Chapter 1

Question 1

What is the conceptual framework used for?

Answer 1

to provide a basis for appropriately using professional judgement to resolve issues not covered by the standards

Question 2

Conceptual Framework under ASPE

Answer 2

1. Going concern - the assumption that the company will continue to operate in future years. In other words, we assume that the business has no intention of terminating its operations.
2. Separate-entity - the assumption that transactions that occur in the company, relate to the business it operates in. In other words, activities such as personal transactions of the owners must be kept separate (i.e., excluded) from the company’s accounting records.
3. Historical cost - the assumption that business transactions are recorded at cost. For example, if a business purchases an asset for $1 million, the external financial statements will reflect this $1 million asset in the assets section.

Question 3

T or F: An accounting manager at a public company is currently struggling to determine how to account for the revenue under a new type of contract that she has never seen before. She is having difficulty finding specific guidance in the IFRS standards. In determining the appropriate accounting treatment, she should look at the IFRS conceptual framework to help guide her decision.

Answer 3

True - If appropriate guidance cannot be found in the standards, IFRS in this case, the corresponding conceptual framework should serve as the guideline for appropriate accounting treatment.

Question 4

What are the qualitative characteristics of financial information under ASPE?

Answer 4

• understandability
• relevance
• reliability
• comparability

Question 5

what are the the characteristics under IFRS?

Answer 5

Fundemental:
- relevance
- faithful representation

Enhancing
- verifiability: refers to the concept that “information faithfully represents the economic phenomena it purports to represent.” In other words, the information that is disclosed should result in a consensus among various knowledgeable and independent observers. As you’ll see later in the course, auditors play an especially important role in validating this characteristic.
- timeliness: is an enhancing qualitative characteristic that requires “having financial information available to decision-makers in time to be capable of influencing their decisions.” With business taking place at tremendous speeds, more recent, up-to-the-minute information is generally seen as more useful. This doesn’t automatically discount “older” information, since less recent information can be used for historical analysis and predicting trends.
- comparability
- understandability

Question 6

T or F: The ASPE conceptual framework splits qualitative characteristics into fundamental and enhancing categories. As such, the framework is considerably different from the IFRS conceptual framework.

Answer 6

False: Despite the different categorization of characteristics, the two frameworks are much more similar than they are different. If you’re unsure why that’s the case, please re-read this section (1.1.2).

Question 7

What are some differences between IFRS and ASPE (creation/design)

Answer 7

ASPE:
designed to be user-friendly and not resource intensive

IFRS: applicable to broad, international business community; is more stringent and has more disclosure

Question 8

What accounting standards can private and public companies follow?

Answer 8

Private companies:
choice between IFRS and ASPE

Public companies:
IFRS

Question 9

what are the 3 components of accounting data?

Answer 9

1. Recognition - Provides guidance as to when a specific accounting event should be recorded.
2. Measurement - Provides guidance as to the amount a specific accounting event should be recorded at.
3. Disclosure - Provides guidance as to what information about a specific accounting event should be explicitly presented to users.

Question 10

What is the differences in presentation for the balance sheet? (order)

Answer 10

ASPE:
does not require order of liquidity (could be current vs non-current)

IFRS:
order of liquidity but not as current vs non-current
also includes disclosure for portion of a loan that is payable witin 12 months and after 12 months

Question 11

What is the differences in presentation for the balance sheet? (assets - revaluation)

Answer 11

Revaluation:
IFRS - cost model (cost less depreciation and impairment) or re-valued model (revalued amount [matching carrying amount with fair-value amount at a specific date] less depreciation and impairment)
ASPE - cost model

Question 12

What is the differences in presentation for the balance sheet? (assets - depreciable amount)

Answer 12

Depreciable amount:
IFRS - asset cost less residual value (if the company has revalued the amount, the depreciable amount will change every time)
ASPE - greater of asset less residual value or asset less salvage value

Question 13

What is the differences in presentation for the balance sheet? (assets - component separation)

Answer 13

component separation and depreciation:
IFRS - depreciated separately
ASPE - only separated if practicable

Question 14

What is the differences in presentation for the balance sheet? (assets - incidental revenues and expenses )

Answer 14

Incidental Revenues and Expenses:
IFRS - recognized in statement of comprehensive income
ASPE - recognized under asset’s costs

Question 15

What is the differences in presentation for the balance sheet? (Liabilities)

Answer 15

Lease classification:
ASPE: Capital Lease
1. asset transferred to lessee at end of term
2. lessee has option to purchase for lower market value
3. Lessee term is more than 75% of useful life
4. PV of payments is 90% of fair market value

IFRS - leases greater than 12 months are classified as capital leases (a greater portion of leases are considered capital under IFRS)

Question 16

What is the differences in presentation for the income statement? (name)

Answer 16

ASPE = Income Statement

IFRS =
“statement of profit or loss and other comprehensive income”
(could be separated)

Comprehensive income - includes items that are not a part of income statement

Question 17

What is the differences in presentation for the income statement? (revenue recognition)

Answer 17

ASPE (RCMP)
1. Seller has transferred significant risk and rewards to the buyer (only applicable if selling a good).
2. Collection of payment is reasonably assured.
3. Amount of consideration derived from the sale can be measured.
4. Delivery of goods and/or services has been performed.

IFRS:
1. Identify contract - an entity must determine whether it has engaged in a contract with a customer (example: a legal document signed by seller & customer outlining the rights of each party, payment terms etc.)
2. Identify performance obligations - the entity must identify distinct performance obligations that are part of the contract.
3. Determine transaction price - an entity must identify the amount of consideration promised by a customer.
4. Allocate the transaction price to performance obligations - each performance obligation should have its own transaction price. If each performance obligation does not have its own transaction price in the contract, an entity must allocate a price to each performance obligation based on the “stand-alone” price if this good or service was sold separately.
5. Recognize revenue in accordance with performance - revenue for each performance obligation may be recognized only when the entity satisfies the performance obligation (if delivering a service) or transfers a good to a customer (if delivering a good).

Question 18

What is the differences in presentation for the income statement? (expense allocation)

Answer 18

ASPE - by nature

IFRS - by function = organizes expenses into categories that reflect specific functions (requires much more effort)

Question 19

What is the differences in presentation for the statement of retained earnings?

Answer 19

ASPE - separates retained earnings

IFRS - does not require a separate retained earnings
instead requires a statement of “changes in equity”

Question 20

What is the differences in presentation for the Cash Flow Statement?

Answer 20

ASPE:
- interest and dividends RECEIVED = operating
- INTEREST PAID = operating (flow through income statement)
- DIVIDENDS PAID = financing (flow through retained earnings)

IFRS:
Option 1 - everything is operating
Option 2:
- interest and dividends PAID = financing (paying is financing)
- interest and dividends RECEIVED = investing (people are investing in the business)

Question 21

Other notable comparisons - comparative information

Answer 21

ASPE:
permits the omission of comparative information as it is not meaningful

IFRS:
needs the comparisons of previous financial information

Question 22

Other notable comparisons - ESG Reporting

Answer 22

there has been an increase in ESG reporting for both public and private companies