Deck 1: Conceptual and Case Analysis Frameworks for Financial Reporting

Question 1

What approach did Canada first decide to take with respect to convergence with IFRS?

A) Harmonization of CPA Canada Handbook with IFRS.
B) Substituting IFRS for Canadian GAAP when approved by the IASB.
C) Adopting some but not necessarily all IFRSs by reviewing them on a case by case basis.
D) Reviewing them with all publically accountable entities to see which ones would be acceptable.

Answer 1

A

Question 2

Which of the following would NOT be a reason to obtain a greater understanding of accounting practices in other nations?

A) Financial results are disclosed in different currencies.
B) One needs to be aware of differing disclosure requirements from nation to nation, as this impacts the preparation of financial statements.
C) Income-smoothing may have affected a foreign subsidiary's results; such smoothing practices are not permitted in North America.
D) Departures from the historical cost principle may be possible in other nations.

Answer 2

A

Question 3

X Inc. and Y Inc. are virtually identical companies with identical cost structures and very similar business practices operating in the same lines of business. X Inc. is a public company based in Canada and follows IFRS while Y Inc. is a private enterprise based in Canada and follows ASPE. The following were the condensed income statements for both companies for the last year before both adopted IFRS.
Required:
Given the information provided, what are some possible causes for the differing results of these companies?

Answer 3

There could be many possible explanations for these differing results. Y Inc.'s net income is $100,000, compared to X Inc.'s $300,000. Conversely, Y Inc.'s sales are twice those of X Inc. What is particularly noteworthy is Y Inc.'s 20% gross margin compared to X Inc.'s 50% gross margin. This could be due to the accelerated depreciation on Y Inc.'s property, plant and equipment or provisions made for future maintenance costs.
Smoothing practices may have been applied to reduce Y Inc.'s income, and of course, its tax liability. Y Inc.'s income may have been further reduced by higher estimates (for example: bad debt expense, warranty costs and so forth) which are not necessarily be indicative of economic conditions.
Note: Once again, the above analysis is not necessarily exhaustive. Students may be able to identify other valid differences.

Question 4

Which decision has Canada made with respect to financial reporting for private enterprises?

A) To adopt the IFRS standards for small and medium-sized enterprises.
B) To retain the current standards.
C) To look to US GAAP for standards.
D) To develop and maintain its own standards for private enterprises.

Question 5

The CPA Canada Handbook - Accounting is the handbook of Canadian accounting standards. Why do companies in Canada ensure that their financial reporting is consistent with Canadian GAAP?

A) Their bank requires them to do so.
B) Their auditors require them to do so.
C) Reporting under the CPA Canada Handbook - Accounting is required by public companies' boards of directors.
D) Compliance with the CPA Canada Handbook - Accounting pronouncements is usually required by many legal statutes.

Question 6

The debt-to-equity ratio measures:

A) liquidity.
B) solvency.
C) profitability of assets.
D) profitability of owners' investment.

Question 7

Which of the following is NOT a reason why a Canadian private company would elect to report under IFRS?

A) The company is planning to go public in the near future.
B) The company seeks comparability with public companies of a similar size.
C) It is likely to be less expensive than reporting under ASPE.
D) The company is a subsidiary of a Canadian public company.

Question 8

What choice(s) do private enterprises have in their financial reporting in Canada?

A) They have no choice at all; they will need to report under IFRS.
B) They may elect to continue with differential reporting.
C) They may adopt accounting principles that are appropriate to the circumstances.
D) They may elect to report under either IFRS or ASPE but once adopted, must use all the standards.

Question 9

One of the underlying assumptions of the Historical Cost Principle is that a stable unit of measure (currency) should be used for Financial Reporting. Is this always the case?

Question 10

Starting in 2011, what is the definition of a private enterprise (PE) under Canadian GAAP?

A) A corporation that has no public shareholders.
B) A corporation that has less than 500 shareholders and is not listed on a stock exchange.
C) A corporation which is not profit oriented.
D) A profit oriented enterprise that has none of its issued and outstanding financial instruments traded in a public market and does not hold assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses.

Question 11

Which enterprises must report under IFRS in Canada?

A) All corporations, government agencies and private companies.
B) Public companies and private companies whose shareholders' equity is in excess of $500,000,000 at any particular year end.
C) Public companies, private companies and not-for-profit organizations.
D) Publicly accountable enterprises.

Question 12

Briefly discuss the external users need for high quality financial information.

Question 13

For which of the following types of organizations does the CPA Canada Handbook not provide specific accounting standards?

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

Question 14

Provide the procedures used to analyze a company's financial statements to determine its future prospects.

Question 15

The current ratio measures:

A) liquidity.
B) solvency.
C) profitability of assets.
D) profitability of owners' investment.

Question 16

Which of the following would be most affected by financial statements being prepared under different accounting principles?

A) Reduced comparability.
B) Reduced reliability.
C) Increased complexity.
D) Inaccurate asset valuations.

Question 17

The formula for the current ratio is:

A) current assets - current liabilities
B) current assets/current liabilities
C) total debt/shareholders' equity
D) net income/shareholders' equity

Question 18

What disclosure requirements must be met when a Canadian company adopts IFRS for the first time?