Lecture 7 Accounting policy choice & presentation

Question 1

What are the qualitative characteristics of useful information?

Answer 1

Relevance

Faithful representation

Question 2

What are the enhancing qualitative characteristics?

Answer 2

Comparability
Verifiability
Timeliness
Understandability

Question 3

What are financial statement elements?

Answer 3

Assets
Liabilities
Equity 
Income
Expenses

Question 4

What is recognition?

Answer 4

Recognition is the process of incorporating an element into the financial statements. Must therefore first meet the definition of an element.

Question 5

An element is recognised only if recognition provides users of financial statements with information that is useful, i.e?

Answer 5

provides information that is relevant and a faithful representation.

Question 6

An element is recognised if the costs of _____do not outweigh its _____.

Answer 6

Recognition

Benefits

Question 7

Measurement involves assigning valuations on what?

Answer 7

All elements reported in financial statements.

Question 8

What are measurement bases?

Answer 8

Historical cost

Current value:
Fair value
Value in use
Current cost

Question 9

Accounting policies are what things applied by an entity in preparing and presenting financial statements?

Answer 9

Specific principles
[Measurement] bases
[Accounting] conventions
Rules and practices

Question 10

Changes in accounting policy should be

How often should accounting policies change?

Answer 10

Infrequently

Question 11

AASB 108, paragraph 14, identifies two situations when a change in accounting policy is likely to occur. These are where:

Answer 11

A change in accounting policy is required to comply with an accounting standard or interpretation, or

Where a decision to change an accounting policy will result in the financial statements providing reliable and more relevant information.

Question 12

If a new standard does not specify, or when the change is voluntary, the effects of the change in accounting policy is to be accounted for how?

Answer 12

Retrospectively

Question 13

What happens when a change in accounting policy is made retrospectively?

Answer 13

The opening balance is adjusted to the earliest period and other everything is adjusted as if the new policy has always applied.

Question 14

A change in accounting estimate is an adjustment of what?

Answer 14

The carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset.

Question 15

What does and does not cause changes in accounting estimates?

Answer 15

Caused by new information or new developments.

Not caused by errors.

Question 16

If the change in estimate affects current period only, when is it recognised?

Answer 16

Recognised in the period of change.

Question 17

If changes in estimates current and future periods, when is it recognised?

Answer 17

Recognise in period of change and future periods.

Question 18

Prior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:

Answer 18

Was available when the financial statements for those periods were authorised for issue, and

Could reasonably be expected to have been obtained and taken into account in the preparation and presentation of the financial statements

Question 19

Prior period errors include what?

Answer 19

Math mistakes
Mistakes in applying accounting policies
Oversights or misinterpretations of facts
Fraud

Question 20

An entity shall correct material prior period errors retrospectively in the first set of financial statements authorised for issue after their discovery by:

Answer 20

Restating the comparative amounts for the prior period(s) presented in which the error occurred;

or if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented.