Reading 17: financial reporting standards

Question 1

The objective of financial reporting, according to the IASB framework, is to:
provide information about the firm to current and potential investors.
decide the acceptable standards for presenting financial performance.
minimize management discretion in presenting the financial results of a firm.

Answer 1

The IASB Conceptual Framework states that the objective of financial reporting is to provide information about the firm to current and potential investors that is useful for making decisions about investing in or lending to the firm. (LOS 17.a)

Question 2

Standard-setting bodies are responsible for:
establishing financial reporting standards only.
establishing and enforcing standards for financial reporting.
enforcing compliance with financial reporting standards only.

Answer 2

Standard-setting bodies are private-sector organizations that establish financial reporting standards. Enforcement is the responsibility of regulatory authorities. (LOS 17.b)

Question 3

Which of the following organizations is least likely involved with enforcing compliance with financial reporting standards?
Financial Conduct Authority.
Securities and Exchange Commission.
International Accounting Standards Board.

Answer 3

The IASB is a standard-setting body. The Securities and Exchange Commission (in the United States) and the Financial Conduct Authority (in the United Kingdom) are regulatory authorities. (LOS 17.b)

Question 4

According to the IASB Conceptual Framework, the fundamental qualitative characteristics that make financial statements useful are:
verifiability and timeliness.
relevance and faithful representation.
understandability and relevance.

Answer 4

The fundamental qualitative characteristics are relevance and faithful representation. Verifiability, timeliness, and understandability are enhancing qualitative characteristics. (LOS 17.c)

Question 5

Which of the following most accurately lists a required reporting element that is used to measure a company’s financial position and one that is used to measure a company’s performance?

chart:

position performance
assets liabilities
income expenses
liabilities income

Answer 5

Balance sheet reporting elements (assets, liabilities, and owners’ equity) measure a company’s financial position. Income statement reporting elements (income, expenses) measure its financial performance. (LOS 17.c)

Question 6

International Accounting Standard (IAS) No. 1 least likely requires which of the following?
Neither assets and liabilities, nor income and expenses, may be offset unless required or permitted by a financial reporting standard.
Audited financial statements and disclosures, along with updated information about the firm and its management, must be filed at least quarterly.
Fair presentation of financial statements means faithfully representing the firm’s events and transactions according to the financial reporting standards.

Answer 6

According to IAS No. 1, financial statements must be presented at least annually. Fair presentation is one of the IAS No. 1 principles for preparing financial statements. The ban against offsetting is one of the IAS No. 1 principles for presenting financial statements. (LOS 17.d)