Study Unit 5.1 - Significant Accounting Policies

Question 1

What is the Full Disclosure Principle?

Answer 1

The Full Disclosure Principle - states that entity should report understandable information capable of affecting a user decisions

Question 2

What are the Primary means of Disclosure?

Answer 2

The Financial Statements

Question 3

What are Accounting policies?

Answer 3

Accounting policies are the specific principle and the methods of applying them used by the reporting entity.

Question 4

True of false? Business and not-for-profit entities MUST DISCLOSE all significant accounting policies as an INTEGRAL PART of the financial statements.

Answer 4

True

Question 5

True or False: Disclosure of accounting policies in unaudited interim financial statements is required when the reporting entity has not changes its policies since the end of the preceding fiscal year.

Answer 5

False:
Disclosure of accounting policies in unaudited interim financial statements is NOT required when the reporting entity has not changed its policies since the end of the preceding fiscal year.

Question 6

When presenting the disclosure statements, what is the preferred presentation used to do so? And where is exactly is it presented?

Answer 6

The preferred presentation used is:

A Summary of Accounting Policies,

in a separate section preceding the notes or in the initial note

Question 7

What two things does disclosures include?

Answer 7

Disclosure should include:

• Accounting Policies adopted &
• the methods of applying them that materially affect the financial statements.

Question 8

Disclosures extend to accounting policies that involve….

Which three things?

Answer 8

Disclosures extend to accounting policies that involve:

1) A Selection from existing acceptable alternatives
2) Policies unique to the industry in which the entity operates, even if they are predominately followed in that industry, and
3) GAAP applied in an unusual or innovative way.

Question 9

Certain Disclosures about policies of business entities are commonly required. List the 7 items that they include:

Answer 9

These items include:

1) basis of consolidation
2) depreciation methods
3) amortization of intangible assets (excluding goodwill, which is not amortizable)
4) inventory Pricing
5) Recognition of profit on long-term construction-type contracts
6) Recognition of revenue from franchising and leasing operations
7) Policy for determining which items are cash equivalents

Question 10

True of False? Disclosure of Accounting Policies should not duplicate details presented elsewhere. If true, give an example of this?

Answer 10

True:
Disclosure of accounting policies should NOT DUPLICATE DETAILS presented elsewhere,

For Example:

• the Summary of significant policies should not contain the composition of plant assets or
• inventories or
• the maturity dates of non current debt