market hypothesis states that it is not possible to consistently 'beat the market' by using publicly available information.
D) If the efficient market hypothesis were true,it would be impossible to make money in the stock market.

Question 31

Which of the following is a liability?

A) Accrued revenue
B) Prepayments
C) Allowance for doubtful debts
D) Unearned revenue

Question 32

Systemic effects arise when:

A) the shares of a deceased estate are sold to enable a distribution to be made to beneficiaries.
B) market-wide changes in share prices come from the economic system.
C) an announcement is made regarding the future prospects of a particular company.
D) the takeover of a large public company is announced.

Question 33

Which of the following is NOT an essential characteristic of an asset?

A) It must be legally owned by the entity.
B) The entity must have control over the asset.
C) The transaction giving the entity control over the asset must have occurred.
D) It is probable that future economic benefits will flow to the entity.

Question 34

A security's price may NOT vary because:

A) the whole share market is going up.
B) of information specific to that security.
C) of information specific to the company issuing the security.
D) of consistent financial policies.

Question 35

If the market is efficient with respect to accounting information,which of the following statements is true?

A) Accounting reports are useless to investors.
B) It is impossible to 'beat the market' using only accounting information that was released to the market 1 month ago.
C) Knowing the contents of an annual report before it is released to the market would not be useful to an investor.
D) Capital markets respond only to expected new information.

Question 36

Which of the following is NOT a policy of stock exchanges?

A) To ensure that all persons investing in securities listed on the exchange have equal access to information that may affect investment decisions
B) To regulate the conduct of securities markets
C) To enable companies to maximise profits
D) To protect investors and retain their confidence

Question 37

Which of the following items would be recognised as a liability?

A) Advances from customers for goods and services to be provided next year
B) Accumulated depreciation
C) The estimated cost of maintenance of plant deferred from this year to next year
D) Interest earned but not yet received

Question 38

Which of the following is NOT an example of an event that may give rise to general information-based trading?

A) The outbreak of war
B) A change in the political party in power as a result of an election
C) The announcement of a rise in inflation
D) A consistent dividend policy

Question 39

The external auditor renders an adverse opinion when he/she:

A) is unable to express an opinion either way because of a limitation in the work he or she was able to carry out.
B) considers that the financial statements are not presented fairly in accordance with GAAP.
C) is generally satisfied except for a specified departure from GAAP in the statements.
D) is unable to obtain sufficient reliable audit evidence.

Question 40

Which of the following is/are essential requirements for an asset to exist for accounting purposes?

A) (i)only
B) (i)and (ii)only
C) (i)and (iii)only
D) (ii)and (iii)only

Question 41

Which of the following statements about agency theory is NOT true?

A) Agency theory tends to focus on the stewardship role of accounting information.
B) Agency theory develops ideas about how the agent can be induced to act properly.
C) Something to be eliminated before a contract can be finalised.
D) For the agent,effort is costly and therefore to be minimised.

Question 42

Agency theory tends to focus on:

A) the decision-making role of accounting information.
B) the stewardship role of accounting information.
C) future orientated decision making.
D) the internal control system.