Chapter 3 : The Qualitative Characteristics of FI

There are a number of requirements under law and corporate governance codes that relate to the financial statements of a public listed company.

Which of the following statements is FALSE?

• Directors should state in the annual financial statements that the business is a going concern.

• Auditors address their audit report to the shareholders.

• The financial statements are a record of directors' stewardship of the business.

• Directors only need to provide commentary about what has happened to the company over the period and its current position.

Corporate governance guidance states that financial statements should provide a balanced, unbiased view of how the company has performed and its position.

To which ethical concept do these requirements relate?

• 1. Objectivity

• 1. Professional competence

• 1. Due care

• 1. Confidentiality

Which of the following statements concerning the Conceptual Framework is correct?

• 1. It is an IFRS Standard

• 1. It does not define elements of financial statements

• 1. It specifies criteria for recognising items in financial statements

• 1. It specifies standards for measurement and disclosure of items in financial statements

What is the underlying assumption for the preparation of general purpose financial statements?

• Accrual Accounting

• Going Concern

• Materiality

• Prudence

The IASB's Conceptual framework for financial reporting gives four enhancing qualitative characteristics.

Which of the following are examples of those qualitative characteristics?

• 
  Faithful representation, neutrality and business entity concept

• Relevance, accruals and going concern

• Verifiability, comparability and true and fair view

• 
  Comparability, timeliness and understandability

  
  

Which of the following statements is/are correct?

1. 1) Materiality means that only items having a physical existence may be recognised as assets

1. 2) The substance over form convention means that the legal form of a transaction must always be shown in financial statements even if this differs from the commercial effect

2. 3) The accruals basis means that sales are recognised in the accounts as they occur and not when the cash is received

• 1 only

• 2 only

• 3 only

• 1,2,3

Which TWO of the following are important fundamental assumptions for financial statements according to the IASB's Conceptual framework for financial reporting?

1. 1. Relevance

1. 2. Going concern

2. 3. Faithful representation

3. 4. Accruals

• 2 and 3

• 1 and 2

• 3 and 4

• 1 and 3

Which of the following statements describes faithful representation, a qualitative characteristic of faithful representation?

• 
  Revenue earned must be matched against the expenditure incurred in earning it.

• Having information available to decision makers in time to be capable of influencing their decisions.

• 
  The presentation and classification of items in the financial statements should stay the same from one period to the next.

• 
  Financial information should be complete, neutral and free from error

Listed below are some comments on accounting concepts:

1. 1. Financial statements always treat the business as a separate entity.

1. 2. Materiality means that only items having a physical existence may be recognised as assets.

2. 3. Provisions are estimates and therefore can be altered to make the financial results of a business more attractive to investors.

Which, if any, of these comments is correct, according to the IASB's Conceptual Framework?

• 2 only

• 3 only

• 1 only

• None

Ali has leased a motor vehicle for use in his business. He pays lease rentals over a 36-month contract period. Ali’s accountant has told him that the motor vehicle has to be included under non-current assets in the statement of financial position even though Ali does not legally own the vehicle.

Which ONE of the following accounting concepts relates to the capitalisation of Ali’s motor vehicle even though he does not own the vehicle?

• Materiality

• Accruals

• Consistency

• Substance over form