Chapter 24 Conceptual

As part of the IASB’s action for “better communication in financial reporting,” they included a process for:

• making materiality judgments.

• including a greater number of ratios.

• including more disclosure on compliance.

• balancing statements with the inclusion of more immaterial information.

The full disclosure principle, as adopted by the accounting profession, is best described by which of the following?

• 1. All information related to an entity's business and operating objectives is required to be disclosed in the financial statements.

• 1. Information about each account balance appearing in the financial statements is to be included in the notes to the financial statements.

• 1. Enough information should be disclosed in the financial statements so a person wishing to invest in the shares of the company can make a profitable decision.

• 1. Disclosure of any financial facts significant enough to influence the judgment of an informed reader.

All of the following are reasons that the amount of disclosure provisions issued by the IASB has increased in the last 10 years except

• 1. There has been greater complexity of the business environment.

• 1. There has greater necessity for timely information.

• 1. Accounting has become more important as a control and monitoring device.

• 1. More disclosure means lower costs for companies.

All of the following are ways in which simplified IFRS is less complex than full IFRS except which statement?

• 1. Topics that are not relevant for SMEs are omitted.

• 1. Simplified IFRS for SMEs allows fewer accounting policy choices.

• 1. Revisions to the IFRS for SMEs will be limited to once every five years.

• 1. Significantly fewer disclosures are required.

All of the following are benefits to the IASB requiring a reconciliation between the effective tax rate and the government's statutory rate except

• 1. An investor can determine the actual taxes paid by the enterprise.

• 1. This reconciliation is important if the enterprise has substantial fluctuations in its

     effective tax rate caused by unusual or infrequent transactions.

• 1. This information is effective in identifying a favorable tax treatment that is not

     sustainable.

• 1. The reconciliation can identify past penalties levied by the IRS on the company.

According to IAS 1, which of the following are not commonly required disclosures of accounting policies?

• 1. the measurement basis or bases used in the financial statements

• 1. personnel involved in drafting the summary of significant accounting policies or other notes, including those who made the judgments apart from those involving estimations

• 1. disclosures required by other IFRSs, like the reasons why the entity’s ownership

     interest does not constitute control

• 1. the nature of a company’s operations and the policies that the users of its financial

     statements would expect to be disclosed for that type of entity

All of the following statements are true regarding the IASB and disclosure of dividend policies except;

• 1. According to IASB, companies must meet a minimum payout ratio before they are required to disclose their dividend policies in their annual reports.

• 1. IASB encourages companies to report their dividend policies in their annual reports if they do not expect to pay dividends in the foreseeable future.

• 1. IASB encourages companies to report their dividend policies in their annual reports if they have earning but fail to pay dividends.

• 1. IASB encourages companies that show a consistent pattern of paying dividends to indicate whether they intend to continue this practice in the future.

Which of the following should be disclosed in a Summary of Significant Accounting Policies?

• 1. Types of executory contracts

• 1. Amount for cumulative effect of change in accounting policy

• 1. Claims of equity holders

• 1. Depreciation method followed

An example of an inventory accounting policy that should be disclosed in a Summary of Significant Accounting Policies is the

• 1. composition of inventory into raw materials, work-in-process, and finished goods.

• 1. major backlogs of inventory orders.

• 1. method used for pricing inventory.

• 1. All of these answer choices should be disclosed.

Which of the following are defined as intentional distortions of financial statements.

Errors Fraud

• Yes Yes

• Yes No

• No Yes

• No No