Question 1

What is often the main motivation behind the practice of taking a "big bath" in a loss year?

Accepted Answer

A)  To minimize income taxes
B)  To smooth income
C)  To maximize asset book values
D)  To increase future years' earnings D

Question 2

Which of the following financial statements would likely be the most effective in conveying information to users that will help them to predict the long-term future cash flows of the company?

Accepted Answer

A)  A classified balance sheet prepared under the accrual basis of accounting
B)  A proforma cash flow statement showing expected cash flows for the next year
C)  A multi-step income statement prepared under the accrual basis of accounting
D)  A cash flow statement showing actual cash flows for the past two year C

Question 3

Which of the following private companies is required to use IFRS?

Accepted Answer

A)  Investment company
B)  Import/export company
C)  Manufacturing company
D)  Accounting firm A

Question 4

Which of the following is not one of the major reporting objectives of financial statement preparers?

Accepted Answer

A)  Prediction of future cash flows
B)  Compliance monitoring
C)  Fraud detection
D)  Performance evaluation

Question 5

France,Germany,Japan and Canada are four countries that have adopted International Financial Reporting Standards.As a result,auto companies from these nations will have similar statements,statement components,disclosures and measurement methods.
Required:
Discuss the "invisible differences" that may cause statements from the different countries to be less comparable and give examples.

Accepted Answer

The answer of France,Germany,Japan and Canada are four countries that...

Question 6

Which of the following statements on professional judgment is not true?

Accepted Answer

A)  The exercise of professional judgment requires the availability of benchmarks or explicit criteria by which to evaluate alternatives.
B)  The use of professional judgment represents arbitrary behaviour.
C)  An auditor must use his or her professional judgment to determine whether management's choices are suitable within the context of the company.
D)  Applying the mandatory disclosure requirements of the CICA Handbook often involves professional judgment.

Question 7

What was the main reason for adopting international standards?

Accepted Answer

A)  Internationalization of securities markets
B)  Internationalization of financial markets
C)  Globalization of business
D)  Increasing complexity of GAAP

Question 8

Many countries around the world have adopted International Financial Reporting Standards as their accounting standards.As a result,companies competing in the same industry,but operating in different countries should use the same accounting policies.This,in turn,makes interpretation and analysis of peers' statements listed on different exchanges far easier than in the past.
Required:
Is the above statement true? Explain

Accepted Answer

The answer of Many countries around the world have adopted...

Question 9

XY Co.is a Canadian company listed on a US stock exchange.In the past,the company prepared a set of financial statements under pre-changeover Canadian GAAP and another set under US GAAP.XY Co.converted to IFRS in 2010 for Canadian purposes,but is still considering preparing a second set of statements under US GAAP.
Required:
What are the current reporting requirements required by the SEC? Should the company be producing two sets of financial statements? Why is there pressure on FASB and the IASB to cooperate in preparing new accounting policy proposals? What do you think FASB will do in the future?

Accepted Answer

The answer of XY Co.is a Canadian company listed on...

Question 10

When the International Accounting Standards Board amends a standard,what must a code-law country do to adopt the amendment?

Accepted Answer

A)  The country's securities regulators must approve the amendment.
B)  The country's professional accounting body must approve the amendment.
C)  The country must pass new legislation to adopt the amendment.
D)  The country's financial institution regulators must approve the amendment.

Question 11

Management prepares the company's financial statements.Consequently,management's objectives will dominate the selection of accounting policies.
Required:
Give examples of users that might have the power to influence the accounting policy choices made by preparers.

Accepted Answer

The answer of Management prepares the company's financial statements.Consequently,management's objectives...

Question 12

Which of the following statements about income smoothing is true?

Accepted Answer

A)  Incoming smoothing can only be accomplished through revenue recognition policies.
B)  Income smoothing can only be accomplished through the use of estimates.
C)  IFRS provides more opportunities for income smoothing than under pre-IFRS GAAP.
D)  Income smoothing through expense recognition policies is effective if there is a strong relationship between expenses and revenues.

Question 13

Which of the following covenants would not appear in a loan agreement?

Accepted Answer

A)  Limits on additional debt
B)  Dividend payout limitations
C)  Valuation
D)  Minimum times-interest-earned ratio

Question 14

Professional judgement is based on criteria that include certain characteristics of accounting.Which of the following is not one of these characteristics?

Accepted Answer

A)  Timeliness
B)  Relevance
C)  Efficiency
D)  Verifiability

Question 15

What effect does income smoothing have on risk analysis?

Accepted Answer

A)  Reduces the business risk of a company
B)  Increases the financial risk of a company
C)  Reduces the audit risk of a company
D)  Has no effect on risk analysis

Question 16

Which of the following financial reporting objectives is a user objective?

Accepted Answer

A)  Income tax deferral
B)  Net income maximization
C)  Cash flow prediction
D)  Income smoothing

Question 17

What is one of the main reasons why securities commissions are often ineffective enforcement agencies for accounting standards?

Accepted Answer

A)  Lack of knowledge
B)  Lack of financing
C)  Lack of independence
D)  Lack of support from professional accounting bodies

Question 18

Both Canada and Japan have adopted IFRS even though the two countries differ in many ways.What is one areas in which the two countries differ?

Accepted Answer

A)  Corporate structure
B)  Issuance of consolidated financial statements
C)  Use of common law
D)  Ability to select accounting policies

Question 19

Private companies in Canada may follow either IFRS or accounting standards for private companies.
Required:
Why did Canada adopt accounting standards for private companies? What is different about private companies and public companies that require a different set of accounting standards? How did the AcSB design these private company accounting standards and why did it choose this option?

Accepted Answer

The answer of Private companies in Canada may follow either...

Question 20

Choco Chocolate is the wholly-owned Canadian subsidiary of the Yummy Candy Company,a publicly-traded US company.Which accounting standards must Choco Chocolate comply with?

Accepted Answer

A)  IFRS
B)  Canadian Accounting Standards for Private Enterprises
C)  US GAAP
D)  Whatever standards are prescribed by any loan agreements that Choco has with its lending institutions

Exam 1: Setting the Stage