Question 1

A set of principles designed to guide the development of financial statements is:
A)International Financial Reporting Standards (IFRS).
B)the conceptual framework.
C)generally accepted accounting principles.
D)Australian Accounting Standards Board.

Accepted Answer

The conceptual framework is a set of principles that provides guidance on the development of financial statements through the use of definitions, recognition criteria, measurement concepts, and presentation and disclosure requirements. It helps in maintaining consistency and comparability in financial reporting. IFRS and Australian Accounting Standards Board are specific sets of accounting standards, and generally accepted accounting principles refer to the commonly accepted accounting practices in a particular country.

Question 2

A study by the International Federation of Accountants argued that companies must balance:
A)conformance and performance.
B)conformance and consistency.
C)performance and integrity.
D)integrity and consistency.

Accepted Answer

The study by the International Federation of Accountants argued that companies must balance conformance and performance. Conformance refers to complying with laws, regulations, and standards, while performance pertains to achieving the organization's objectives and goals. A company that can balance both conformance and performance can ensure that it operates ethically and achieves its strategic objectives.

Question 3

For information in financial reports to be material, it must:
A)be prepared on a timely basis.
B)affect the discharge of accountability by management of the reporting entity.
C)influence the decisions of users of that information.
D)Both B and C

Accepted Answer

Materiality refers to the significance or importance of information in influencing the decisions of users of financial statements. To be considered material, the information must affect the discharge of accountability by management of the reporting entity and influence the decisions of users of that information. Therefore, option D (Both B and C) is the correct choice. Option A (prepared on a timely basis) is not a determinant of materiality, although timely preparation is important for the usefulness of financial information.

Question 4

A public company is a:
A)reporting entity.
B)disclosing entity.
C)Both A and B
D)Neither A nor B

Accepted Answer

A public company is required to report its financial information to the public and disclose any material information that could affect the company's operations or its investors. Therefore, a public company is both a reporting entity and a disclosing entity.

Question 5

Each ASX Corporate Governing Principle is supported by several recommendations. If the board of a listed company decides that a recommendation is not appropriate for their company:
A)the company will immediately be suspended from listing.
B)the company must explain why it has not adopted the recommendation.
C)the company can just ignore the recommendation.
D)the company board of directors will be dismissed.

Accepted Answer

The ASX Corporate Governing Principles require listed companies to disclosure their compliance with the recommendations. If a company decides it is not appropriate to adopt a recommendation, it must explain why this is the case. The explanation should be included in the company's annual report or on their website. Ignoring the recommendation without explanation could lead to a lack of transparency and risk reputational damage. Option A and D are not accurate and Option C is not in line with good corporate governance practices.

Question 6

Which of the following is not a source of external accounting rules for a company listed on the Australian Stock Exchange?
A)Stock exchange rules imposed by the Australian Stock Exchange
B)Company law
C)Sarbanes Oxley Act
D)International accounting standards

Accepted Answer

The Sarbanes Oxley Act is a US law that applies to companies listed on US stock exchanges. It is not a source of external accounting rules for companies listed on the Australian Stock Exchange. Choices A, B, and D are all sources of external accounting rules for these companies.

Question 7

Which of the following is a responsibility of the directors of a public company?
A)To maintain an internal control system within the company
B)To ensure financial statements are prepared showing a true and fair view of an organisation's financial situation
C)To organise for financial reports to be audited
D)All of the above

Accepted Answer

All of the given options are responsibilities of directors of a public company. Directors must maintain an internal control system to ensure the company's operations comply with legal and ethical standards. They are also responsible for preparing financial statements that show a true and fair view of the company's financial status. Additionally, they must organize for these financial reports to be audited by independent auditors to provide assurance to stakeholders regarding the accuracy of the financial information.

Question 8

Which of the following statements is true about the order of repayment for a company in liquidation?
A)Creditors rank before ordinary shareholders.
B)Ordinary shareholders rank before preference shareholders.
C)Wages owing to employees rank last.
D)All of the statements are true.

Accepted Answer

In a liquidation process, creditors have first priority over ordinary shareholders for repayment. Preference shareholders usually have priority over ordinary shareholders but it depends on the terms of their share agreement. Wages owing to employees have priority over unsecured debts but they usually rank after all other expenses and debts have been paid. Therefore, only statement A is true.

Question 9

The annual report of a public company must contain:
A)an audit report.
B)a directors' declaration.
C)a directors' report.
D)All of the above

Accepted Answer

The annual report of a public company is required to contain an audit report, a directors' declaration, and a directors' report. These three elements are mandatory components of an annual report.

Question 10

If you were asked to loan money to a company that you feared may be getting into financial difficulties, which of these courses of action would provide you with the most protection from default on the loan?
A)Rely on the principle of limited liability
B)Require a mortgage over a specific asset of the company
C)Require the accounts of the company to be audited
D)Specify a particular accounting method to be used

Accepted Answer

Requiring a mortgage over a specific asset of the company provides the best protection from default on the loan. In case of default, the lender has a legal claim over the mortgaged asset and can sell it to recover the loan amount. This provides a more concrete form of collateral compared to the principle of limited liability, auditing of accounts or specifying accounting methods, which may not necessarily prevent or mitigate default on the loan.

Question 11

An audit report that contains the opinion that the financial statements are true and fair and comply with the accounting standards is described as:
A)a qualified report.
B)an authorised report.
C)a quantified report.
D)an unqualified report.

Accepted Answer

An unqualified report is issued when the auditor has no reservations about the financial statements and believes they are presented fairly and in compliance with accounting standards. This is the best type of audit report a company can receive.

Question 12

The directors' report in the annual report contains each of the following except:
A)a summary of all share issues.
B)a listing of all directors.
C)a review of the current operations.
D)details of any significant changes in the company's affairs.

Accepted Answer

The directors' report typically includes a listing of all directors, a review of the current operations, and details of any significant changes in the company's affairs, but it does not necessarily contain a summary of all share issues. Share issues are usually detailed in the financial statements section or notes to the accounts.

Question 13

Financial reports for a reporting entity should fairly reflect each of the following except:
A)capital budget.
B)liquidity of the firm.
C)financial performance.
D)financial position.

Accepted Answer

Capital budget is not a required component of financial reports that must be accurately reflected. The other three options are essential elements that must be fairly reflected in financial reports.

Question 14

What organisation is responsible for setting accounting standards in Australia?
A)Generally Accepted Accounting Principles (GAAP)
B)Australian Accounting Standards Board (AASB)
C)International Accounting Standards Boards (IASB)
D)Financial Accounting Standards Board (FASB)

Accepted Answer

The Australian Accounting Standards Board (AASB) is the organisation responsible for setting accounting standards in Australia. GAAP is a set of standards used in the US, IASB is an international standard-setting organization, and FASB is a US-based organization responsible for setting accounting standards for private companies.

Question 15

Which of the following is not included in an audit report?
A)An audit opinion on whether or not the financial statements are 'true and fair'
B)Identification of the financial reports audited
C)A statement on the sustainable strategies of the reporting entity
D)A statement that the financial reports were prepared in accordance with accounting standards

Accepted Answer

The audit report typically includes an audit opinion on the financial statements, identifies the financial reports audited, and reports if the financial statements were prepared in accordance with accounting standards. However, a statement on the sustainable strategies of the reporting entity is not typically included in an audit report.

Question 16

Which of the following may be voluntarily disclosed in the annual report?
A)Human resource strategies
B)Environmental initiatives
C)Community contributions
D)All of the above

Accepted Answer

All of the above - Human resource strategies, environmental initiatives, and community contributions are all common areas that companies choose to voluntarily disclose in their annual reports as part of their corporate social responsibility (CSR) initiatives. These disclosures help to provide transparency and accountability to stakeholders regarding the company's impact and efforts to create a positive social and environmental impact.

Question 17

Which of the following groups is not an intended audience for general purpose financial reporting?
A)Lenders
B)Investors
C)Customers
D)Other creditors

Accepted Answer

General purpose financial reporting is primarily intended for the benefit of external users who rely on such information to make decisions about providing resources to an entity. Customers are typically not considered external users who rely on financial reports to make such decisions.

Question 18

Three key groups associated with companies are directors, shareholders and auditors. a. Explain the relationship between these three groups.
B. Define a reporting entity and a disclosing entity.

Accepted Answer

The answer of Three key groups associated with companies are...

Question 19

An auditor's report does not provide the users of the report with:
A)a check on the credibility of the report.
B)an assurance on whether the financial statements comply with accounting standards.
C)an opinion on the reliability of the financial statements.
D)a guarantee of no misstatements in the financial statements.

Accepted Answer

An auditor's report provides reasonable assurance that the financial statements are free from material misstatement and comply with accounting standards, but it is not a guarantee of no misstatements. The auditor cannot test every transaction and event, and there may be errors or fraud that are not detected. Therefore, users should exercise professional judgement and skepticism when relying on the auditor's report.

Question 20

To whom do auditors report?
A)Shareholders
B)Directors
C)Both A and B
D)Australian Tax Office

Accepted Answer

Auditors primarily report to the shareholders, as they are responsible for providing an independent opinion on the financial statements prepared by the company's management for the shareholders.

Quiz 7: Regulatory Framework for Companies

A set of principles designed to guide the development of financial statements is:

A study by the International Federation of Accountants argued that companies must balance:

For information in financial reports to be material, it must:

A public company is a:

Each ASX Corporate Governing Principle is supported by several recommendations. If the board of a listed company decides that a recommendation is not appropriate for their company:

Which of the following is not a source of external accounting rules for a company listed on the Australian Stock Exchange?

Which of the following is a responsibility of the directors of a public company?

Which of the following statements is true about the order of repayment for a company in liquidation?

The annual report of a public company must contain:

If you were asked to loan money to a company that you feared may be getting into financial difficulties, which of these courses of action would provide you with the most protection from default on the loan?

An audit report that contains the opinion that the financial statements are true and fair and comply with the accounting standards is described as:

The directors' report in the annual report contains each of the following except:

Financial reports for a reporting entity should fairly reflect each of the following except:

What organisation is responsible for setting accounting standards in Australia?

Which of the following is not included in an audit report?

Which of the following may be voluntarily disclosed in the annual report?

Which of the following groups is not an intended audience for general purpose financial reporting?

Three key groups associated with companies are directors, shareholders and auditors. a. Explain the relationship between these three groups. B. Define a reporting entity and a disclosing entity.

An auditor's report does not provide the users of the report with:

To whom do auditors report?