Deck 7: Regulatory Framework for Companies

Question 1

A set of principles designed to guide the development of financial statements is:

A)International Financial Reporting Standards (IFRS).
B)the conceptual framework.
C)generally accepted accounting principles.
D)Australian Accounting Standards Board.

Answer 1

B

Question 2

A study by the International Federation of Accountants argued that companies must balance:

A)conformance and performance.
B)conformance and consistency.
C)performance and integrity.
D)integrity and consistency.

Answer 2

A

Question 3

For information in financial reports to be material, it must:

A)be prepared on a timely basis.
B)affect the discharge of accountability by management of the reporting entity.
C)influence the decisions of users of that information.
D)Both B and C

Answer 3

D

Question 4

A public company is a:

A)reporting entity.
B)disclosing entity.
C)Both A and B
D)Neither A nor B

Question 5

Each ASX Corporate Governing Principle is supported by several recommendations. If the board of a listed company decides that a recommendation is not appropriate for their company:

A)the company will immediately be suspended from listing.
B)the company must explain why it has not adopted the recommendation.
C)the company can just ignore the recommendation.
D)the company board of directors will be dismissed.

Question 6

Which of the following is not a source of external accounting rules for a company listed on the Australian Stock Exchange?

A)Stock exchange rules imposed by the Australian Stock Exchange
B)Company law
C)Sarbanes Oxley Act
D)International accounting standards

Question 7

Which of the following is a responsibility of the directors of a public company?

A)To maintain an internal control system within the company
B)To ensure financial statements are prepared showing a true and fair view of an organisation's financial situation
C)To organise for financial reports to be audited
D)All of the above

Question 8

Which of the following statements is true about the order of repayment for a company in liquidation?

A)Creditors rank before ordinary shareholders.
B)Ordinary shareholders rank before preference shareholders.
C)Wages owing to employees rank last.
D)All of the statements are true.

Question 9

The annual report of a public company must contain:

A)an audit report.
B)a directors' declaration.
C)a directors' report.
D)All of the above

Question 10

If you were asked to loan money to a company that you feared may be getting into financial difficulties, which of these courses of action would provide you with the most protection from default on the loan?

A)Rely on the principle of limited liability
B)Require a mortgage over a specific asset of the company
C)Require the accounts of the company to be audited
D)Specify a particular accounting method to be used

Question 11

An audit report that contains the opinion that the financial statements are true and fair and comply with the accounting standards is described as:

A)a qualified report.
B)an authorised report.
C)a quantified report.
D)an unqualified report.

Question 12

The directors' report in the annual report contains each of the following except:

A)a summary of all share issues.
B)a listing of all directors.
C)a review of the current operations.
D)details of any significant changes in the company's affairs.

Question 13

Financial reports for a reporting entity should fairly reflect each of the following except:

A)capital budget.
B)liquidity of the firm.
C)financial performance.
D)financial position.

Question 14

What organisation is responsible for setting accounting standards in Australia?

A)Generally Accepted Accounting Principles (GAAP)
B)Australian Accounting Standards Board (AASB)
C)International Accounting Standards Boards (IASB)
D)Financial Accounting Standards Board (FASB)

Question 15

Which of the following is not included in an audit report?

A)An audit opinion on whether or not the financial statements are 'true and fair'
B)Identification of the financial reports audited
C)A statement on the sustainable strategies of the reporting entity
D)A statement that the financial reports were prepared in accordance with accounting standards

Question 16

Which of the following may be voluntarily disclosed in the annual report?

A)Human resource strategies
B)Environmental initiatives
C)Community contributions
D)All of the above

Question 17

Which of the following groups is not an intended audience for general purpose financial reporting?

A)Lenders
B)Investors
C)Customers
D)Other creditors

Question 18

Three key groups associated with companies are directors, shareholders and auditors. a. Explain the relationship between these three groups.
B. Define a reporting entity and a disclosing entity.

Question 19

An auditor's report does not provide the users of the report with:

A)a check on the credibility of the report.
B)an assurance on whether the financial statements comply with accounting standards.
C)an opinion on the reliability of the financial statements.
D)a guarantee of no misstatements in the financial statements.

Question 20

To whom do auditors report?

A)Shareholders
B)Directors
C)Both A and B
D)Australian Tax Office

Question 21

In a statement of financial position, subclassifications such as reserves, provisions and inventories are generally reported:

A)in the financial statement itself.
B)in the director's report.
C)as notes to the main financial statements.
D)These items do not have to be reported at all

Question 22

Under AASB 101, in the statement of financial position, companies are normally required to distinguish between:

A)cash on hand and cash at bank.
B)property and plant.
C)current and non-current liabilities.
D)current profit and retained profits.

Question 23

Which of the following comments in relation to the statement of cash flows is incorrect? The statement of cash flows:

A)allows the user of the report to determine where cash has been generated.
B)is essentially a formal statement of all transactions affecting the cash account.
C)highlights where cash has been spent.
D)is a duplication of information already provided in the other financial statements.

Question 24

How would trade debtors normally be classified in a statement of financial position?

A)As a current liability
B)As a current asset
C)As a non-current liability
D)As a reserve

Question 25

Which of the following is not a problem associated with segment reporting?

A)Allocation of assets and expenses may vary among segments
B)Identifying a segment
C)Identifying unprofitable segments
D)Transfer pricing

Question 26

Assume the opening balance of equity (01/07/2017)is $1 500 000. During 2017/18, there was a share issue of $540 000, dividends declared of $280 000 and a profit for the year of $75 000, What is the equity balance on the 30/06/2018?

A)$2 650 000
B)$2 370 000
C)$1 835 000
D)Not enough data to calculate the closing balance

Question 27

Which of the following is not true about segmented financial reports?

A)Under-performing segments will be revealed.
B)Risks and profitability of individual segments are identified.
C)Segments that have been sold will be identified and can be evaluated.
D)Investors can evaluate the company as a whole.

Question 28

Use the data below to calculate MNB Ltd's share issue made in 2017. Equity balance (01/07/2017) - $\$ 700,000$
Equity balance (30/06/2018) - $\$ 1,070,000$
Retained Earnings $(30 / 06 / 2018)-\$ 230,000$
There were no dividends declared in the current year and no other reserve accounts.

A)$610 000
B)$150 000
C)$140 000
D)$380 000

Question 29

Incorrect capitalisation of expenses is a means of creative accounting that:

A)overstates revenues.
B)understates revenues.
C)understates net income.
D)overstates net income.

Question 30

Pressuring distributors to accept more goods than they can sell is:

A)a method of manipulating liabilities.
B)channel stuffing.
C)engaging in artificial trading.
D)a method of manipulating expenses.

Question 31

Which of the following would be regarded as 'other comprehensive income'?

A)Foreign exchange gains
B)Cash flow hedges
C)Revaluation of property
D)All of the above

Question 32

Which of the following is not typically included in the notes to the financial statements?

A)All insignificant disclosures
B)Explanations of measuring bases used
C)Details of asset subclassifications
D)Confirmation that accounting standards have been adhered to

Question 33

Which of the following organisations would be most likely to elect to order their assets on the statement of financial position according to liquidity?

A)Retailer
B)Credit union
C)Manufacturer
D)Builder

Question 34

Information if by its omission, misstatement or non-disclosure has the potential to influence economic decision-making, is regarded as:

A)reliable.
B)true and fair.
C)material.
D)objective.

Question 35

Accounting that takes advantage of loopholes in accounting principles is:

A)creative accounting.
B)accrual-based accounting.
C)cash-based accounting.
D)international accounting.

Question 36

How does the statement of comprehensive income differ from a traditional statement of financial performance?

A)It does not show a gross profit.
B)It only shows realised gains and losses.
C)It shows all realised and unrealised gains and losses.
D)It does not show financial expenses.

Question 37

Which of the following financial statements does not have to be prepared by a publicly listed company?

A)Statement of comprehensive income
B)Statement of changes in equity
C)Statement of cash flows
D)All of the above must be prepared

Question 38

Which of the following is included in the statement of changes in equity?

A)Share issues
B)Changes to reserves
C)Changes to retained profits
D)All of the above

Question 39

Calculate the total comprehensive income for the year if operating profit is $556 000, the tax rate is 30%, finance charges are $88 700 and other comprehensive income for the year (net of tax)is $195 000.

A)$452 460
B)$522 110
C)$426 000
D)$562 800

Question 40

The price at which one operating segment of a business sells goods to another operating segment of the same business is the:

A)segment price.
B)trading price.
C)transfer price.
D)inter-segment price.