Question 1

Which of the following intellectual capital could be included in the Statement of Financial Position?

Accepted Answer

Development of software by the company for external use can be capitalized and included in the Statement of Financial Position as an intangible asset, provided it meets certain criteria for recognition.

Question 2

Income smoothing

Accepted Answer

Income smoothing aims to produce a steady growth in the profit stream, transfer wealth from new shareholders to management, and is only possible when sufficient profits are regularly made.

Question 3

Corporate social responsibility

Accepted Answer

Corporate social responsibility (CSR) is concerned about the environmental impact of organizations, as well as social and ethical issues. It suggests that companies can build shareholder value by engaging other stakeholders, including customers, employees, communities, and suppliers. However, CSR does not mean that organizations should not pursue profit or financial performance. Therefore, all of the above options are correct.

Question 4

Intangible assets are defined as

Accepted Answer

Intangible assets are identifiable non-monetary assets without physical substance, such as patents, copyrights, trademarks, and goodwill. Choice A is incorrect because intangible assets can have a two-sided financial impact on a company's balance sheet. Choice B is incorrect because while intangible assets may be unidentifiable to the general public, they can still be identified and valued by the company that owns them.

Question 5

What is the key element of the IASB definition of the reporting entity?

Accepted Answer

The key element of the IASB definition of the reporting entity is the existence of investors and creditors who cannot directly obtain information. This means that the reporting entity has a responsibility to provide financial information that is useful to these external parties. The existence of a broad range of users who want information is not the key element, although it may be a factor in determining the type and format of information provided. Legal requirements of the country may also be a consideration but are not the key element. The existence of scarce resources does not relate to the reporting entity definition.

Question 6

Which of the following is an argument for more flexible reporting periods?

Accepted Answer

More flexible reporting periods would make it less attractive for entities to manipulate profits, as they would not be able to time their financial statements to coincide with periods of higher profits. This would improve the accuracy of financial reporting and make it more reliable for investors and stakeholders. The other options, including enhancing comparability or making dividend calculation easier, do not provide as strong of an argument for the need for more flexible reporting periods.

Question 7

Which of the following is NOT an argument for a standardised annual reporting period?

Accepted Answer

Most businesses do not necessarily operate on a natural 12-month cycle. The argument for a standardized annual reporting period is based on comparability, legal requirements, and financial calculations rather than the operational cycle of businesses.

Question 8

The annual report

Accepted Answer

The answer of The annual report
...

Question 9

Legitimacy theory suggests that corporate social disclosure will be used to

Accepted Answer

Legitimacy theory suggests that companies will use corporate social disclosure to manage the concerns of key stakeholders and maintain their legitimacy in society. Companies will prioritize disclosing information that is important to stakeholders and that helps build or maintain their reputation as a responsible and ethical business. They may not disclose all their activities, especially if they are deemed harmful or unethical, but will instead focus on what is necessary to maintain their legitimacy.

Question 10

What is NOT one of the key elements of control?

Accepted Answer

Ownership is not necessarily a key element of control in the context of financial and business management. Control can be exerted through influence over returns and the ability to affect those returns without owning the asset.

Question 11

Earnings Management:

Accepted Answer

Earnings management refers to the manipulation of a company's financial statements to meet predetermined targets or expectations. It's not always illegal, but certain methods used to manipulate earnings can be illegal or unethical. The timing difference between cash and accrual accounting is often exploited by managers to manage earnings. While earnings management is not always bad for shareholders, it can be when it is used to misrepresent a company's financial performance or hide underlying problems.

Question 12

Extensible business reporting language (XBRL) is expected to

Accepted Answer

XBRL is expected to benefit all businesses, large and small, by easing the burden of reporting to governments and facilitating better corporate analysis. Therefore, all of the above choices are correct.

Question 13

Approximately what percentage of the real value of companies is thought to be the result of intangible assets?

Accepted Answer

According to various studies and estimates, about 70% of the real value of companies is believed to be derived from intangible assets such as intellectual property, brand value, customer relationships, and human capital. This highlights the increasing importance of managing and measuring intangibles in modern businesses.

Question 14

Which of the following has NOT been identified as a reason that management might voluntarily disclose information in annual reports

Accepted Answer

Disclosing information to mislead competitors would be counterproductive to a company's strategic goals and would not be a valid reason for voluntarily disclosing information in an annual report. The other options (B, C, and D) have all been identified as possible reasons for voluntary disclosure.

Question 15

Which of the following is specifically prohibited from recognition as an intangible asset according to AASB138?

Accepted Answer

AASB138 specifically prohibits the recognition of internally generated brands, research, and training as intangible assets.

Question 16

Manipulation of reported earnings:

Accepted Answer

Manipulation of reported earnings can be both legal and illegal, and includes income smoothing. It also affects wealth transfers between the company and others.

Question 17

Annual reports contain many financial graphics, it has been noted that

Accepted Answer

Financial graphics in annual reports are often manipulated or selectively presented to cast the company's performance in a more favorable light. This practice is known as "chartmanship," where the design and selection of charts can distort the reader's perception without technically presenting false information.

Question 18

The kinds of information likely to be included in the annual report includes

Accepted Answer

The annual report typically includes information about corporate governance practices, environmental performance, and occupational health and safety disclosures, among other information about the company's financial and operational performance throughout the year.

Question 19

Pro forma reports

Accepted Answer

Pro forma reports often show a higher profit figure than those prepared in accordance with accounting standards because they may exclude certain items that the company considers non-recurring, non-cash, or not indicative of its ongoing financial performance.

Question 20

AASB 134 Interim Reporting mandates:

Accepted Answer

AASB 134 Interim Reporting mandates the minimum contents of interim financial reports, but it does not specify who must prepare them. It also requires that interim financial reports should be prepared at least every six months, not just once a year. Therefore, only option A is correct.

Quiz 6: Products of the Financial Reporting Process