Chapter 1 - Introduction to accounting

Which three of the following are fundamental principles of the IESBA Code of Ethics for Professional Accountants?

• Integrity

• Objectivity

• Independence

• Confidentiality

• Courtesy

There are two main approaches to a code of professional ethics: a rules-based ethical code and a code based upon a set of principles. Indicate whether the following statements are true or false.

1. 1. A code based upon a set of principles requires a professional accountant to comply with a set of
   specific rules.

2. 2. A rules-based code requires a professional accountant to identify, evaluate and address threats to
   compliance with fundamental ethical principles.
   

• True - True

• False - False

• True - False

• False - True

Which of the following best explains what is meant by ‘capital expenditure’?

• A on non-current assets, including repairs and maintenance

• B on expensive items over £10,000

• C on the acquisition of non-current assets, or improvement in their earning capacity

• D on items relating to owners’ capital

According to the IASB’s Conceptual Framework, which of the following are enhancing qualitative characteristics?

• A Comparability, understandability, timeliness, verifiability

• B Consistency, prudence, measurability, verifiability

• C Consistency, reliability, measurability, timeliness

• D Materiality, understandability, measurability, reliability

Which of the following statements best describes ethical guidance in the UK?

• Ethical guidance provides a set of rules which must be followed in all circumstances

• Ethical guidance is a framework containing a combination of rules and principles, the application of which is dependent on the professional judgement of the accountant based on the specific circumstances

• Ethical guidance provides a set of principles which can be applied at the discretion of the accountant

• Ethical guidance is a series of legal requirements

Which of the following items should be treated as capital expenditure in the financial statements of a sole trader?

• A £500 taken by the proprietor to buy himself a music system

• B £800 spent on purchasing a new laptop to replace his secretary’s old one

• C £2,000 on purchasing a machine for resale

• D £150 paid to a painter for redecorating his office

Which of the following is an aspect of relevance, according to the IASB’s Conceptual Framework?

• A Neutrality

• B Free from error

• C Completeness

• D Materiality

According to IAS 1, Presentation of Financial Statements, compliance with IFRS Standards will normally ensure that:

• the entity’s inventory is valued at net realisable value

• the entity’s assets are valued at their break-up value

• the entity’s financial statements are prepared on the assumption that it is a going concern

• the entity’s financial position, financial performance and cash flows are presented fairly

Which of the following is the best description of fair presentation in accordance with IAS 1, Presentation of Financial Statements?

• The financial statements are accurate

• The financial statements are as accurate as possible given the accounting systems of the organisation

• The directors of the company have stated that the financial statements are accurate and correctly prepared

• The financial statements are reliable in that they faithfully reflect the effects of transactions, other events and conditions

Which of the following definitions of the going concern concept in accounting is consistent with the definition given in IAS 1, Presentation of Financial Statements?

• The directors do not intend to liquidate the entity or to cease trading in the foreseeable future

• The entity is able to pay its debts as and when they fall due

• The directors expect the entity’s assets to yield future economic benefits

• Financial statements have been prepared on the assumption that the entity is solvent and would be able to pay all creditors in full in the event of being wound up