Deck 6: Financial Reporting Principles, Accounting Standards and Auditing

Question 1

Which of the following is NOT included in the corporate governance statement required under stock exchange regulations?

A) Composition of the audit committee
B) Expected changes to the top management team
C) Procedures for identifying and managing business risks
D) Statement of ethical standards

Answer 1

B

Question 2

Which of the following is NOT an essential characteristic of an asset?

A) It must be legally owned by the entity.
B) The entity must have control over the asset.
C) The transaction giving the entity control over the asset must have occurred.
D) It is probable that future economic benefits will flow to the entity.

Answer 2

A

Question 3

A liability should only be recognised in the financial statements when:

A) i and ii only
B) i and iii only
C) ii and iii only
D) i, ii and iii

Answer 3

C

Question 4

The agency empowered to prepare and issue accounting standards for the purposes of the Corporations Act 2001 is the:

A) Australian Auditing Standards Board.
B) Australian Securities Exchange.
C) Australian Securities and Investments Commission.
D) Australian Accounting Standards Board.

Question 5

The standard version of the audit report does NOT state that:

A) the financial statements are the responsibility of management.
B) the auditor's responsibility is to express an opinion on the financial statements.
C) the company will remain a going concern.
D) the financial statements give a true and fair view.

Question 6

Which of the following is NOT true? The external auditor's report provides the auditor's opinion that the financial statements:

A) give a true and fair view.
B) are in accordance with the provisions of the Corporations Act 2001.
C) are accurate.
D) are in accordance with applicable accounting standards.

Question 7

Which of the following statements about agency theory is TRUE?

A) It focuses on the internal control system.
B) Conflicts of interest are regarded as unnatural.
C) It tends to focus on the future-oriented, decision-making role of accounting information.
D) It is concerned with contractual relationships among people.

Question 8

Which of the following items is generally NOT included in a directors' report to shareholders?

A) Names of directors
B) Principal activities of the company
C) Budgeted net profit for following year
D) Significant changes in the company's state of affairs

Question 9

The external auditor renders an 'except for' opinion when s/he:

A) is unable to express an opinion either way because of a limitation in the work s/he was able to do.
B) considers that the financial statements are not presented fairly in accordance with GAAP.
C) is generally satisfied except for a specified departure from GAAP in the statements.
D) is unable to obtain sufficient reliable audit evidence.

Question 10

Which of the following is a liability?

A) Accrued revenue
B) Accumulated depreciation
C) Allowance for doubtful debts
D) Unearned revenue

Question 11

Which of the following statements about capital markets is TRUE?

A) Returns of high-beta stocks tend to vary less than overall market prices.
B) The efficient market hypothesis states that it is not possible to consistently 'beat the market' by using publicly available information.
C) If the efficient market hypothesis were true, it would be impossible to make money in the stock market.
D) None of the above is true.

Question 12

A security's price may vary because:

A) i and ii only
B) i and iii only
C) ii and iii only
D) i, ii and iii

Question 13

Assets are usually reported in the balance sheet at:

A) liquidation value.
B) value in use.
C) current market value.
D) historical cost.

Question 14

Which of the following opinions is NOT included in the directors' statement accompanying the financial statements?

A) Whether the company can pay its debts when they fall due
B) Whether the financial statements give a true and fair view of the financial performance of the company
C) Whether the cash budget fairly indicates the anticipated cash flows from operations
D) Whether the financial statements comply with the requirements of the Corporations Act 2001

Question 15

An asset should be recognised in the financial statements when:

A) i and ii only
B) i and iii only
C) ii and iii only
D) i, ii and iii

Question 16

Systemic effects arise when:

A) changes result from government legislation.
B) market-wide changes in share prices come from the economic system.
C) an announcement is made regarding the future prospects of a particular company.
D) the takeover of a large public company is announced.