Deck 18: Further Financial Reporting Issues

Question 1

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

Answer 1

D

Question 2

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

Answer 2

D

Question 3

Paragraph 15B provides a non-exhaustive list of events and transactions for which disclosures would be required for which of the following:

A) detailed notes to the financial statements
B) the reversal of any provisions for the costs of restructuring
C) pending litigation
D) corrections of year-end errors

Answer 3

B

Question 4

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

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

Question 5

A small proprietary 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 6

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 7

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 8

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?

Question 9

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 10

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

Question 11

'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 12

Events after the reporting date are of two types:
Type 1 $\quad$ Those that provide new evidence about conditions that existed at the reportingdate
Type2 $\quad$ Those that relate to new conditions arising after the reportingdate

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

Question 13

Events after the reporting date are of two types:
Type 1 $\quad$ Those that provide new evidence about conditions that existed at the reportingdate
Type 2 $\quad$ Those that relate to new conditions arising after the reportingdate
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 14

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 15

Examples of events after the reporting period are which of the following:

A) Bankruptcy of a major debtor
B) Collection of a major payment from a vendor
C) Payment of all liabilities
D) Collection of all liabilities

Question 16

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 17

The effect of a change in an estimate is to be recognised in the statement of comprehensive income in which of the following:

A) the period of the change, if the change affects that period only
B) the period of the change, if the change affects other periods
C) the period of the change and future periods, if the change affects either
D) only the future periods,

Question 18

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 19

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 20

Explain the significance of related-party transactions.

Question 21

In summary,AASB 1054 prescribes disclosures relating to the following items:

A) financing fees
B) bank reconciliation
C) if for-profit or not-for-profit entity
D) statutory basis or framework under which the bank statements have been prepared

Question 22

Discuss the importance of discrete reporting. What changes have been made AASB 134 and AASB 136 to improve 'Impairment of Assets'?

Question 23

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

Question 24

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 25

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 26

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 27

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