Deck 5: Regulatory Framework for Companies

Question 1

Which of the following may be voluntarily disclosed in the annual report?
1)Human resource strategies.
2)Environmental initiatives.
3)Community contributions.
4)Financial forecasts.

A) 1 and 2.
B) 1, 2 and 4.
C) 1, 2, 3 and 4.
D) 2 and 4.

Answer 1

C

Question 2

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.

Answer 2

A

Question 3

The directors of a public company have a responsibility to:

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

Answer 3

D

Question 4

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 5

In 2005,Australia adopted which set of accounting standards?

A) AAS standards.
B) International accounting standards.
C) GAAP.
D) US standards.

Question 6

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 7

Which statement in relation to a company is not correct?

A) The directors are required to report to the shareholders by means of financial statements.
B) The directors are appointed by the shareholders.
C) If the accounts are required to be audited, the auditors are appointed by the directors.
D) None of the above, i.e., all are correct statements.

Question 8

The organisation that is currently the sole standard-setting body in Australia is the:

A) Institute of Chartered Accountants in Australia.
B) Australian Accounting Standards Board.
C) CPA Australia.
D) Australian Securities Exchange.

Question 9

The harmonisation of accounting standards in Australia refers to:

A) the modification of accounting standards to meet the concerns of business.
B) the blending of company accounting standards and standards for other entities.
C) the development of a conceptual framework for accounting standards.
D) the process of adapting international accounting standards for use in Australia.

Question 10

Additional regulations set down for companies by the ASX,include the provision of:

A) interim reports.
B) takeover information.
C) changes to staff.
D) Both A and B.

Question 11

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 12

A public company is a:

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

Question 13

Organised stock exchanges provide which of the following benefits?

A) Facility for companies to raise new capital.
B) Allows shareholders to easily sell their shares.
C) Increases the amount of regulation for the listed company.
D) Both A and B.

Question 14

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 15

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 16

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.

Question 17

Auditors report to the:

A) shareholders.
B) directors.
C) Both A and B.
D) Australian Tax Office.

Question 18

Which of these is a reason why companies are more heavily regulated than sole proprietorships or partnerships?

A) The owners (shareholders) are often removed from the day-to-day running of the business.
B) As companies have limited liability, there is a greater need to protect creditors from financial loss.
C) The members of a company operate under the mutual agency principle.
D) Both A and B.

Question 19

GAAP,in an accounting context,stands for:

A) General Assumptions and Attitudes of Professionals.
B) Good Auditing and Accounting Practices.
C) General Accepted Accounting Principles.
D) none of the above.

Question 20

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 21

Which of the following are sources of regulation applicable to publicly listed companies in Australia?

A) ASX rules.
B) Company law.
C) International accounting standards.
D) All of the above.

Question 22

Calculate the total comprehensive income for the year if operating profit is $456,000,the tax rate is 30%,finance charges are $88,200 and other comprehensive income for the year (net of tax)is $195,000.

A) $452,460
B) $514,200
C) $426,000
D) $562,800

Question 23

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 24

The system by which businesses are controlled and directed is known as:

A) auditing.
B) general management.
C) corporate governance.
D) business directing.

Question 25

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 26

If the management of a company believes that in complying with the accounting standards,the financial reports would not show a true and fair representation,they:

A) are not legally required to comply with the standards.
B) just have to disclose that they have not used the standard.
C) do not have to adhere to the standards in this situation.
D) must comply with the standards and have the option of including a note in the report.

Question 27

Each of the following companies collapsed in the early 2000s.Which one is not an Australian company?

A) Enron
B) Ansett
C) HIH
D) One.Tel

Question 28

Use the data below to calculate MNB Ltd's share issue made in 2014.
Equity balance (01/07/2014)- $690,000
Equity balance (30/06/2015)- $1,070,000
Retained Earnings (30/06/2015)- $230,000
There were no dividends declared in the current year and no other reserve accounts.

A) $610,000
B) $150,000
C) $460,000
D) $380,000

Question 29

Which of the following statements is incorrect? Under ASX Listing Rules,companies must:

A) attempt to follow best practice recommendations only if it is convenient.
B) identify reasons for not following the recommendations.
C) disclose if a recommendation is not met.
D) disclose if a disclosure is specifically required under a Rule.

Question 30

In a statement of financial position,trade debtors would normally be classified as a:

A) current liability.
B) current asset.
C) non-current liability.
D) reserve.

Question 31

The statement of comprehensive income differs from a traditional statement of financial performance in that:

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 32

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 33

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 34

Currently worldwide,most major economies have either adopted IFRSs or:

A) are moving towards the adoption of such.
B) have elected never to use IFRSs.
C) have set timelines to converge with IFRSs.
D) Both A and C.

Question 35

The statement that is true about the order of repayment for a company in liquidation is:

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 36

The statement of changes in equity includes:

A) share issues.
B) changes to reserves.
C) changes to retained profits.
D) all of the above.

Question 37

The collapse of several companies earlier this century led to the establishment of a Royal Commission to investigate the contributing issues.Which of the following was not an identified issue?

A) Mismanagement.
B) Unsound management culture.
C) Ill-conceived decisions.
D) All of the above were identified as contributing issue

Question 38

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 39

The global set of standards established for financial reporting cover each of the following aspects except:

A) information disclosure.
B) asset valuation.
C) valuation of shares.
D) measurement of profit.

Question 40

Which of the following statements relating to the ASX Corporate Governance Principles is incorrect?

A) Companies should actively promote ethical and responsible decision-making.
B) Risk oversight and internal control are not necessarily areas companies can manage.
C) Companies should promote timely and balanced disclosure of all material matters concerning the company.
D) The audit committee should be structured so that it consists only of non-executive directors.

Question 41

Which of the following is not a reason for acquiring a controlling interest in another company?

A) Possible economies of scale.
B) Reducing business risk.
C) Increasing competition.
D) Safeguarding supply resources.

Question 42

Why might a subsidiary company retain their own identity?

A) Maintain their market identity.
B) Enable the parent company to retain a limited liability status.
C) Allow their staff to remain autonomous.
D) All of the above.

Question 43

Consolidated accounts are:

A) another name for ledger accounts.
B) prepared by the parent company for a group of companies.
C) are an amalgamation of a set of accounts for a group of companies as if the group was a single entity.
D) Both B and C.

Question 44

CBD Ltd recently paid $4,000,000 for 60% of LKJ Ltd's equity.LKJ Ltd had total assets of $6,500,000 and liabilities of $1,300,000.What amount of goodwill on consolidation will CBD Ltd record?

A) $2,700,000
B) $880,000
C) $1,200,000.
D) $100,000.

Question 45

Which of the following statements is correct? Consolidated statements:

A) show all the financial details of the subsidiary companies.
B) only show the financial position and performance of the parent company.
C) eliminate all transactions between the companies within the group.
D) do not show the minority interests.

Question 46

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 47

Major Ltd pays $5,000,000 for a 70% share in Minor Ltd.The net assets acquired in Minor Ltd are valued at $4,500,000.The $500,000 difference will appear in Major Ltd's statement of financial position as:

A) goodwill on consolidation.
B) mortgage payable.
C) long-term investment.
D) acquisition reserve.

Question 48

Goodwill on consolidation is classified in the statement of financial position as a/an:

A) current asset.
B) tangible asset.
C) intangible asset.
D) non-current liability.

Question 49

In relation to associate companies,which of the following investor's share does not have to be recorded in the consolidated accounts?

A) Fixed assets.
B) Attributable tax.
C) Retained profits.
D) Profit or loss.

Question 50

Assume the opening balance of equity (01/07/2014)is $1,400,000.During 2014/15,there was a share issue of $540,000,dividends declared of $280,000 and a profit for the year of $710,000,What is the equity balance on the 30/06/2015?

A) $2,650,000
B) $2,370,000
C) $2,930,000
D) Not enough data to calculate the closing balance.

Question 51

Which of the following comments in relation to the statement of cash flow 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 52

The main difference between a subsidiary and an associate company is the:

A) number of investors.
B) level of control the parent company has.
C) annual turnover.
D) size of the company.

Question 53

If a company's investment in another company is between 20% and 50%,the company invested in is typically known as a/an:

A) subsidiary company.
B) associate company.
C) parent company.
D) holding company.

Question 54

A company partly owned and controlled by another is known as a:

A) parent company.
B) subsidiary company.
C) a limited company.
D) a private company.

Question 55

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 56

Notes to the financial statements typically include each of the following except:

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 57

Which of the following statements is incorrect?

A) A parent company holds a majority interest in a subsidiary company.
B) A takeover is when a company buys a controlling interest in another company.
C) A non-controlling interest is also known as a minority interest.
D) An associate company is another name for a subsidiary company.