International Financial Reporting Standards (IFRS)

Question 1

According to the IASB Framework, the process of reporting an item in the financial statements of an entity is:

Answer 1

Recognition.

According to the IASB’s Framework, recognition is “the process of incorporating in the Balance Sheet or Income Statement an item that meets the definition of an element and satisfies the criteria for recognition.” The element must be both probable that any future economic benefit will flow to or from the entity and have a cost or value that can be measured with reliability. IASB Framework, para. 82-83.

Question 2

A characteristic of accounting under IFRS for SMEs is:

Answer 2

Goodwill must be amortized.

Under IFRS for SMEs, goodwill is assumed to have a limited life and is amortized over that life, or a period not to exceed 10 years if the life cannot be reasonably estimated. Under U.S. GAAP, goodwill is assumed to have an unlimited life and is not amortized.

Question 3

Under IFRS, operating expenses on the income statement may be classified by:

Answer 3

Nature or function.

Question 4

IAS 1 requires a complete set of financial statements to be prepared annually. A complete set of financial statements includes

Answer 4

Statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows, and notes.

Question 5

Amounts paid for interest on a note payable on the statement of cash flows

Answer 5

Either in operating activities or financing activities.

Under IFRS finance costs (interest expense) may be reported in either the operating or financing section of the statement of cash flows. However, once it is disclosed in a particular section, it must be reported on a consistent basis.

Question 6

According to the IASB Framework, the financial statement element that is defined as decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to equity participants, is:

Answer 6

Expense.

Question 7

Under IFRS, which of the following is the first step within the hierarchy of guidance to which management refers, and whose applicability it considers, when selecting accounting policies?

Answer 7

Apply a standard from IFRS if it specifically relates to the transaction, other event, or condition.

Question 8

Which of the following are acceptable methods for reporting comprehensive income under IFRS?

I. One comprehensive income statement.
II. Two statements: an income statement and a comprehensive income statement.
III. In the statement of owner’s equity.

Answer 8

I. One comprehensive income statement.

AND

II. Two statements: an income statement and a comprehensive income statement.

The IFRS provides that comprehensive income may be presented in either one statement or in two statements. (U.S. GAAP allows the presentation in all three ways.)

Question 9

Which of the following statements, if any, concerning IFRS for SMEs is/are correct?

I. IFRS for SMEs is based on accrual basis accounting.

II. Generally, IFRS for SMEs may be used as an alternative to using OCBOA.

Answer 9

Both.
I. IFRS for SMEs is based on accrual basis accounting.

II. Generally, IFRS for SMEs may be used as an alternative to using OCBOA.

Question 10

Financial statement requirements under IFRS include:

Answer 10

Prior year comparative financial statements are required.

Question 11

IFRS requires a classified Statement of Financial Position. What are the required classifications?

Answer 11

Current and non-current assets and liabilities.

Question 12

What is a fundamental (primary) qualitative characteristic of useful financial information included in IASB’s Framework?

Answer 12

Relevance.

Relevance and faithful representation are the two fundamental qualitative characteristics of financial information (IASB Framework 5-18).

Question 13

IFRS requires cash advances and loans from bank overdrafts should be reported on the statement of cash flows as:

Answer 13

Operating activities.

Question 14

According to the IASB Framework, the two criteria required for incorporating items into the income statement or statement of financial position are that

Answer 14

it (1) meets the definition of an element and (2) can be measured reliably.

Question 15

What are required disclosures on the income statement in accordance with IFRS?

Answer 15

Finance costs, tax expense, and income.

The income statement may be prepared by presenting expenses either by nature or by function. The minimum required disclosures on the income statement include income, finance costs, share of profits and losses using the equity method, tax expense, discontinued operations, profit or loss, noncontrolling interests in profits and losses, and the net profit (loss) attributable to equity holders of the parent.

Question 16

According to the IASB Framework for the Preparation and Presentation of Financial Statements, the qualitative characteristic of relevance includes

Answer 16

Predictive value, confirmatory value, and materiality.

Question 17

Under IFRS for SMEs, the following cost flow assumptions can be used for inventory valuation: purposes?

Answer 17

FIFO or Weighted Average Cost.

LIFO may not be used.

Question 18

Under IFRS for SMEs, which methods can be used by an investor to account for an investment in another entity (an associate) over which the investor has significant influence?

Answer 18

Cost or Equity methods.

Under IFRS for SMEs, either the cost method or equity method may be used by an investor to account for an investment in another entity (called an “associate” in IFRS for SMEs) over which the investor has significant influence. Under U.S. GAAP, only the equity method may be used.

Question 19

When should an item that meets the definition of an element be recognized?

Answer 19

When the item has a cost or value that can be measured reliably.

Recognition is the process of incorporating an item in the financial statements when it meets the definition of the element and satisfies the criteria for recognition. That criteria states that there is the probability of future economic benefit associated with the item that will flow to or from the entity and that the item has a cost or value that can be measured with reliability. IASB Framework, para. 82-83.

Question 20

According to the IASB Framework, the financial statement element that is defined as increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants, is

Answer 20

Income.

The IASB Framework has five elements: asset, liability, equity, income, and expense.

Question 21

What may not be disclosed on the income statement for a company that prepares its financial statements in accordance with IFRS?

Answer 21

Gain or loss from extraordinary items.

Question 22

Under IFRS, the statement of cash flows may be presented on the

Answer 22

Direct or indirect basis.

Question 23

An assumption(s) underlying the preparation and presentation of financial statements under the IASB Framework is:

Answer 23

Accrual basis and going concern.

Question 24

According to the IASB Framework for the Preparation and Presentation of Financial Statements, the qualitative characteristic of faithful representation includes:

Answer 24

Neutrality, completeness, and free from error.