Deck 1: The Framework for Financial Reporting

Question 1

External users of a company's financial statements may have conflicting objectives.

Answer 1

True

Question 2

Only publicly traded companies in Canada are required to adopt IFRS.

Answer 2

False

Question 3

In Canada, income for tax and accounting purposes may be different.

Answer 3

True

Question 4

It is acceptable for publicly traded Canadian companies to report under US GAAP.

Question 5

Canadian companies must always present their financial results in Canadian dollars.

Question 6

The Canadian Business Corporations Act mandates that all incorporated companies in Canada follow IFRS.

Question 7

Mutual fund companies, which may be privately held, are deemed to have a fiduciary responsibility and must therefore comply with IFRS.

Question 8

A disclosed basis of accounting is acceptable if a company's financial statements are prepared solely for internal use.

Question 9

The main purpose of financial accounting is to communicate useful financial information to decision-makers both inside and outside of the business organization.

Question 10

In Canada, IFRS standards were essentially converged with Canadian GAAP.

Question 11

In Canada, almost all equity financing for both public and private companies is done through private placements.

Question 12

Private companies in Canada may choose between IFRS or ASPE.

Question 13

Privately held, publicly accountable companies with a fiduciary responsibility must comply with IFRS.

Question 14

A company's functional currency is always the currency in which the financial statements are presented.

Question 15

A company's functional currency is the currency in which it conducts most of its business.

Question 16

Canadian corporations are prohibited from using U.S. GAAP.

Question 17

IFRS standards may be modified to allow for a disclosed basis of accounting (DBA).

Question 18

Canada has adapted its own pre-existing standards for public companies to IFRS, while the U.S has adopted IFRS completely.

Question 19

Income tax deferral is illegal in Canada.

Question 20

Earnings quality is said to be high when most of a company's earnings are the result of its continuing operations.

Question 21

Cash flow prediction is a common internal user reporting objective.

Question 22

A company whose net income is highly correlated to its operating cash flows is said to have a high quality of earnings.

Question 23

The accounting standards for private enterprises (ASPE) are essentially a scaled-down version of the CPA Handbook, which is available to all small and medium sized enterprises with no fiduciary responsibility.

Question 24

The CPA Canada Handbook requires that income for tax purposes be equal to a company's accounting income at all times.

Question 25

The Accounting Standards Board (ACSB) is an independent group established to promulgate accounting standards for governmental units such as provincial and civic entities.

Question 26

Disclosure notes facilitate the evaluation of enterprise position and performance because they include information, which helps to explain qualitative aspects of earnings.

Question 27

Different stakeholders have different reporting requirements with respect to general-purpose financial statements. A lender will be more interested in a company's cash flows while an investor will likely be more interested in a company's earnings.

Question 28

The International Accounting Standards Board is responsible for the creation of International Financial Reporting Standards used by companies whose securities are traded on international markets.

Question 29

Developments in accounting standards have not addressed the problem of using accounting techniques to smooth earnings.

Question 30

The CPA Canada Handbook is the most important primary source of GAAP.

Question 31

If cash flow prediction is a company's primary reporting objective, this would likely result in:

A) Higher earnings.
B) Lower earnings.
C) Poor matching.
D) Fewer accruals and deferrals.

Question 32

Lending institutions such as banks are most interested in a company's profitability ratios.

Question 33

FASB and International Accounting Standards are secondary sources of GAAP.

Question 34

Due to the excellent work of the ACSB, there are very few choices among alternative accounting policies today.

Question 35

The various provincial securities commissions do not exert influence on the development of accounting standards.

Question 36

The organization created to develop accounting standards in Canada, the AcSB, is NOT concerned about:

A) reported cash flows.
B) reported earnings.
C) reported comparability of results.
D) reporting financial position.
E) All of these answers are correct.

Question 37

A wholly-owned subsidiary of a multinational corporation is essentially a private corporation.

Question 38

The Federal Accounting Standards Board (FASB) is a branch of the CPA Order.

Question 39

The influence of tax rules when selecting appropriate accounting treatment for a transaction is particularly strong with public companies.

Question 40

The disclosed basis of accounting (DBA) refers to the use of Non-GAAP accounting policies by private companies.

Question 41

The stewardship function is reflected by:

A) Minimizing interperiod allocations only.
B) Performance evaluation.
C) Full disclosure only.
D) Performance evaluation and minimizing interperiod allocations.
E) Full disclosure and minimizing interperiod allocations.

Question 42

The conceptual framework of accounting should have many positive effects as new accounting standards are developed. Which of the following is not one of those effects?

A) Financial statements among companies and industries should be more consistent and comparable.
B) Standard setting should be more consistent with an overall statement of the objectives and concepts of financial reporting.
C) Users' understanding and confidence in financial statements should increase.
D) Management should have greater latitude in choosing among accounting alternatives.
E) Accountants should be better able to assess the validity of different accounting alternatives for similar and dissimilar transactions and events.

Question 43

Users of financial statements can generally be broken down into which of the following two categories:

A) Government and external users.
B) Government and investors.
C) Creditors and Investors.
D) External users and preparers.

Question 44

Professional accountants need a wide range of knowledge and skills. Which of the following is not an example of such knowledge or skills?

A) An ability to calculate and analyze data, and a facility with numbers.
B) Knowledge of many disciplines such as finance, economics, management, marketing and statistics.
C) An ability to communicate in a concise and understandable manner.
D) Skills derived from prior management experience.

Question 45

Which of these following is NOT true regarding generally accepted accounting principles?

A) Include specific rules, practices and procedures.
B) Include broad principles and conventions of general applications including underlying concepts
C) Standards of accounting, a material departure from which may result in a qualified opinion issued by an auditor.
D) The GAAP requirement for Private companies is enforceable by the provincial securities commissions.

Question 46

The stewardship function refers to:

A) Disclosing management's use of funds and other financial information to absentee shareholders.
B) A company's corporate citizenship track record.
C) The collection of information for planning the future of the entity, implementing those plans, and for controlling daily operations.
D) The collection of information to help present and potential investors and creditors and other users in assessing the amounts, timing and uncertainty of prospective cash receipts.

Question 47

Which of the following is NOT a primary motivator for maximizing net income?

A) Compliance with debt covenants.
B) To positively influence users' assessment of management performance.
C) To enhance managers' performance-based compensation.
D) To minimize the company's income tax liability.

Question 48

The primary responsibility of an independent auditor who is a professional accountant is to:

A) Prepare or make changes to source documents.
B) Assess whether the management is honest.
C) Evaluate the "fair presentation" of the company's financial reports.
D) Prepare current financial reports for the client.

Question 49

Which of the following are major factors in the rapidly changing financial reporting environment in Canada?

A) Increased demand for accountants and the impact of technology.
B) Globalization and the use of computer networks.
C) The growing number of institutional investors and the knowledge based economy.
D) Financial forecasting and planning for business.

Question 50

Which of the following areas within the accounting field has as its main purpose serving the information needs of parties outside the reporting firm?

A) Financial accounting.
B) Tax accounting.
C) Managerial accounting.
D) Auditing.

Question 51

Which of the following statements regarding cash flows is not accurate?

A) Before the present cash flow statement standard became effective, companies had a choice of whether to report cash flow from operating activities or working capital from operating activities.
B) Studies have shown that a cash flows report is more relevant to investor decisions than a working capital report.
C) The reported cash flow from operating activities has been found useful in evaluating a firm's ability to make interest payments and repay debt.
D) Information about past cash flows is useful in predicting an entity's future cash flows.
E) Information about the balances of current liabilities, long-term debt and stockholders' equity can be found in the statement of cash flows.

Question 52

Generally accepted accounting principles currently are promulgated primarily by the:

A) Canadian Academic Accounting Association (CAAA).
B) Canada Customs and Revenue Agency.
C) Ontario Securities Commission (OSC).
D) Accounting Standards Board (AcSB).

Question 53

Which of the following is published by the Accounting Standards Board (AcSB)?

A) Accounting Project Proposals.
B) Accounting Exposure Drafts.
C) Accounting Issues Papers.
D) CPA Handbook Sections and Accounting Guidelines.
E) Statements of Auditing Revisions.

Question 54

External decision-makers include all of the following except:

A) managers.
B) owners.
C) creditors.
D) employees.

Question 55

General-purpose financial statements report financial information relevant to:

A) investors only.
B) creditors only.
C) government users only.
D) investors, creditors and government users.

Question 56

The users toward which financial statements are directed:

A) are very sophisticated and experienced in using financial information.
B) are independent Public Accountants.
C) have degrees in accounting and finance.
D) have a reasonable understanding of business and economic activities.
E) are Chartered Financial Analysts.

Question 57

Choose the correct statement about audits of corporations:

A) Outside auditors are paid by the government for auditing the financial statements of corporations.
B) Revenue Canada performs audits of corporations' financial statements.
C) Public corporations (those whose stock are traded on exchanges) are subject to annual audit as to their compliance with GAAP.
D) It is the employees of the firm being audited who perform the annual audit of the financial statements of that firm.

Question 58

What is the purpose of financial statements?

A) To disclose the market value of the firm's assets and liabilities.
B) To determine compliance with tax laws.
C) To identify shareholders.
D) To help users make decisions.

Question 59

An organization that has not published financial accounting standards is the:

A) Institute of Chartered Accountants.
B) Certified Management Accountants of Canada.
C) International Accounting Standards Committee.
D) Emerging Issues Committee.

Question 60

Generally accepted accounting principles are:

A) optional procedures for recording economic events.
B) mandatory rules applied to both financial and management accounting.
C) the rules of accounting, prescribed exclusively by Federal regulatory agencies.
D) standards of accounting, a material departure from which may result in a qualified opinion issued by an auditor.

Question 61

Which of the following financial statements are required for companies adhering to IFRS but NOT ASPE (private entity GAAP)?

A) Statement of Comprehensive income.
B) Statement of financial position.
C) Statement of Cash Flows.
D) Statement of Retained Earnings.

Question 62

The role of the Accounting Standards Board (AcSB) in the formulation of accounting principles in Canada can be best described as:

A) primary.
B) secondary.
C) sometimes primary and sometimes secondary.
D) non-existent.

Question 63

Discuss in general the due process procedure the AcSB follows in developing accounting standards. Who are the groups which typically have opposing views when it comes to accounting standards, and why?

Question 64

Discuss the reasons why a corporation would have the motive or the tendency to adopt the same accounting practices for financial reporting purposes as for tax reporting.

Question 65

Give examples of provisions, known as maintenance tests or covenants which are often contained in debt contracts or agreements.

Question 66

The essential characteristic(s) of accounting is (are):

A) communication of financial information to interested persons.
B) communication of financial information about economic entities.
C) identification, measurement, and communication of financial information.
D) communication of financial information to interested persons, communication of financial information about economic entities, and identification, measurement, and communication of financial information.

Question 67

The body that has the responsibility to set generally accepted accounting principles in Canada is the:

A) FASB.
B) IASC.
C) AcSB.
D) OSC.

Question 68

During the coming years, we should expect the ACSB to:

A) extend differential reporting options available to private companies.
B) harmonize Canadian GAAP to international standards.
C) continue to provide accounting standards for private companies.
D) All of these choices are correct.

Question 69

The International Accounting Standards Committee (IASC), established in 1973 has the objective to promote the worldwide harmonization of accounting principles. Is this harmonization necessary to allow movement of capital between countries?

Question 70

Why is the response time more rapid for the Financial Standards Board (FASB) in the U.S. who issue Statements of Financial Accounting Standards (SFAS) than the CICA AcSB who take as much as two years to bring new Handbook Recommendations to fruition.

Question 71

Which of the following statement(s) is(are) correct?

A) Companies that use the disclosed basis of accounting are in effect using differential reporting.
B) Companies that use the disclosed basis of accounting are NOT allowed to use differential reporting.
C) When used, the disclosed basis of accounting must comply with GAAP.
D) Both "companies that use the disclosed basis of accounting are NOT allowed to use differential reporting" and "when used, the disclosed basis of accounting must comply with GAAP" are correct.

Question 72

Which of the following is NOT a primary source of GAAP?

A) Accounting sections of the CPA Handbook, PART I.
B) FASB accounting standards.
C) Accounting Guidelines issued by the AcSB.
D) Accounting sections of the CPA Handbook, PART II.

Question 73

Private placements refer to:

A) funds not disclosed by private companies.
B) debt or equity securities issued to individuals or organizations without being listed with a securities commission.
C) shares that form part of a control block.
D) indirect negotiation with the one or more creditors.

Question 74

Secondary sources of GAAP should be evaluated on

A) acceptance of the source by industry professionals.
B) the specificity of the source only.
C) the continued relevance of the source only.
D) the specificity of the source & the continued relevance of the source.
E) None of these answers are correct.

Question 75

Compared to financial accounting, what are the major concerns of managerial accounting?

Question 76

The disclosed basis of accounting refers to

A) the use of non-GAAP policies by private companies.
B) the use of non-GAAP policies by any company.
C) the use of International Financial Reporting Standards.
D) the practice of disclosing all pertinent accounting policies in a company's annual report.

Question 77

Creditors and analysts who attempt to assess and predict future cash flows tend to prefer earnings measures that are supported by operating cash flows taken from the Cash Flow Statement. What comparisons do they use in assessing the entity's strength in respect of operating cash flows?

Question 78

Instead of maximizing reported earnings, management may wish to minimize reported earnings an ongoing endeavour. Besides income tax minimization, what are some of the reasons why management would want to minimize earnings?

Question 79

Lenders and creditors are most concerned with a company's

A) profitability.
B) adherence to covenants.
C) solvency.
D) cash flows.

Question 80

What is GAAP, how is it currently defined, and what is the outcome of the due process?