Deck 1: An Overview of the International External Reporting Environment

Question 1

The regulation of accounting can be argued to be necessary to protect the information rights of parties not involved in the day-to-day operations of the organisation.

Answer 1

True

Question 2

The main role of the IFRS Interpretations committee is to resolve disputes between FSA and companies concerning accounting treatments in their financial reports.

Answer 2

False

Question 3

Disclosing entities generally,are entities that have:
securities (including debentures)quoted on a recognized securities exchange; issued securities (including debentures)pursuant to a prospectus or a takeover scheme; and borrowing corporations.

Answer 3

False

Question 4

Legislation is very specific about what must,and must not,be included in the Directors' Report that is attached to a company's financial statements.

Question 5

The Statements of Accounting Concepts within the Conceptual Framework are developed by the International Accounting Standards Board.

Question 6

The Financial Services Authority in the UK (FSA)has the responsibility,among other things,to monitor and regulate various investment products and superannuation in the UK.

Question 7

There has been a trend by governments and government departments towards adopting specialised public-sector related standards.

Question 8

The Companies Act requires which of the following to be included in a Directors' Responsibilities statement?
I)State whether in their opinion the financial statements comply with accounting standards and the Corporations Act.
II)State whether in their opinion the financial statements give a true and fair view of the financial position and financial performance of the entity.
III)State whether or not in their opinion,when the declaration was made,there were reasonable grounds to believe that the company would be able to pay its debts as they become due.
IV)State details of directors' emoluments.
V)State principal activities of the entity.

A)All of the given answers are correct.
B)I, II and III only
C)I, II, III and IV only
D)IV and V only

Question 9

Which of the following bodies was set up to enhance the public accountability of the IFRS Foundation whilst not impairing the independence of the standard-setting process?

A)the IFRS Advisory Council
B)the IFRS Foundation Support Operations
C)the IASB
D)the Monitoring Board of Public and Capital Market Authorities

Question 10

The role of the Financial Reporting Council is to provide broad oversight of the process for setting International standards,including the authority to direct the IASB to develop,amend or revoke a particular standard.

Question 11

The main role of the International Financial Reporting Interpretations Committee (IFRIC)is to review accounting issues that are likely to receive divergent or unacceptable treatment in the absence of authoritative guidance.

Question 12

What are two key ways management accounting is different from financial accounting?

A)Management accounting provides special-purpose information to people external to the firm and it is highly regulated.
B)Management accounting provides information for the day-to-day running of an organisation and it is governed by the requirements of FSA.
C)Management accounting is focused on providing information to shareholders who wish to have input into the management of the organisation and it is regulated by generally accepted accounting principles.
D)Management accounting focuses on providing information for internal users and it is largely unregulated.

Question 13

Directors could elect not to comply with an accounting standard on the grounds that applying the particular accounting standard would cause the financial statements not to present a 'true and fair view'.

Question 14

The financial statements and supporting notes included in an annual report presented to shareholders at a company's annual general meeting is an example of general-purpose financial statements.

Question 15

The International Accounting Standards Board (IASB)issues only one set of accounting standards which have general applicability to the private,public and not-for-profit sectors.

Question 16

The main role of the Financial Reporting Council (FRC)is to develop a new conceptual framework for financial reporting.

Question 17

Financial accounting can be considered a process involving the collection and processing of financial information to assist the decision-making needs of parties internal to an organisation.

Question 18

Corporate governance is the framework of rules,relationships,systems and processes within and by which authority is exercised and controlled in corporations.

Question 19

Accounting cannot be considered to be 'culture free' because the value systems of accountants may be expected to be related to and derived from the values of the society with special reference to work related values and,as such,impacts on accounting systems.

Question 20

IASB are initials that stand for:

A)International Accounting Standards Board
B)Independent Accounting Standards Bureau
C)International Accounting Standards Bureau
D)International Accounting Supervision Board

Question 21

The International Accounting Standards Board (IASB)website explains how the IASB believes its relationship with national standards setters should be conducted.It notes that:

A)There should be close coordination between the due process of the IASB and the process of national standard-setters.
B)The IASB will inform national standard-setters of directions they should take, projects they should undertake and the outcomes that are expected of them.
C)The IASB expects national standard-setters to develop all standards of a domestic nature pertaining to the public and non-for-profit sectors, as its standards do not apply to these areas.
D)National standard setters should cede all responsibility for matters pertaining to accounting standards to the IASB, but retain responsibility for making interpretations on all matters of uncertainty.

Question 22

In accordance with IAS 1 Presentation of Financial Statements,a financial report comprises:

A)a statement of financial position, a statement of comprehensive income and a statement of cash flows
B)a statement of financial position, a statement of comprehensive income, a statement of changes in equity and a statement of cash flows
C)a statement of financial position, a statement of comprehensive income, a statement of changes in equity, a statement of cash flows and notes to the financial statements
D)a statement of financial position, a statement of comprehensive income, a statement of cash flows and notes to the financial statements

Question 23

The main benefits of international harmonisation are said to include:

A)increasing the comparability of financial reports prepared in different countries so that capital ultimately flows to entities that can use it the most productively.
B)reducing the financial reporting costs for multinational companies.
C)removing barriers to international capital flows by reducing differences in financial reporting requirements and so increasing understanding by foreign investors of reports.
D)all of the given answers

Question 24

Which of the following statements should be included in a Directors' Responsibility Statement/ Declaration?

A)whether in their opinion the financial statements comply with accounting standards and company legislation
B)whether in their opinion the financial statements give a true and fair view of the financial position and financial performance of the entity
C)whether or not in their opinion, when the declaration was made, there were reasonable grounds to believe that the company would be able to pay its debts as they become due
D)All of the given answers should be included.

Question 25

Information is material if its omission,misstatement or non-disclosure has the potential,individually or collectively to:

A)affect the discharge of accountability by the governing body of the entity.
B)be greater than 1% of the total assets of the entity.
C)influence management to make decisions that will affect users of the financial report.
D)present the financial report in a 'true and fair' manner.

Question 26

Until recently,accounting standards issued by the IASB were:

A)the most well developed set of accounting standards and used widely around the world.
B)deemed to be 'best practice' and always used as a guide when another country was developing its own standards.
C)not that important as they were only designed for western economies.
D)frequently adopted directly by developing countries that did not have their own standard-setting processes.

Question 27

The publication of a standard,exposure draft or final IFRIC interpretation requires approval by:

A)the chairman of the IASB
B)a simple majority of the IASB's 14 members
C)nine of the IASB's 14 members
D)12 of the IASB's 14 members

Question 28

Some of the costs of international convergence of accounting standards include:

A)costs of educating accountants to adopt a new set of standards.
B)costs associated with changing data collection systems.
C)costs associated with changing data reporting systems.
D)all of the given answers.

Question 29

Which of the following statement was not identified as a benefit of international harmonisation?

A)It was likely to increase the comparability of financial reports prepared in different countries.
B)It was likely to improve the quality of financial reporting in Europe to best international practice.
C)It was likely to reduce the reporting costs for Europe's not-for-profit entities and local governments.
D)It was likely to allow more meaningful comparisons of the financial performance and financial position of foreign public sector reporting entities.

Question 30

The International Accounting Standards Board reports to which body?

A)the Urgent Issues Task Force Group
B)the Financial Accounting Standards Board
C)the Financial Reporting Council
D)Monitoring Board of Public and Capital Market Authorities

Question 31

In adopting International Financial Reporting Standards (IFRSs),the UK Accounting Standards Board (ASB)has:

A)embraced the IFRSs without change.
B)been disbanded as it is no longer required.
C)used the IFRSs only as a foundation for its own set of standards and has identified where these own standards do not comply with IFRSs.
D)issued its own standards and 're-badged' them as FRSs.

Question 32

In Europe International Financial Reporting Standards are adopted after being agreed by:

A)the Financial Reporting Council.
B)the European Union.
C)the Accounting Standards Review Board.
D)the Urgent Issues Task Force Group.

Question 33

The IASB's responsibilities include:

A)developing accounting standards that comply with company legislation.
B)setting ethical guidelines for the accounting profession.
C)formulating standards to be used by the entities in the public sector.
D)developing accounting standards that are consistent with the Conceptual Framework .

Question 34

A criticism of the way the membership of the Financial Reporting Council has been structured is that:

A)Groups that are primarily interested in the financial performance of entities are represented while lobby groups with other interests are not.
B)It has increased the breadth of representation too widely.
C)The Treasurer does not have sufficient input into the selection process.
D)It is dominated by professional accountants.

Question 35

An argument to support the requirement that all companies over a certain size should adhere to accounting standards is:

A)Larger companies have greater political and economic importance and this increases the demand for financial information about the entity by external users.
B)Larger companies can afford to pay for complex accounting systems and the experts necessary to design and maintain them.
C)The Conceptual Framework and accounting standards are designed for larger enterprises.
D)The Security Exchange Regulators should only be responsible for large enterprises.

Question 36

Which of the following most accurately describes the process of issuing an IASB standard?

A)An advisory committee may be established to give advice on the project; this may be followed by the development and publication of Discussion Documents.After receiving public feedback, an Exposure Draft may then be issued for further comment.A final IFRS is then issued based on previous feedback along with Basis for Conclusion.
B)Discussion Documents are developed and published for public comment, then an advisory committee must be established to give advice on the project.After receiving public feedback, an Exposure Draft may then be issued for further comment.A final IFRS is then issued based on previous feedback along with Basis for Conclusion.
C)An advisory committee may be established to give advice on the project and develop an Exposure Draft, which will be followed by the development and publication of Discussion Documents.After receiving public feedback, a final IFRS is then issued along with Basis for Conclusion.
D)An advisory committee must be established to give advice on the project; this will be followed by the development and publication of Discussion Documents.After receiving public feedback, an Exposure Draft is required to be issued for further comment.A final IFRS is then issued based on previous feedback along with Basis for Conclusion.

Question 37

Which body reviews,on a timely basis within the context of existing International Accounting Standard (IASB)and the IASB Conceptual Framework,accounting issues that are likely to receive divergent or unacceptable treatment in the absence of authoritative guidance?

A)International Accounting Standards Board (IASB).
B)International Financial Reporting Interpretations Committee (IFRIC).
C)International Interpretations and Issues Group (IIIG).
D)Urgent Issues Group (UIG).

Question 38

A joint Memorandum of Understanding between the International Accounting Standards Board (IASB)and US Financial Accounting Standards Board (FASB),published in 2006:

A)agreed to maintain the status quo and retain international and US accounting standards in the form that they currently exist.
B)identified a number of options to ensure complete consistency between international and US accounting standards by 2010.
C)identified an intention to implement actions to identify and remove major accounting differences in specific areas by 2008.
D)identified an agreement that international standards will be changed to accord with US standards, wherever there were key differences, by 2008.

Question 39

The UK Corporate Governance Code was issued in 2010 In relation to these principles:

A)All companies governed by the UK Companies Act 2006 must abide by these principles and recommendations.
B)The International Accounting Standards Board (IASB) has incorporated the principles and recommendations into the Conceptual Framework.
C)All LSE-listed companies are compelled by law to comply in entirety with these principles and recommendations.
D)All LSE-listed companies must follow these principles and recommendations, and where they have not, they must identify the fact that they have not and give reasons for not following them.

Question 40

What option(s)does a company have when directors are of the view that compliance with accounting standards does not generate a 'true and fair view' financial statements?

A)Directors may elect not to comply with the standard.
B)Directors may exercise the 'true and fair view override'.
C)Directors may disclose the standard in question, the nature of conflict and adjustments made.
D)All of the given answers are correct.

Question 41

The process of issuing accounting standards by the IASB is:

A)establish an Advisory Committee, develop and publish Discussion Documents, develop and publish an Exposure Draft; and issue a final International Financial Reporting Standard.
B)establish an Advisory Committee, develop and publish Discussion Documents, develop and publish an Exposure Draft; issue a final International Financial Reporting Standard; and publish a Basis for Conclusions.
C)establish an Advisory Committee, develop and publish Discussion Documents, develop and publish an Exposure Draft; issue a final International Financial Reporting Standard; and publish a Basis for Conclusions; and publish dissenting opinions.
D)none of the given answers.

Question 42

Differential reporting for small entities and large entities will result in the following:

A)additional costs of training and education in preparing two sets of standards at professional and education level.
B)burden placed on some subsidiaries to prepare financial information based on the requirements of full IFRSs for the purposes of the parent entity consolidation.
C)loss of comparability across all types of entities financial statements.
D)all the given answers.

Question 43

Before the release of IASB accounting standards,or the release of statements of accounting concepts,the contents of the proposed releases are subject to critical review.Detail and discuss this process of critical review.

Question 44

The objective of the International Financial Reporting Interpretations Committee (IFRIC)is to:

A)achieve consistent interpretations of IFRS by IFRS-adopters internationally.
B)address accounting issues that are likely to receive divergent or unacceptable treatment in the absence of authoritative guidance, with a view to reaching consensus on the appropriate accounting treatment.
C)address issues of reasonably widespread importance, and not issues of concern only to a small set of enterprises.
D)All the given answers are correct.

Question 45

Arguments against the regulation of accounting information include:

A)Mandated disclosures are cheap to provide and by their nature will devalue the worth of the information being provided.
B)By making so many choices of accounting methods available under the standards, the efficiency with which the information is provided will be enhanced.
C)Companies will be motivated to disclose good news but not disclose bad news if they are not forced to make certain mandated disclosures (the 'lemons' argument).
D)Managers of the organisation are in the best place to determine what information should be produced to increase the confidence of external stakeholders.

Question 46

In the absence of regulation,for auditing to be an effective strategy for reducing the costs of attracting funds,the auditor must:

A)be perceived to be truly independent and the accounting methods employed must be sufficiently well-defined.
B)have been auditing the company for at least the last five years.
C)be formally registered.
D)belong to one of the major ('Big 4') global accounting firms.

Question 47

Enumerate the sources of accounting regulation in the UK and briefly discuss how each may affect corporate financial reporting.

Question 48

Those in favour of regulating the provision of financial accounting argue that accounting is a public good and that without regulation,there is a problem of 'free-riders'.Explain what is meant by the notions of public good and free-riders and why proponents of regulation use them to support their views.

Question 49

Which of the following statement(s)is/ are true with respect to the differences between IFRS and US generally accepted accounting principles (GAAP)?

A)There are no differences between IFRS and US GAAP.
B)There are only slight differences between IFRS and US GAAP.
C)There was a decision made by both the IASB and the US Financial Accounting Standards Board (FASB) to pursue an intensification of the convergence program designed to bring a number of short-term fixes between the two sets of accounting standards.
D)There are only slight differences between IFRS and US GAAP and there was a decision made by both the IASB and the US Financial Accounting Standards Board (FASB) to pursue an intensification of the convergence program designed to bring a number of short-term fixes between the two sets of accounting standards.

Question 50

Discuss the purpose of audit reports in financial reporting.

Question 51

The impact of adopting International Financial Reporting Standards (IFRSs)in Europe/ UK has led to a number of significant changes in the accounting for several items.Outline and discuss five of these significant changes.

Question 52

The idea that accounting information can be used by people without paying for it,and pass it on,defines accounting information as being:

A)worthless.
B)a free good.
C)a public good.
D)a cheap good.

Question 53

A general purpose financial statements means:

A)a financial report intended to meet the information needs of users who are unable to command the preparation of special purpose reports
B)a financial report prepared by the company for the needs of any user
C)a financial report intended to meet the information needs of preparers
D)a financial report intended to meet the information needs of users who are able to command the preparation of reports to satisfy all of their information needs

Question 54

Differential reporting is based on:

A)small and large proprietary companies having the same requirements to comply with accounting standards in the preparation of financial reports.
B)the burden of additional reporting for some organisations in situations where there were questionable benefits to report preparers.
C)the difference between the ability of shareholders in 'small' and those in 'large' companies to request information to satisfy their specific needs.
D)none of the given answers.

Question 55

Audits are typically required for:

A)all public companies, large proprietary companies and a limited number of small proprietary companies only.
B)Government departments, statutory authorities, government companies and business undertakings and municipalities.
C) all public companies, large proprietary companies and a limited number of small proprietary companies only AND
Government departments, statutory authorities, government companies and business undertakings and municipalities.
D)none of the given answers.

Question 56

Responsibility for the preparation of the financial information of a company rests with:

A)the auditors.
B)management.
C)the auditors and management jointly.
D)the auditors and the board of directors jointly.

Question 57

Some of the perceived barriers to the harmonisation process (for the harmonisation of accounting standards globally)include:

A)different business environments.
B)different legal systems.
C)different cultures.
D)all of the given answers.

Question 58

One of the main benefits of international harmonisation is the increase in the comparability of financial reports prepared in different countries yet differences persist that could have significant implications for profit comparisons.Discuss.