Chapter 2

Question 1

How can I make money holding a company?

Answer 1

Possession in the future
Price appreciation
Dividend
Have equity stake on that firm

Question 2

Who set the standards?

Answer 2

Standard-setting bodies

Question 3

Who recognise and enforce the standards?

Answer 3

Regulatory authorities

Question 4

Who set IFRS?

Answer 4

International Accounting Standards Board (IASB)

Question 5

Who set GAAP?

Answer 5

The U.S. Financial Accounting Standards Board (FASB)

Question 6

A NON regulatory authorities but an international association of securities regulators?

Answer 6

IOSCO

Question 7

Main scope of IOSCO

Answer 7

• Develop international standards of market regulation to protect investors and address systematic risk
• exchange information and cooperate in enforcement to enhance invest protection and promote confidence
• development of markets, infrastructure and regulation

Question 8

Difference in Inventory btw GAAP and IFRS?

Answer 8

• IFRS not allow LIFO whereas GAAP yes

Question 9

Measurement of Certain Asset classes (IFRS)

Answer 9

Certain assets are initially recognized at cost. For subsequent measurement:
- continue with a cost model
- revalue the assets within each class to fair market value

Question 10

Measurement of Certain Asset classes (GAAP)

Answer 10

does not permit use of revaluation model

Question 11

Impairment (IFRS)

Answer 11

IFRS allow for reversal of impairments put to a certain amount if there is an indication that an impairment loss has decreased

Question 12

Impairment (GAAP)

Answer 12

does not allow reversal of impairments

Question 13

Certain NONFinancial liabilities recognition

Answer 13

is governed by the probability that a liability has been incurred under both U:S GAAP and IFRS. bt what is “probable” is different btw them

Question 14

Definition of Probable under IFRS

Answer 14

more likely than not to occur

Question 15

Definition of Probable under GAAP

Answer 15

The future event or events are likely to occur

Question 16

Recognition of a Liability btw IFRS and GAAP

Answer 16

A liability will be recognized earlier under IFRS than under U.S Gaap

Question 17

Two fundamental qualitative characteristics

Answer 17

Relevance : information that could potentially make a difference in users’ decision
Faithful Representation: Information that Faithfully represent an economic phenomenon that it purports t represent. Complete, neutral and free from error

Question 18

Four enhancing qualitative characteristics

Answer 18

• Comparability: companies report and record information in a similar manner
• Veriafibility: Independent people using the same methods arrive at similar conclusions
• Timeliness: Information is available before it loses its relevance
• Understandability: Reasonably informed users should be able to comprehend the information

Question 19

Element directly related to the measurement of FINANCIAL position

Answer 19

• Asset: resources controlled by the company as a results of past events and from which future economic benefits are expected to flow to the enterprise
• Liabilities: Present obligations of an enterprise arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits
• Equity: Residual interest in the assets after subtracting the liabilities

Question 20

Element directly related to the measurement of PERFORMANCE

Answer 20

• Income: Increases in economic benefits in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity
• Expenses:Decreases in economic benefits n the form of outflows or depletions of assets or increases in liabilities that result in decrease in equity

Question 21

Contraint

Answer 21

The benefits of information should exceed the costs of providing it

Question 22

Underlying Assumptions

Answer 22

• Accrual basis: Financial statement should reflect transactions in the period when they actually occur, not necessarily when cash movements occur
• Going Concern: Assumptions that the company will continue in business for the foreseeable future