wrong answers Flashcards
what is materiality
information is material if omitting, misstating or obscuring it could be reasonably expected to influence decisions that primary users make
what does the conceptual framework describe materiality as
application by an entity of the fundamental qualitative characteristic of relevance
why do preparers find materiality difficult
preparers may be reluctant to filter out information which is not relevant as auditors and regulators may challenge their decisions
what is IFRS practice statement 2
Making materiality judgements - non mandatory guidance
2 rules of IFRS practice statement 2
recognition and measurement criteria only need to be applied when the effect is material
an entity does not need to make certain disclosures if the information provided is not material
4 step materiality process
asses whether information could influence primary users, considering quantitive and qualitative factors
quantitate factors can be assessed by a threshold, ie 5% of profit
qualitative can be internal or external
its usually more helpful to look at it from a quantitive perspective first
the entity should review a complete set of FS considering whether all material info is included
why is it important to disclose related party transactions
the financial performance and position of all entities can be affected by these transactions
in absence of other information, users will assume the company pursues its interests independently and does business at an arms length basis
knowledge of these relationships affect the decisions of the users
it is essential to the stakeholders positive view of the companys moral and ethical behaviour
what is IFRS 13
fair value measurement
definition of fair value
price which would be received to sell an asset or paid to transfer a liability to market participants on the measurement date
how should fair value be measured
at the highest and best use
what does a remeasurement component include
actuarial gains and losses
changes in the asset ceiling not included within the net interest calculation
what do redundancys cause
a curtailment not a remeasurement
where do curtailments go
in the OCI
what IAS is 19
employee benefits
when must employee benefits be recognised in the FS
earlier of when the plan for termination is announced and when the restructuring costs are recognised
what costs can be included in restructuring provision
only costs that are necessary such as redundancies and termination fees but not relocation costs or any cost that relates to ongoing operations
can a restructuring provision be put in when management have decided to restructure
no - need more than this as this doesnt mean they are obliged to restructure. there must be an obligation to restructure
when does a deferred tax asset occur
when the tax base of an asset exceeds the carrying amount
when does a tax base of an asset need to be restricted
to the extent that there is a probability of sufficient tax profits to offset the trading losses
ethics - where can an accountant seek help
ACCA ethical helpline and get legal advise, can also resign
definition of goodwill
an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified or separately recognised
what does fair value include
fair value is price you would receive after transport costs but before transaction costs
what market should you get FV from
principal if there is one, then the most advantageous
when is an intangible asset identifiable
when its separable or it arises from contractual legal rights
what is an investment property
a property held to earn rentals or for capital appreciation or both rather than for sale in the ordinary course of business or for use in production or administration
when do you recognise an investment property
when its probable economic benefits will flow to the entity
and the cost of the asset can be measured reliably
whats the initial measurement of an investment property
purchase price - directly attributable expenditure
where do you charge an impairment to for investment property
P/L
two cost models for investment property
FV model - gains and losses to P/L and no depreciation
cost model
when should government grants be recognised
when reasonably certain conditions are met
how should you recognise grants re assets
deferred income or reduce carrying amount
how should you recognise grants re income
in P/L when expense recognised - other income or reduce expense amount
how is a defined contribution plan accounted for
on an accruals basis
when should you recognise a termination in FS
earlier of :
date at which entity cant withdraw
when restructuring is recognised
what is the tax base of a lease
0
how to calculate DTA on lease
right of use asset - lease liability = x
x-0 = x - DTA
how to account for a finance lease as a lessor
recognise the lease receivable ( PV of lease payments + unguaranteed residual value ) = net investment
how to account for sale and lease back if you are the seller and lessee and the transfer is in substance a sale
derecognise asset
recognise right of use asset
recognise gain or loss
how to account for sale and lease back if you are the buyer and lessor and the transfer is in substance a sale
recognise as normal sale and lease as per normal
how to account for sale and lease back if you are the seller and lessee and the transfer is in substance not a sale
continue to recognise asset
recognise liability equal to lease
how to account for sale and lease back if you are the buyer and lessor and the transfer is in substance not a sale
do not recognise asset
recognise asset for lease
when does an investor have control over an investee
it has power over the investee
it has exposure or rights to variable returns from its involvement with the investee
the ability to use its power over the investee to affect the amount of the investors returns
what kind of rights give the investor control
substantive rights
what are substantive rights
a right that the holder has the practical ability to exercise
what are protective rights
rights designed to protect the interest of the party without giving that party power
how do you measure the surplus of a defined benefit pension scheme
must be the LOWER OF :
surplus in the plan
or
PV of economic benefits in the form of refunds from the plan or reductions in the future combinations ( asset ceiling)
what is a customers unexercised rights called
breakage
what should accountants do as a minimum
be committed to the presentation of true, fair and accurate FS
show independence and objectivity in applying FR standards
be committed to an ethical approach to business, and apply this in the prep of FS
how should non cash consideration be measured if it can be measured reliably
FV of the consideration
how should non cash consideration be measured if it can NOT be measured reliably
should be measured by the stand alone selling price of the good or service in the contract
how to measure unlisted shares ( 3 approaches)
market approach - transaction paid for similair or identical instrument
income approach ie discounted cash flow
adjusted net asset approach
if an equity instrument is not for trading, what choice does an entity
choose to recognise it through OCI except dividend income in the P/L
what does the revised framework state that an element must meet
probable future economic benefits
can be measured reliably
how do you allocate common costs between segments
there is no basis as per the IAS but it must be done on a reasonable basis - ie no of employees for employee rated expenses, or percentage of revenue for head office costs
what does IFRS 8 say you must do to segmental reports
amounts are allowed to be different to other standards as its the same as internal reports but must be reconciled back
why do companies enter into hedging transactions
to reduce business risk, the aim is that if you hedge a transaction and it makes a loss, the hedge will make a gain
what is the hedge accounting criteria that all must be met
only eligible hedging instruments and eligible hedged items
it was designated at its inception as a hedge and theres a full documentation of this
economic relationship between hedged item and hedging instrument
how to recognise gains and losses in a FV hedge
in P/L unless it is for an investment in equity or an instrument being held at FV through the OCI - then its OCI
how to recognise gains and losses in a cash flow hedge
the amount that is effective is recognised in OCI
