CH9 QB The professional accountant Flashcards
The objective of the accountancy profession can best be described as:
A providing financial information about an entity to external users, which is useful to them
in making economic decisions and for assessing the stewardship of the entity’s
management
B measurement, disclosure or provision of assurance about financial information that
helps managers, investors, tax authorities and other decision makers make resource
allocation decisions
C identifying, measuring, accumulating, analysing, preparing, interpreting and
communicating information used by management to plan, evaluate and control an
entity and to assure appropriate use of and accountability for its resources
D managing all the processes associated with the raising and use of financial resources in
a business
1 B The accountancy profession is concerned with providing measurement, disclosure or
provision of assurance about financial information that helps managers, investors, tax
authorities and other decision makers make resource allocation decisions.
Option A relates to financial reporting; C to management accounting; and D to
financial management.
What is the objective of the accruals basis of accounting?
A To match cash inflows with cash outflows
B To match expenses with revenue earned
C To match expenses with cash received in the period
D To provide financial information to help investors determine the current cash flows
B Expenses are matched with revenue earned under this basis of accounting because
transactions and other events are recognised when they occur rather than when the
related cash-flow is either paid or received. A, C and D all relate in some way to cash
flow.
Curtis is a Finance Manager with Glitch plc. He has made the following assertions regarding
fundamental accounting principles. Which of his assertions is correct?
A The principles must be strictly followed even when an amount is insignificant.
B When in doubt, understate assets and overstate liabilities.
C A company can never change accounting policies.
D The choice of inventory valuation method does not need to be disclosed in the
financial statements.
B According to fundamental accounting principles, when there is uncertainty caution
must be exercised so as not to overstate assets nor understate liabilities – the prudence
principle. When an amount is insignificant in the specific context it can be omitted – the
materiality principle (A). Companies are allowed to change accounting policies if by so
doing a fairer presentation is achieved (C). The inventory valuation method(s) used
should be disclosed in the notes to the financial statements (D).
The professional accountant should always be aware that accounting principles underlie
accounting, financial reporting and assurance. The following statements about specific
accounting principles were made by a consultant.
Statement (1) It is assumed that the company will continue on long enough to carry out its
objectives and commitments, so non-current assets are shown at historic
cost less accumulated depreciation.
Statement (2) A very large company’s published financial statements have the amounts
rounded to the nearest £1,000.
Identify which accounting principle is at issue in each statement.
A Statement (1) prudence; Statement (2) going concern
B Statement (1) materiality; Statement (2) prudence
C Statement (1) going concern; Statement (2) materiality
D Statement (1) going concern; Statement (2) prudence
C
It is assumed that the company will continue on long enough to carry out
its objectives and commitments, so non-current assets are shown at
historic cost less accumulated depreciation.
-> Going
concern
A very large company’s published financial statements have the amounts
rounded to the nearest £1,000.
-> Materiality
Which accounting principle states that an item in the financial statements would make a
difference if its omission or misstatement would mislead the reader of those financial
statements?
A The going concern principle
B The materiality principle
C The cost-benefit principle
D The substance over form principle
B The accounting principle that states that an item in the financial statements would
make a difference if its omission or misstatement would mislead the reader of the
financial statements under consideration is the materiality principle.
Which accounting principle states that a company should use the same accounting
methods and procedures from one accounting period to the next?
A The materiality principle
B The consistency principle
C The prudence principle
D The faithful representation principle
B The consistency principle states a company should use the same accounting methods
and procedures from period to period. SAMPLE PAPER
Legislation requires certain activities to be carried out by members of bodies that are 'recognised professional regulators'. Which three of the following activities are included in such requirements? A Insolvency B Management consultancy C Investment business D Taxation E Payroll F Statutory audit
A,C,F
Some areas of public practice are ‘reserved’ and so there are specific additional
requirements for professional accountants engaged in them. Three of these areas are
statutory audit, investment business and insolvency work. ICAEW is also the recognised
regulator for probate work.
Using the accruals basis of accounting, revenue is recorded and reported only when:
A goods or services are delivered, whether or not cash has been received
B cash is received at the time goods or services are delivered
C cash is received whether or not goods or services have been delivered
D cash is received after goods or services have been delivered
A Revenue is recorded when goods or services are delivered, whether or not cash has
been received.
The ICAEW Code of Ethics is an example of which of the following theoretical approaches to ethical codes? A A rules-based approach B A framework-based approach C A compliance-based approach D A tick-box approach
B The ICAEW Code of Ethics is a framework- or ethics-based approach, which is the
opposite of the compliance-, rule- or tick-box-based approach seen in other
jurisdictions such as the US.
The ICAEW Code of Ethics is a framework that introduces the fundamental principles which
apply to all professional accountants. In this context ‘fundamental’ means:
A that the principles form the basis of professional judgements and practice
B that the principles are the easiest aspects of the professional accountant’s work
C that the Code is compliance-based
D that adherence to rules is all that is required of a professional accountant
A The fundamental principles form the basis of professional judgements and practice (A).
It does not mean that the principles are easy (B). Taking the approach of mere
compliance (C) and/or of following rules (D) is the exact opposite of what the
fundamental principles represent
The managing director of Wendle Ltd wants to understand the links between technical
competence and professional responsibility in the accounting profession. Which areas
should be considered?
A Disciplinary proceedings and the profession’s interest only
B Disciplinary proceedings and accounting principles only
C The profession’s interest and accounting principles only
D Disciplinary proceedings, the profession’s interest and accounting principles
B Applying accounting principles is an aspect of technical competence. Disciplinary
proceedings are relevant when there has been a failure of technical competence
and/or professional responsibility. The profession’s interest has no impact.
According to the Companies Act 2006, qualification as a chartered accountant qualifies an
individual to be appointed as:
A company actuary, if it is an insurance company
B company secretary, if it is a listed company
C company valuer of investment properties, if it is a property company
D company liquidator
B The Companies Act 2006 states that a company secretary of a plc shall be a member of
ICAEW (or certain other bodies) or a solicitor, barrister or advocate.
Upholding professional ethics is a key part of being a professional accountant. Which of the
following duties of an accountant only applies to those employed in the public sector?
A Protect the public interest
B Apply laws and regulations
C Protect the profession’s reputation and standing
D Protect taxpayers’ money
D Accountants working in the public sector have a duty to protect tax-payers’ money. The
other options apply to all accountants.
Xigent plc employs directors of finance, of human resources and of legal services, as well as
a company secretary. The company has operational problems which are delaying its
completion of a key project. If the project misses its deadline Xigent plc may suffer heavy
penalties under the terms of its contract with the customer. Part of the delay has been
caused by strikes due to bad relations with both employees and sub-contractors, but Xigent
plc is unsure whether the penalties included in the contract will come into effect given this
reason.
Whose role is it to identify whether the penalties are likely to come into effect?
A The director of finance
B The director of human resources
C The director of legal services
D The company secretary
C Enforcement of contracts is a legal matter requiring the attention of the company’s
director of legal services. SAMPLE PAPER
Having a questioning mind, and being alert to the possibility of misstatement in financial
statements due to error or fraud, are features of a professional accountant’s:
A professional ethics
B professional behaviour
C professional scepticism
D professional competence
C In relation to information, estimates and explanations received, professional scepticism
involves the professional accountant in assessing them critically with a questioning
mind, being alert to the possibility of misstatement in financial statements due to error
or fraud.
