Question 1

Retrospective adjustment means:
A) Changes must be made in accounting for an item from the time of the change going forward.
B) Changes must be made in accounting for an item from the time the original accounting entry was made.
C) Presenting other comparative amounts disclosed for each prior period as if the new accounting policy had always been applied.
D) Adjustments to accounting for an item should be retroactively applied to the beginning of the accounting period.

Accepted Answer

Retrospective adjustment involves restating prior period financial statements as if the new accounting policy had always been applied, ensuring comparability across periods.

Question 2

Which of the following is an example of a change in accounting policy?
A) A vote of the board of directors to change the method for depreciating a building.
B) A revised IFRS that allows companies to reflect the fair value of its buildings on the financial statements.
C) The controller discovers extends the useful life of computers from three years to four years.
D) Management's choice to follow US GAAP rather than IFRS for PPE.

Accepted Answer

B

Question 3

Which of the following statements is true concerning accounting estimates?
A) Accounting estimates are a fundamental and necessary aspect of many accounting measurements.
B) In many situations, making good estimates requires a company to hire third-party estimates who have expertise in the area being measured.
C) In order to maintain accounting independence, estimates should made by personnel outside of the accounting function.
D) Accounting estimates are inherently difficult to make.

Accepted Answer

Accounting estimates are essential for many measurements in accounting, such as calculating depreciation, allowances for doubtful accounts, and inventory obsolescence, where precise outcomes are not known and must be estimated based on available information.

Question 4

Changes in estimates are:
A) Recognized retrospectively.
B) Deferred until the end of the useful life of an asset.
C) Discouraged because changes indicate that the original measurement was incorrect
D) Recognized prospectively.

Accepted Answer

Changes in estimates are recognized prospectively, meaning they are applied to the current and future periods affected by the change. This approach reflects the new information or changes in circumstances that led to the revision of the estimate.

Question 5

Prospective adjustment means:
A) Changes must be made in accounting for an item from the time of the change going forward.
B) Changes must be made in accounting for an item from the time the original accounting entry was made.
C) Presenting other comparative amounts disclosed for each prior period as if the new accounting policy had always been applied.
D) Adjustments to accounting for an item should be retroactively applied to the beginning of the accounting period.

Accepted Answer

Prospective adjustment refers to making changes in accounting for an item from the time of the change going forward, without altering past financial statements.

Question 6

Changes in estimates are recognized prospectively by
A) deferring gains and recognizing any losses associated with the change.
B) recording the effect of the change in other comprehensive income.
C) reporting the effect of the change in a profit or loss.
D) debiting or crediting the change in estimates reserve.

Accepted Answer

Changes in estimates are recognized prospectively by reporting the effect of the change in profit or loss. This approach reflects the nature of estimates as adjustments based on new information or new developments and does not defer or reserve these changes but directly adjusts the profit or loss to reflect the most current information.

Question 7

Errors in accounting entries result from all of the following except
A) good internal control
B) lack of due care
C) misinterpretation of facts
D) oversights and inexperience.

Accepted Answer

Good internal control is designed to prevent errors in accounting entries, not cause them. Lack of due care, misinterpretation of facts, and oversights and inexperience can all lead to errors.

Question 8

Errors should be corrected
A) only when fraud is involved.
B) in the first set of financial statements issued after their discovery.
C) by a person who did not make the error.
D) only after it has been determined that the financial statements as a whole are materially misstated.

Accepted Answer

Errors in financial statements should be corrected in the first set of financial statements issued after their discovery, regardless of the nature of the error or who discovers it. This ensures the integrity and accuracy of financial reporting.

Question 9

Corrections of prior period errors are
A) accounted for by retrospective adjustment.
B) deferred until the end of the useful life of an asset.
C) unnecessary because errors made that affect income reverse themselves in the next period.
D) accounted for by prospective adjustment.

Accepted Answer

Corrections of prior period errors are accounted for by retrospective adjustment, which means adjusting the financial statements of prior periods as if the error had never occurred. This approach corrects the error in the period it occurred and restates prior period financial statements.

Question 10

The impracticability criterion for exemption from changing comparative information is
A) not allowed under IFRS.
B) used frequently when making a correction is difficult.
C) required when entities consolidate financial reporting.
D) used when retrospective application or retrospective restatement is determined to be impracticable

Accepted Answer

The impracticability criterion for exemption from changing comparative information is used when retrospective application or retrospective restatement is determined to be impracticable, according to IFRS. This allows entities a specific exemption under certain conditions where applying or restating changes retrospectively would be impracticable.

Question 11

Accounting policy elections must be followed consistently from year to year.

Accepted Answer

Accounting policy elections, once chosen, must be applied consistently in each period to ensure comparability of financial statements over time, unless a change is justified and disclosed.

Question 12

The consistency principle dictates that once an estimate is made, it cannot be changed from year to year.

Accepted Answer

The consistency principle requires that once a company adopts an accounting method, it should continue to use it from one accounting period to the next unless a change is warranted and disclosed. However, estimates can be revised as new information becomes available.

Question 13

Because accounting is precise, accounting estimates are unusual and infrequent.

Accepted Answer

Accounting estimates are common and necessary for items that cannot be precisely determined, such as allowances for doubtful accounts, depreciation, and asset impairments, reflecting the use of judgment and assumptions in accounting.

Question 14

The 'impracticability' criterion for exemption from changing comparative information is a high hurdle.

Accepted Answer

The 'impracticability' criterion is indeed a high hurdle, as it requires demonstrating that the effort or cost of changing comparative information would be so excessive or burdensome that it is not feasible, which is a stringent standard to meet.

Question 15

Discovery of misstatements due to fraud should be corrected like an error.

Accepted Answer

Misstatements due to fraud, like errors, should be corrected once discovered to ensure the financial statements provide a true and fair view of the entity's financial position and performance.

Question 16

A change in accounting policy involves a change from one ac?counting policy accepted under IFRS to another.

Accepted Answer

A change in accounting policy under IFRS involves moving from one acceptable accounting method to another, as long as the new method provides reliable and more relevant information.

Question 17

The application of a new accounting policy to account for transactions, other events or conditions that did not occur previously or that were not material is an example of a change in accounting policies.

Accepted Answer

The answer of The application of a new accounting policy...

Question 18

Changing economic environment may be a reason why an entity would change accounting policies.

Accepted Answer

An entity might change its accounting policies to better reflect its financial position and performance in response to changes in the economic environment, ensuring more relevant and reliable financial information.

Question 19

When an entity applies a change in accounting policy retrospectively, financial statement amounts disclosed for each comparative prior period should be presented as if the new accounting policy had always been applied.

Accepted Answer

When a change in accounting policy is applied retrospectively, the entity must adjust the financial statement amounts for each prior period presented as though the new accounting policy had always been applied, ensuring comparability across periods.

Question 20

When retrospective application is deemed impracticable, the reporting entity must disclose the reason for not restating the comparative amounts.

Accepted Answer

When retrospective application is deemed impracticable, accounting standards such as IFRS and GAAP require the reporting entity to disclose the reason why it has not restated the comparative amounts, ensuring transparency and providing users of financial statements with the context behind the accounting choices made.

Quiz 6: Accounting Policies, Estimates, and Errors

Retrospective adjustment means:

Which of the following is an example of a change in accounting policy?

Which of the following statements is true concerning accounting estimates?

Changes in estimates are:

Prospective adjustment means:

Changes in estimates are recognized prospectively by

Errors in accounting entries result from all of the following except

Errors should be corrected

Corrections of prior period errors are

The impracticability criterion for exemption from changing comparative information is