Chapter 1

Question 1

Code of ethics

Answer 1

Integrity
Objectivity
Professional competence/due care
Confidentiality
Professional behaviour

Question 2

Fundamental qualitative characteristics of financial information

Answer 2

Relevance

Faithful representation

Question 3

Information is relevant if it is:

Answer 3

Predictive value

Confirmatory value

Question 4

Relevance is affected by:

Answer 4

Materiality

Nature

Question 5

A faithful representation of information will be:

Answer 5

Free from error
Neutral/unbiased
Complete

Question 6

Enhancing qualitative characteristics of financial information

Answer 6

Understandability
Compatibility
Verifiability
Timeliness

Question 7

Historical cost concept

Answer 7

Items are normally measured in the FS at historical cost (the amount at which the business paid to acquire them)

Rising prices:

• Net assets = lower in value
• Great profits (depreciated at the value of original price therefore deprecriation expense is less than if the asset were not valued at its’ historical value)

Question 8

Comparibility concept

Answer 8

To aid comparability over a period of time and between companies, the presentation and classification of items in the financial statements should stay the same from one period to the next, unless:
- There is a significant change in the nature of the operations
and/or
- There is a change in presentation is required by an IAS

Question 9

Materiality concept

Answer 9

Omissions or misstatements of items are material if they could influence the economic decisions of users of the financial statements

Materiality depends on: size and nature of the omission/misstatement

Each material class of similar items should be aggregated and presented separately in the FS

Question 10

What does the business entity concept apply to?

Answer 10

Companies, partners and sole traders!

Accountants regard a business as a separate entity, distinct from its’ owners or managers

Question 11

Prudence

Answer 11

Anticipating possible future losses but not future gains; the inclusion of a degree of caution when making judgement in relation to estimates