Deck 1: Conceptual and Case Analysis Frameworks for Financial Reporting

Question 1

Which of the following would NOT be a reason to obtain a greater understanding of accounting practices in other nations?

A) Financial results are disclosed in different currencies.
B) One needs to be aware of differing disclosure requirements from nation to nation, as this impacts the preparation of financial statements.
C) Income-smoothing may have affected a foreign subsidiary's results; such smoothing practices are not permitted in North America.
D)Departures from the historical cost principle may be possible in other nations.

Answer 1

A

Question 2

What choice(s) do private enterprises have in their financial reporting in Canada?

A) They have no choice at all; they will need to report under IFRS.
B) They may elect to continue with differential reporting.
C) They may adopt accounting principles that are appropriate to the circumstances.
D)They may elect to report under either IFRS or ASPE.

Answer 2

D

Question 3

The CPA Canada Handbook -- Accounting is the handbook of Canadian accounting standards. Why do companies in Canada ensure that their financial reporting is consistent with Canadian GAAP?

A) Their bank requires them to do so.
B) Their auditors require them to do so.
C) Reporting under the CPA Canada Handbook - Accounting is required by public companies' boards of directors.
D)Compliance with the CPA Canada Handbook - Accounting pronouncements is usually required by many legal statutes.

Answer 3

D

Question 4

Starting in 2011, what is the definition of a private enterprise (PE) under Canadian GAAP?

A) A corporation that has no public shareholders.
B) A corporation that has less than 500 shareholders and is not listed on a stock exchange.
C) A corporation which is not profit oriented.
D)A profit oriented enterprise that has none of its issued and outstanding financial instruments traded in a public market and does not hold assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses.

Question 5

Which enterprises must report under IFRS in Canada?

A) All corporations, government agencies and private companies.
B) Public companies and private companies whose shareholders' equity is in excess of $500,000,000 at any particular year end.
C) Public companies, private companies and not-for-profit organizations.
D)Publicly accountable enterprises.

Question 6

Which of the following is NOT a reason why a Canadian private company would elect to report under IFRS?

A) The company is planning to go public in the near future.
B) The company seeks comparability with public companies of a similar size.
C) It is likely to be less expensive than reporting under ASPE.
D)The company is a subsidiary of a Canadian public company.

Question 7

For which of the following types of organizations does the CPA Canada Handbook not provide specific accounting standards?

A) Publicly accountable enterprises.
B) Private enterprises.
C) Not-for-profit organizations.
D)Proprietorships.

Question 8

The current ratio measures:

A) liquidity.
B) solvency.
C) profitability of assets.
D)profitability of owners' investment.

Question 9

One of the underlying assumptions of the Historical Cost Principle is that a stable unit of measure (currency) should be used for Financial Reporting. Is this always the case?

Question 10

The debt-to-equity ratio measures:

A) liquidity.
B) solvency.
C) profitability of assets.
D)profitability of owners' investment.

Question 11

The formula for the current ratio is:

A) current assets - current liabilities
B) current assets / current liabilities
C) total debt / shareholders' equity
D)net income / shareholders' equity

Question 12

List some of the key differences between IFRS and ASPE.

Question 13

Which of the following would be most affected by financial statements being prepared under different accounting principles?

A) Reduced comparability.
B) Reduced reliability.
C) Increased complexity.
D)Inaccurate asset valuations.

Question 14

X Inc. and Y Inc. are virtually identical companies with identical cost structures and very similar business practices operating in the same lines of business. X Inc. is a public company based in Canada and follows IFRS while Y Inc. is a private enterprise based in Canada and follows ASPE. The following were the condensed income statements for both companies for the last year before both adopted IFRS.
Required:
Given the information provided, what are some possible causes for the differing results of these companies?
$$\begin{array} { | l | l | l | } \hline &\text {X Inc: } & \text { Y Inc. } \\\hline \text { Sales: } & \$ 1,000,000 & \$ 2,000,000 \\\hline \text { Less: } & & \\\hline \text { Cost of Goods Sold } & \$ 500,000 & \$ 1,600,000 \\\hline \text { Gross Margin } & \$ 500,000 & \$ 400,000 \\\hline \text { Administrative Expenses } & \$ 200,000 & \$ 300,000 \\\hline & & \\\hline \text { Net Income: } & \$ 300,000 & \$ 100,000 \\\hline\end{array}$$ T

Question 15

Briefly discuss the anticipated changes to accounting standards in Canada over the next few years.

Question 16

What approach did Canada first decide to take with respect to convergence with IFRS?

A) Harmonization of CPA Canada Handbook with IFRS.
B) Substituting IFRS for Canadian GAAP when approved by the IASB.
C) Adopting some but not necessarily all IFRSs by reviewing them on a case by case basis.
D)Reviewing them with all publically accountable entities to see which ones would be acceptable.

Question 17

What disclosure requirements must be met when a Canadian company adopts IFRS for the first time?

Question 18

Which decision has Canada made with respect to financial reporting for private enterprises?

A) To adopt the IFRS standards for small and medium-sized enterprises.
B) To retain the current standards.
C) To look to US GAAP for standards.
D)To develop and maintain its own standards for private enterprises.