Deck 1: An Overview of the Australian External Reporting Environment

Question 1

The Corporations Act requires which of the following to be included in a Directors' Declaration?
I) State whether in their opinion the financial statements comply with accounting standards and the Corporations Act.
II) State whether in their opinion the financial statements give a true and fair view of the financial position and financial performance of the entity.
III) State whether or not in their opinion, when the declaration was made, there were reasonable grounds to believe that the company would be able to pay its debts as they become due.
IV) State details of directors' emoluments.
V) State principal activities of the entity.

A) All of the given answers.
B) I, II and III only.
C) I, II, III and IV only.
D) IV and V only.
E) II, III and IV only.

Answer 1

B

Question 2

The role of the Financial Reporting Council is to provide broad oversight of the process for setting standards in Australia, including the authority to direct the AASB to develop, amend or revoke a particular standard:

Answer 2

False

Question 3

A criticism of the way the membership of the Financial Reporting Council has been structured is that:

A) Groups that are primarily interested in the financial performance of entities are represented while lobby groups with other interests are not.
B) It has increased the breadth of representation too widely.
C) The Treasurer does not have sufficient input into the selection process.
D) It is dominated by professional accountants.
E) None of the given answers.

Answer 3

A

Question 4

The AASB has responsibility for developing a conceptual framework, among other things. AASB are initials that stand for:

A) Australian Accounting Standards Board.
B) Accounting & Auditing Standards Bureau.
C) Australian Accounting Standards Bureau.
D) Accounting & Auditing Supervision Board.
E) None of the given answers.

Question 5

The Corporations Act is very specific about what must, and must not, be included in the Directors' Report attached to a company's financial statements:

Question 6

Directors could elect not to comply with an accounting standard on the grounds that applying the particular accounting standard would cause the accounts not to present a true and view.

Question 7

The Australian Accounting Standards Board reports to which body?

A) The Urgent Issues Group.
B) The Financial Accounting Standards Board.
C) The Financial Reporting Council.
D) The Australian Accounting Standards Review Board.
E) The Australian Accounting Research Foundation.

Question 8

The AASB's responsibilities include:

A) developing accounting standards that have the force of law under The Corporations Act.
B) Setting ethical guidelines for the accounting profession.
C) Formulating standards to be used by the entities in the public sector.
D) developing accounting standards that have the force of law under The Corporations Act and formulating standards to be used by the entities in the public sector.
E) All of the given answers.

Question 9

Pursuant to Corporate Law Economic Reform Program (CLERP) issued in October 2003, which of the following is/are required to provide a written declaration to the board of directors that the annual financial statements are in accordance with the Corporations Act and Australian Accounting Standards and that the financial statements present a true and fair view of the entity's financial position and performance?

A) any independent director.
B) chief executive officer.
C) chief financial officer.
D) any independent director and chief financial officer.
E) chief executive officer and chief financial officer.

Question 10

The only body with the power to veto a standard recommended by the AASB is:

A) The Financial Reporting Council.
B) The Commonwealth Parliament.
C) The Australian Accounting Standards Review Board.
D) The Urgent Issues Group.
E) None of the given answers.

Question 11

What are two key ways management accounting is different from financial accounting?

A) Management accounting provides special-purpose information to people external to the firm and it is highly regulated.
B) Management accounting provides information for the day-to-day running of an organisation and it is governed by the requirements of ASIC.
C) Management accounting is focused on providing formation to shareholders who wish to have input into the management of the organisation and it is regulated by generally accepted accounting principles.
D) Management accounting focuses on providing information for internal users and it is largely unregulated.
E) None of the given answers.

Question 12

Financial accounting can be considered a process involving the collection and processing of financial information to assist the decision-making needs of parties internal to an organisation:

Question 13

The Australian Accounting Standards Board (AASB) issues only one set of accounting standards which have general applicability to the private, public and not-for-profit sectors:

Question 14

What option(s) does a company have when directors are of the view that compliance with accounting standards does not generate a true and fair view financial statements?

A) Directors may elect not to comply with the standard.
B) Directors may exercise the "true and fair view override".
C) Directors may provide additional information to this effect in the notes to the accounts.
D) All of the given answers.
E) Directors may elect not to comply with the standard and Directors may provide additional information to this effect in the notes to the accounts.

Question 15

The financial statements and supporting notes included in an annual report presented to shareholders at a company's annual general meeting is an example of a general-purpose report:

Question 16

ASIC (The Australian Securities and Investment Commission) has the responsibility, among other things, to monitor and regulate various investment products and superannuation:

Question 17

Accounting cannot be considered to be "culture free". Arguably, value systems of accountants are expected to be related to the values of the society within which they operate. Ans to such values will have an impact on accounting systems:

Question 18

Standards with the prefix IFRS/IAS:

A) Will require material to be added by the AASB to that which describes the scope and applicability of the standards in the Australian context.
B) Will be adopted in Australia without modification.
C) Are being implemented in Australia to simplify reporting for all entities and to reduce reporting costs.
D) Will not require Australian businesses to make any major alterations to their current accounting practices.
E) Will be adopted without change by the US to ensure accounting reports are globally comparable.

Question 19

The regulation of accounting can be argued to be necessary to protect the information rights of parties not involved in the day-to-day operations of the organisation:

Question 20

There has been a trend by governments and government departments towards adopting specialised public sector accounting techniques:

Question 21

A company may be exempted from the requirements of s 296 of The Corporations Act if:

A) It is a small proprietary company within the definition of the Act.
B) A special meeting of 75 per cent of the shareholders convened under s 293 agrees to the preparation of financial reports that do not comply with those accounting standards.
C) The report is prepared in response to a shareholder direction under s 293 and the direction specifies that the report does not have to comply with those accounting standards.
D) It is a small proprietary company within the definition of the Act and the report is prepared in response to a shareholder direction under s 293 and the direction specifies that the report does not have to comply with those accounting standards.
E) None of the given answers.

Question 22

A joint Memorandum of Understanding between the International Accounting Standards Board (IASB) and US Financial Accounting Standards Board (FASB), published in 2006:

A) agreed to maintain the status quo, and retain international and US accounting standards in the form that they currently exist.
B) identified a number of options to ensure complete consistency between international and US accounting standards by 2010.
C) identified an intention to implement actions to identify and remove major accounting differences in specific areas by 2008.
D) identified an agreement that international standards will be changed to accord with US standards, wherever there were key differences, by 2008.
E) identified a goal that all international and US accounting standards be totally harmonised by 2008.

Question 23

The Financial Reporting Panel (FRP) established under the auspices of the Australian Securities and Investments Commission (ASIC) intends to provide:

A) A timely, efficient and cost-effective way of resolving disputes concerning accounting treatments in financial reports.
B) The opportunity to be heard by persons with relevant expertise.
C) A mechanism to alleviate some concerns regarding the use of the courts for adjudication on technical accounting issues.
D) All of the given answers.
E) None of the given answers.

Question 24

Pursuant to sections 298-300AA of the Corporations Act, the Directors' Report must include:

A) Details of directors' emoluments.
B) Details of all related-party transactions.
C) A copy of the independent audit report.
D) Details of compliance with the ASX Principles of Good Corporate Governance.
E) All of the given answers.

Question 25

Which of the following most accurately describes the process of issuing an IASB standard?

A) An advisory committee may be established to give advice on the project; this may be followed by the development and publication of Discussion Documents. After receiving public feedback, an Exposure Draft may then be issued for further comment. A final IFRS is then issued based on previous feedback along with Basis for Conclusion.
B) Discussion Documents are developed and published for public comment, then an advisory committee must be established to give advice on the project. After receiving public feedback, an Exposure Draft may then be issued for further comment. A final IFRS is then issued based on previous feedback along with Basis for Conclusion.
C) An advisory committee may be established to give advice on the project and develop an Exposure Draft, which will be followed by the development and publication of Discussion Documents. After receiving public feedback, a final IFRS is then issued along with Basis for Conclusion.
D) An advisory committee must be established to give advice on the project; this will be followed by the development and publication of Discussion Documents. After receiving public feedback, an Exposure Draft is required to be issued for further comment. A final IFRS is then issued based on previous feedback along with Basis for Conclusion.
E) None of the given answers.

Question 26

An argument to support the requirement that all companies over a certain size should adhere to accounting standards is:

A) Larger companies have greater political and economic importance and this increases the demand for financial information about the entity by external users.
B) Larger companies can afford to pay for complex accounting systems and the experts necessary to design and maintain them.
C) The conceptual framework and accounting standards are designed for larger enterprises.
D) The Australian Securities and Investment Commission should only be responsible for large enterprises.
E) All of the given answers.

Question 27

A recent noteworthy development in relation to Australian Stock Exchange (ASX)-required disclosures is the establishment of the ASX Corporate Governance Council, and the issue of Principles of Good Corporate Governance and Best Practice Recommendations. In relation to these principles:

A) All companies governed by the Corporations Act 2001 must abide by these principles and recommendations.
B) The Australian Accounting Standards Board (AASB) has incorporated the principles and recommendations into the Accounting Framework.
C) All ASX-listed companies are compelled by law to comply in entirety with these principles and recommendations.
D) All ASX-listed companies are compelled to change their corporate governance systems to ensure total compliance with these principles and recommendations.
E) All ASX-listed companies must follow these principles and recommendations, and where they have not, they must identify the fact that they have not and give reasons for not following them.

Question 28

Some of the costs of international convergence of accounting standards include:

A) Costs of educating accountants to adopt a new set of standards.
B) Costs associated with changing data collection systems.
C) Costs associated with changing data reporting systems.
D) All of the given answers.
E) None of the given answers.

Question 29

Which of the following statements was not identified as a benefit of international harmonisation?

A) It was likely to increase the comparability of financial reports prepared in different countries.
B) It was likely to improve the quality of financial reporting in Australia to best international practice.
C) It was likely to reduce the reporting costs for Australia's not-for-profit entities and local governments.
D) It was likely to allow more meaningful comparisons of the financial performance and financial position of Australian and foreign public sector reporting entities.
E) It was likely to remove barriers to international capital inflows.

Question 30

In recent times the AASB has been reluctant to include alternative options within standards. This means:

A) Entities within Australia will have the choice as to whether or not they choose to meet the requirements detailed in accounting standards.
B) The number of options within IFRS-adopted accounting standards is expected to be restricted, although compliance with the AASB standard will mean compliance with the IASB standard.
C) The number of options within IFRS-adopted accounting standards is expected to be restricted, which means that compliance with the AASB standard will not automatically mean compliance with the IASB standard.
D) The AASB is in direct conflict with the aims of the Financial Reporting Council in relation to international harmonisation.
E) No AASB standard will include alternative accounting options.

Question 31

The International Accounting Standards Board website explains how the IASB believes its relationship with national standards setters should be conducted. It notes that:

A) there should be close co-ordination between the due process of the IASB and the process of national standard-setters.
B) the IASB will inform national standard-setters of directions they should take, projects they should undertake and the outcomes that are expected of them.
C) the IASB expects national standard-setters to develop all standards of a domestic nature pertaining to the public and non-for-profit sectors, as its standards do not apply to these areas.
D) national standard setters should cede all responsibility for matters pertaining to accounting standards to the IASB, but retain responsibility for making interpretations on all matters of uncertainty.
E) national standard setters should cede all responsibility for matters pertaining to accounting standards to the IASB.

Question 32

In adopting International Financial Reporting Standards (IFRSs), the Australian Accounting Standards Board (AASB) has:

A) embraced the IFRSs without change.
B) been disbanded as it is no longer required.
C) used the IFRSs only as a foundation for its own set of standards, and has identified where these own standards do not comply with IFRSs.
D) issued its own standards and "re-badged" them as AASBs.
E) None of the given answers.

Question 33

The AASB Standards 1-99 Series includes those standards:

A) where the standard has been developed for domestic application and relates specifically to the public or not-for-profit sectors.
B) where a standard equivalent to an existing or improved IAS is issued, with the number being used by the IASB being the same as that being used by the AASB .
C) where a standard equivalent to an existing or improved IAS is issued, with the number being used by the AASB 100 on from that being used by the IASB .
D) where a new IFRS has been issued by the IASB, with the number being used by the IASB being the same as that being used by the AASB .
E) where a new IFRS has been issued by the IASB, with the number being used by the AASB 100 on from that being used by the IASB .

Question 34

To determine whether or not information is material, paragraph 9 of AASB 1031 indicates that it is material if its omission, misstatement or non-disclosure has the potential, individually or collectively to:

A) affect the discharge of accountability by the governing body of the entity.
B) be greater than 1 per cent of the total assets of the entity.
C) influence management to make decisions which will affect users of the financial report.
D) present the financial report in a "true and fair" manner.
E) deceive the auditors and regulators.

Question 35

Which body reviews, on a timely basis within the context of existing International Accounting Standard and the IASB Framework, accounting issues that are likely to receive divergent or unacceptable treatment in the absence of authoritative guidance?

A) International Accounting Standards Board (IASB).
B) International Financial Reporting Interpretations Committee (IFRIC).
C) International Interpretations and Issues Group (IIIG).
D) Urgent Issues Group (UIG).
E) Australian Accounting Standards Board (AASB).

Question 36

The functioning of the Auditing and Assurance Standards Board is overseen by:

A) The Australian Accounting Research Foundation.
B) The Australian Accounting Standards Board.
C) The Financial Reporting Council.
D) The International Accounting Standards Board.
E) An independent group representing Auditors.

Question 37

Until recently standards issued by the IASB (formerly IASC) were:

A) The most well developed set of accounting standards and used widely around the world.
B) Deemed to be best practice and always used as a template when another country was developing its own standards.
C) Not that important as they were only designed for European economies.
D) Frequently adopted directly by developing countries.
E) Developed by the 142 members who represented professional accounting bodies from around the world.

Question 38

Section 296 of The Corporations Act requires (all or in part):

A) The AASB to follow the broad strategic direction determined by the FRC.
B) The directors to make a declaration stating whether, in their opinion, the financial statements comply with accounting standards.
C) The AASB to develop a conceptual framework, not having the force of an accounting standard, for the purpose of evaluating accounting standards and international standards.
D) A company's directors to ensure that the company's financial statements for a financial year comply with accounting standards.
E) None of the given answers.

Question 39

The publication of a standard, exposure draft, or final SIC interpretation requires approval by:

A) The Chairman of the IASB.
B) A simple majority of the IASB's fourteen members.
C) Nine of the IASB's fourteen members.
D) Twelve of the IASB's fourteen members.
E) All of the IASB's fourteen members.

Question 40

The main benefits of international harmonisation are said to include:

A) Increasing the comparability of financial reports prepared in different countries so that capital ultimately flows to entities that can use it the most productively.
B) Reducing the financial reporting costs for Australian multinational companies.
C) Removing barriers to international capital flows by reducing differences in financial reporting requirements and so increasing understanding by foreign investors of Australian reports.
D) Facilitating more meaningful comparisons of the financial performance and position of Australian and foreign public sector reporting entities.
E) All of the given answers.

Question 41

In accordance with Corporations Act, which of the following companies will be required to conform to the Australian Accounting Standards in the preparation of their financial reports?
Proprietary Company with revenues of $12 million, total assets of $4 million and number of employees totalling 80.
Proprietary Company with revenues of $6 million, total assets of $4 million and number of employees totalling 60.
Company listed on the stock exchange.
Company that issued a public debt
Reporting entities

A) All of the given answers.
B) I, II, III, and IV only.
C) I, III, IV and V only.
D) I, III and IV only.
E) III, IV and V only.

Question 42

Arguments against the regulation of accounting information include:

A) Mandated disclosures are cheap to provide and by their nature will devalue the worth of the information being provided.
B) That by making so many choices of accounting methods available under the standards, the efficiency with which the information is provided will be enhanced.
C) Companies will be motivated to disclose good news but not disclose bad news if they are not forced to make certain mandated disclosures (the "lemons" argument).
D) Managers of the organisation are in the best place to determine what information should be produced to increase the confidence of external stakeholders.
E) None of the given answers.

Question 43

Under the Corporations Act, which of the following types of companies must comply with Australian accounting standards?
I) Disclosing entities
II) Publicly listed companies
III) Large proprietary companies
IV) Small proprietary companies

A) All of the given answers.
B) II only.
C) II and III only.
D) I, II and III only.
E) II, III and IV only.

Question 44

For auditing to be an effective strategy for reducing the costs of attracting funds, the auditor must:

A) be independent and the accounting methods employed must be sufficiently well-defined.
B) have been auditing the company for at least the last five years.
C) be formally registered under the Registered Auditors Act 1998.
D) belong to one of the major ("Big 4") global accounting firms.
E) All of the given answers.

Question 45

Responsibility for the preparation of the financial information of a company rests with:

A) The Auditors.
B) Management.
C) The Auditors and Management jointly.
D) The Auditors and the Board of Directors jointly.
E) Management and Representatives from ASIC.

Question 46

The idea that accounting information can be used by people without paying for it, and pass it on, defines accounting information as being:

A) Worthless.
B) A Free Good.
C) A Public Good.
D) A Cheap Good.
E) A Good Buy.

Question 47

In accordance with AASB 101 'Presentation of Financial Statements a financial report comprises of......?

A) a balance sheet, an income statement and cash flow statement.
B) a balance sheet, an income statement, a statement of changes in equity and a cash flow statement.
C) a balance sheet, an income statement, a statement of changes in equity, a cash flow statement and notes to the accounts.
D) a balance sheet, an income statement, a cash flow statement and notes to the accounts.
E) a balance sheet, an income statement, a statement of changes in equity and notes to the accounts.

Question 48

The Corporations Act requires which of the following to be included in a Directors' Declaration?

A) State whether in their opinion the financial statements comply with accounting standards and the Corporations Act.
B) State whether in their opinion the financial statements give a true and fair view of the financial position and financial performance of the entity.
C) State whether or not in their opinion, when the declaration was made, there were reasonable grounds to believe that the company would be able to pay its debts as they become due.
D) All of the given answers.
E) None of the given answers.

Question 49

Which of the following statement(s) is/are true with respect to the differences between IFRS and US generally accepted accounting standards?

A) There are no differences between IFRS and US generally accepted accounting standards.
B) There are only slight differences between IFRS and US generally accepted accounting standards.
C) There was a decision made by both the IASB and the US Financial Accounting Standards Board (FASB) to pursue a high Difficulty of convergence program designed to bring a number of short-term fixes between the two sets of accounting standards.
D) There are only slight differences between IFRS and US generally accepted accounting standards; and there was a decision made by both the IASB and the US Financial Accounting Standards Board (FASB) to pursue a high Difficulty of convergence program designed to bring a number of short-term fixes between the two sets of accounting standards.
E) None of the given answers.

Question 50

Some of the perceived barriers to the harmonisation process (for the harmonisation of accounting standards globally) include:

A) Different business environments.
B) Different legal systems.
C) Different cultures.
D) Different political environments.
E) All of the given answers.