Exercise Judgement

Question 1

Authoritative statements that guide the preparation of financial statements.

Answer 1

Accounting standards

Question 2

The system by which corporations are directed and controlled.

Answer 2

corporate governance

Question 3

Business practices that benefit society

Answer 3

corporate social responsibility

Question 4

Research based on observation or experience

Answer 4

empirical research

Question 5

Standards of conduct that indicate how one should behave

Answer 5

ethics

Question 6

____________ help us understand and make sense of the world by helping explain, describe, predict and guide decisions and actions.

Answer 6

Theories

Question 7

The determination of ________ ________ can be problematic as it involves subjectivity, which can lead to manipulations, distortions or inconsistencies.

Answer 7

fair value

Question 8

What are the four fundamental components of an accounting policy

Answer 8

Definition, recognition, measurement and disclosure

Question 9

What does sec 292 of the Corporations Act state

Answer 9

Who has to prepare annual financial reports and directors reports, being listed companies, public companies and large proprietary companies

Question 10

What must financial reports comply with and provide

Answer 10

Australian Accounting Standards s296 and provide a true and fair view s297

Question 11

What if compliance with accounting standards does not result in a true and fair view

Answer 11

Companies must provide additional disclosures according to Corporations Act and Accounting Standards

Question 12

What do the auditing standards say about true and fair view

Answer 12

Synonymous with presents fairly in all material respects

Question 13

What do the accounting standards define fair presentation as

Answer 13

Financial statements shall present fairly the financial position, financial performance and cash flows of an entity. requiring ‘the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Framework’.

Question 14

Define true and fair in a legal view

Answer 14

True and fair is a legal concept. It is ultimately up to the Courts to decide its meaning.

Question 15

What is the difference between CF and accounting standards

Answer 15

CF provides guidance and apply to a wide range of decisions relating to financial reporting preparation. Accounting standards provide specific requirements for a particular area of financial reporting

Question 16

What is the title of AASB 108

Answer 16

Accounting Policies, Changes in Accounting Estimates and Errors

Question 17

What does AASB 108 state about accounting policy decisions

Answer 17

Where an Australian accounting standard applies, use it.** Accounting standards take priority over CF**

Question 18

What is a positive theory?

Answer 18

Describes, explains or predicts activities, eg. explains why managers choose particular accounting methods

Question 19

What is a normative theory?

Answer 19

Prescribes what should happen eg. Conceptual Framework, how assets should be defined