Financial Reporting Flashcards
What is an attribute of faithful representation?
Neutrality
Information is neutral when it is provided in an unbiased way.
An entity records revenue when it receives cash from its customers for a service that it will provide at a future date, is an example of what type of accounting?
Cash-Based Accounting.
Revenues are recorded when collected.
An entity records revenue when it provides a service for which it will be paid at a later date, is an example of what type of accounting?
Accrual-Based Accounting.
Revenue can be earned on credit, with payment to be received after the service is provided.
An entity records a cash payment received in advance from a customer as unearned revenue (a liability), is an example of what type of accounting?
Accrual-Based Accounting.
A business can require an upfront deposit before providing the service.
True or False
Recognition refers to the process of measuring and including an item in the financial statements.
True.
Recognition refers to the process of measuring and including an item in the financial statements.
True or False
Reliability is a qualitative characteristic of financial information under ASPE but not under IFRS.
True.
Reliability is not a fundamental qualitative characteristic under IFRS. Under ASPE, reliability consists of representational faithfulness, verifiability, neutrality, and conservatism.
What is the main objective of Financial Reporting?
To provide information that users can rely on when making resource allocation decisions.
This is necessary because the main users of financial statements are external users who do not have access to internal reports.
What is an attribute of a publicly accountable enterprise?
It has debt instruments that can be outstanding and traded on a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets.
True or False
A private company can follow only ASPE.
False
A private enterprise may choose to follow either ASPE or IFRS, but the standards are mutually exclusive and do not supplement each other.
In the CPA Handbook, IFRS 13 provides standards for what measurement?
Measurement of fair value.
In the CPA Handbook, IFRS 6 provides standards covering what?
IFRS 6 provides the standard on the exploration and evaluation of mineral resources.
Where in the CPA Handbook would you find the IFRS standards for intangible assets?
IAS 38.
What is the first step in locating information in the CPA Handbook?
Determine the accounting framework.
What is the difference between IFRS and ASPE in the treatment of cash and cash equivalents?
IFRS treats redeemable preferred shares with maturity dates less than three months as a cash equivalent, but ASPE does not.
How is restricted cash presented in the statement of financial position (balance sheet)?
Restricted cash is presented as a separate line item (either as a current or non-current asset). In addition the purpose of the restricted cash must be disclosed in the notes to the financial statements.
True or False
U.S. current bank is not considered a part of cash and cash equivalents.
False. Foreign currency funds in accounts that are accessible on demand are considered cash and cash equivalents as long as there is a ready market to exchange the funds to the company’s operating currency.
Define restricted cash
Cash that cannot be used for general purposes.
ASPE requires that trade receivables be adjusted to what value?
Under ASPE, trade receivables are recorded at net realizable value.
What is a trade receivable?
Trade receivables are assets that normally arise from businesses selling goods or services on credit terms, or “on account”.
True or False
Identifying individual customer accounts to write off is required to minimize the potential for profit manipulation.
False. It is often not practical to identify individual customer accounts that will become uncollectable at the time that sales are made. Entities can use an estimate of how much of the receivables is likely to become uncollectable to measure the AFDA.
How does ASPE value subsequent measurement of trade receivables?
ASPE requires an assessment of indicators of impairment at the end of the reporting period.
How does IFRS value subsequent measurement of trade receivables?
IFRS uses the expected credit loss approach.
How are trade receivables initially measured?
At the transaction price, which represents fair value.
What types of receivables must be disclosed separately in the financial statements or notes?
Receivables due from trade customers, related parties, and other sources are to be presented separately in either the statement of financial position or the notes to the financial statements.
True or False
When receivables are sold to a factor with recourse, the entity records a liability for any cash received, as well as a financing expense.
True
When receivables are sold to a factor with recourse, the control and benefit related to the receivables are not transferred, and the entity continues to recognize the receivables. A liability is established for the cash received from the factor plus any amount due to the factor for financing costs.
How do discounts affect the recording of trade receivables?
Discounts can be recorded using either the gross or net method. The gross method record AR and revenue at the full invoice value, if paid in the discount period the discount reduces the revenue recorded (using a contra revenue account) at that time. The net method records the AR and revenue assuming that the discount will be taken, if it is not taken, the forfeited discount is considered interest revenue and is recorded at that time.
What is a Non-Monetary Transaction (NMT)?
An exchange that occurs between parties, including related parties, where both items exchanged are non-monetary in nature.
How is an asset exchanged or transferred in an NMT measured?
It is measured at the fair value of the asset given up or the fair value of the asset received, whichever is more reliably measurable.
When does commercial substance exist in a NMT?
Commercial substance exists when the entity’s future cash flows are expected to change significantly because of the transactions.
What are the ASPE criteria to determine if a transaction has commercial substance?
- the configuration of the future cash flows of the asset received differ significantly from the configuration for the future cash flows of the asset given up
or - the entity-specific value of the asset received differs significantly from the entity-specific value of the asset given up.
What is Configuration of Future Cash Flows?
This refers to changes in risk, amount or timing of future cash flows.
What is Entity-specific value?
This refers to the value of the asset based on how the entity plans to use it. Not necessarily fair value.
True or False
ASPE excludes measurement at fair value?
True; when the transaction is an exchange of a product/property held for sale in the ordinary course of business for a product/property to be sold in the same line of business.
True or False
IFRS Requires non-monetary, revenue-generating transactions to be recorded at the fair value of the asset received when known.
True.
Main difference is that under IFRS 15, non-monetary revenue-generating transactions are recorded at the fair value of the consideration received, unless it is unknown. In which case the fair value of the asset given up is used.
