Question 1

Which of the following would be a reason where IASB would permit companies to change accounting policy?

Accepted Answer

A) The change would allow the company to present a more favorable profit picture. 
B) The change would result in the financial statements providing more reliable and relevant information about a company`s financial position, financial performance, and cash flows. 
C) The change is made by the internal auditor. 
D) The change will be long-term.

Question 2

An indirect effect of an accounting change is any change to current or future cash flows of a company that result from making a change in accounting policy that is applied retrospectively.

Accepted Answer

A) True 
 B)False

Question 3

Under U.S.GAAP, the impracticality exception applies both to changes in accounting policies and to the correction of errors.

Accepted Answer

A) True 
 B)False

Question 4

Retrospective application is considered impracticable if a company cannot determine the prior period effects using every reasonable effort to do so.

Accepted Answer

A) True 
 B)False

Question 5

Adoption of a new policy in recognition of events that have occurred for the first time or that were previously immaterial is treated as an accounting change.

Accepted Answer

A) True 
 B)False

Question 6

A change in accounting policy is a change that occurs as the result of new information or additional experience.

Accepted Answer

A) True 
 B)False

Question 7

When it is impossible to determine whether a change in policy or change in estimate has occurred, the change is considered a change in estimate.

Accepted Answer

A) True 
 B)False

Question 8

An example of a correction of an error in previously issued financial statements is a change

Accepted Answer

A) from the FIFO method of inventory valuation to the average cost method. 
B) in the service life of plant assets, based on changes in the economic environment. 
C) from the cash basis of accounting to the accrual basis of accounting. 
D) in the tax assessment related to a prior period.

Question 9

The requirements for disclosure are the same whether a change is voluntary or is mandated by the issuance of a new IFRS.

Accepted Answer

A) True 
 B)False

Question 10

An income statement classification error has no effect on the statement of financial position and no effect on net income.

Accepted Answer

A) True 
 B)False

Question 11

Companies must make correcting entries for non-counterbalancing errors, even if they have closed the prior year's books.

Accepted Answer

A) True 
 B)False

Question 12

Statement of financial position errors affect only the presentation of an asset or liability account.

Accepted Answer

A) True 
 B)False

Question 13

A company using a perpetual inventory system neglected to record a purchase of merchandise on account at year end.This merchandise was omitted from the year-end physical count.How will these errors affect assets, liabilities, and equity at year end and net income for the year?

Accepted Answer

The answer of A company using a perpetual inventory system...

Question 14

If an IASB standard creates a new policy, expresses preference for, or rejects a specific accounting policy, the change is considered clearly acceptable.

Accepted Answer

A) True 
 B)False

Question 15

When a company decides to switch from the double-declining balance method to the straight-line method, this change should be handled as a

Accepted Answer

A) change in accounting policy. 
B) change in accounting estimate. 
C) prior period adjustment. 
D) correction of an error.

Question 16

Errors in financial statements result from mathematical mistakes or oversight or misuse of facts that existed when preparing the financial statements.

Accepted Answer

A) True 
 B)False

Question 17

If, at the end of a period, a company erroneously excluded some goods from its ending inventory and also erroneously did not record the purchase of these goods in its accounting records, these errors would cause

Accepted Answer

A) the ending inventory and retained earnings to be understated. 
B) the ending inventory, cost of goods sold, and retained earnings to be understated. 
C) no effect on net income, working capital, and retained earnings. 
D) cost of goods sold and net income to be understated.

Question 18

IASB requires companies to use which method for reporting changes in accounting policies?

Accepted Answer

A) cumulative effect approach 
B) retrospective approach 
C) prospective approach 
D) averaging approach

Question 19

For counterbalancing errors, restatement of comparative financial statements is necessary even if a correcting entry is not required.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following disclosures is not required for a change from average cost to FIFO?

Accepted Answer

A) Basic and diluted earnings per share for the current period and each prior period presented 
B) The nature of the change in accounting policy 
C) The amount of the adjustment relating to periods before those presented 
D) All of these answer choices are required.

Exam 22: Accounting Changes and Error Analysis

Which of the following would be a reason where IASB would permit companies to change accounting policy?

An indirect effect of an accounting change is any change to current or future cash flows of a company that result from making a change in accounting policy that is applied retrospectively.

Under U.S.GAAP, the impracticality exception applies both to changes in accounting policies and to the correction of errors.

Retrospective application is considered impracticable if a company cannot determine the prior period effects using every reasonable effort to do so.

Adoption of a new policy in recognition of events that have occurred for the first time or that were previously immaterial is treated as an accounting change.

A change in accounting policy is a change that occurs as the result of new information or additional experience.

When it is impossible to determine whether a change in policy or change in estimate has occurred, the change is considered a change in estimate.

An example of a correction of an error in previously issued financial statements is a change

The requirements for disclosure are the same whether a change is voluntary or is mandated by the issuance of a new IFRS.

An income statement classification error has no effect on the statement of financial position and no effect on net income.

Companies must make correcting entries for non-counterbalancing errors, even if they have closed the prior year's books.

Statement of financial position errors affect only the presentation of an asset or liability account.

A company using a perpetual inventory system neglected to record a purchase of merchandise on account at year end.This merchandise was omitted from the year-end physical count.How will these errors affect assets, liabilities, and equity at year end and net income for the year?

If an IASB standard creates a new policy, expresses preference for, or rejects a specific accounting policy, the change is considered clearly acceptable.

When a company decides to switch from the double-declining balance method to the straight-line method, this change should be handled as a

Errors in financial statements result from mathematical mistakes or oversight or misuse of facts that existed when preparing the financial statements.

If, at the end of a period, a company erroneously excluded some goods from its ending inventory and also erroneously did not record the purchase of these goods in its accounting records, these errors would cause

IASB requires companies to use which method for reporting changes in accounting policies?

For counterbalancing errors, restatement of comparative financial statements is necessary even if a correcting entry is not required.

Which of the following disclosures is not required for a change from average cost to FIFO?