Corporate Reporting
Study Guide Questions
Course Introduction
Corporate Reporting focuses on the principles, standards, and practices involved in preparing and presenting financial statements for public and private corporations. This course covers topics such as international accounting standards (IFRS and GAAP), disclosure requirements, consolidation of financial statements, and analysis of financial reports to ensure transparency and accountability. Students will also explore ethical considerations, emerging issues in corporate reporting, and the impact of regulatory frameworks on financial communication with stakeholders.
Recommended Textbook Issues in Financial Accounting 15th Australia Edition by Scott Henderson
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Chapter 1: Institutional Arrangements for Setting Accounting Standards in Australia
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Q1) The final approval of accounting standards to apply under the Corporations Act rests with:
A) Parliament
B) AASB
C) ASIC
D) The Joint Standing Committee of the Institute of Chartered Accountants in Australia and CPA Australia
Answer: A
Q2) It is not part of the role of the Financial Reporting Council:
A) to approve and monitor the AASB's priorities
B) to review the content of existing accounting standards
C) to promote a greater role for international accounting standards in Australia
D) to appoint members of the AASB
Answer: B
Q3) To practice in Australia,an accountant:
A) must be registered by the AASB
B) must be registered by the government
C) must be a member of CPA Australia or ICAA
D) none of the above
Answer: D
Page 3
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Chapter 2: A Conceptual Framework: Scope, reporting
Entity and the Objective of Financial Report
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Q1) The correct order for the seven levels of the accounting standard-setting part of the conceptual framework is:
A) standard-setting policy, display, border of discipline, subject, objective, fundamentals, operational
B) fundamentals, border of discipline, operational, subject, objective, display, standard-setting policy
C) border of discipline, subject, objective, fundamentals, operational, display, standard-setting policy
D) subject, objective, fundamentals, border of discipline, operational, display, standard-setting policy
Answer: C
Q2) When deciding whether an entity is a reporting entity reference should be made to:
A) relevant legislation rather than SAC1
B) SAC1 rather than relevant legislation
C) ASX listing rules rather than Australian Accounting Standards
D) Australian Accounting Standards rather than ASX listing rules
Answer: A
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Chapter 3: A Conceptual Framework: the Fundamentals of
General Purpose Financial Reporting
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Q1) In 1980 the FASB issued SFAC2,'Qualitative Characteristics of Accounting Information' which differed from its predecessors by:
A) including extra characteristics
B) calling for the harmonisation of different versions of the characteristics
C) dropping several characteristics
D) arranging the characteristics in a hierarchy
Answer: D
Q2) The two principle ingredients of relevance specified by the Framework are:
A) confirmation and reliability
B) confirmation and prediction
C) accountability and stewardship
D) reliability and prediction
Answer: B
Q3) Information that is free from bias is regarded as:
A) timely
B) reliable
C) understandable
D) material
Answer: B
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Chapter 4: A Conceptual Framework: Recognition and
Measurement of the Elements of Financial Statements
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Q1) Which of these is not correct concerning measuring assets at their current cash equivalent?
A) Shareholders would be able to satisfy themselves that the business has maintained its capacity to adapt to change
B) A useful measure of solvency is provided
C) Information is provided to creditors about asset marketability
D) The measurement of performance is given pre-eminence over the measurement of financial position
Q2) Under the Framework,the statement that is correct is:
A) Equity is defined independently of assets and liabilities
B) The recognition criteria of probability and measurability apply to equity
C) The measurement of equity depends on the basis of measurement employed for assets and liabilities
D) All of the statements are correct
Q3) Future economic benefits for assets come from:
A) value-in-utility
B) value-in-exchange
C) value-in-use
D) both B and C
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Chapter 5: The Choice of Accounting Methods
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Q1) Which item does not normally require accountants to exercise a significant degree of professional judgement to determine its amount?
A) Doubtful debts
B) Depreciation
C) Cost of goods sold
D) Interest
Q2) The income-or-profit smoothing hypothesis suggests that:
A) a variable income stream supports a lower level of dividends and raises the perceived riskiness of the firm compared to a stable income stream
B) a variable income stream supports a higher level of dividends and raises the perceived riskiness of the firm compared to a stable income stream
C) a variable income stream supports a higher level of dividends and lowers the perceived riskiness of the firm compared to a stable income stream
D) none of the above
Q3) Describe and discuss how agency theory seeks to explain the choice of accounting methods by financial report preparers.
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Chapter 6: The Balance Sheet: an Overview
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Q1) The current/non-current basis of classifying assets and liabilities in the statement of financial position is based on their:
A) marketability
B) longevity
C) source
D) none of the above
Q2) The availability of assets to meet financial commitments as they fall due is known as:
A) solvency
B) control over resources
C) gearing
D) asset turnover
Q3) The fixed format for the statement of financial position required by AASB 101 is:
A) assets = liabilities + equity
B) assets - liabilities = equity
C) assets = equities
D) no fixed format is required
Q4) Identify and discuss the requirements concerning the classification of assets contained in AASB 101.
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Chapter 7: Accounting for Current Assets
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Q1) A reason for not allocating all the outgoings incurred in bringing the inventory to its present location and condition to the cost of inventory is:
A) allocation may not make a material difference to reported profit or to the carrying amount of the inventory
B) the allocation of some costs may be time-consuming
C) incidental costs of acquisition may be minor
D) all of the above are reasons
Q2) AASB 108 requires that changes to accounting estimates be dealt with prospectively.This means that the effect of a past overestimate of doubtful debts expense is:
A) recognised in the current reporting period
B) used to increase this periods estimated expense
C) both A and B
D) neither A nor B
Q3) Explain and discuss the criteria contained in AASB 101 for distinguishing between current and non-current assets.
Q4) Discuss the disclosures relating to inventory required by AASB 102.Include a discussion on the disclosures required by not-for-profit entities.
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Chapter 8: Accounting for Property, plant and Equipment
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Q1) An asset should be depreciated over its:
A) technical life
B) economic life
C) legal life
D) physical life
Q2) Which statement concerning AASB 136 'Impairment of Assets' is incorrect?
A) The upper limit on the carrying amount of an asset's 'recoverable amount' is to be applied irrespective of whether the cost model or the revaluation model is being used for the asset
B) Recoverable amount is the net amount that is expected to be recovered through the use or sale of the asset
C) The write down to recoverable amount must be recognised as an impairment loss in the income statement for the period
D) A non-current asset must be written up to its recoverable amount when its recoverable amount is greater than its carrying amount
Q3) Should borrowing costs incurred during the construction period of an asset be expensed or capitalised? Discuss.
Q4) Explain and discuss how donated assets should be recorded in the accounts.
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Chapter 9: Accounting for Company Income Tax
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Q1) McDougall Ltd shows a deferred tax liability of $25 000 in its financial reports.This could have arisen from:
A) making a payment of interest in advance in respect of the following financial year
B) making a provision for doubtful debts when the debts have not yet been written off
C) an unexpected gain from the sale of land owned by the Company
D) an under-statement of income tax payable in a prior year
Q2) Jensen Ltd has a depreciable asset that cost $300 000 at the beginning of Year 1.It has a useful life of 5 years and zero residual value.The company depreciates the asset on a straight-line basis for accounting purposes but for tax purposes claims a depreciation allowance calculated on the reducing-balance basis at a rate of 25%.The company tax rate is 30%.At the end of year 2,in respect of this asset,Jensen Ltd will show:
A) a deferred tax liability of $11 250
B) a deferred tax liability of $3375
C) a deferred tax asset of $3375
D) neither a deferred tax asset nor a deferred tax liability
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Chapter 10: Accounting for Investments
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Q1) Discuss the essential characteristics of a joint venture and the way in which joint ventures can be arranged.
Q2) Under AASB 128,which of these factors is likely to suggest the presence of significant influence?
A) Representation on the board of directors of the investee
B) Material transactions between the investor and the investee
C) Interchange of managerial personnel
D) All of the above
Q3) On 1 July 20X0 Myall Ltd acquired 25% of the voting shares of Kenny Company for $400 000 in cash.On 30 June 20X1 Kenny Company paid a total dividend to its shareholders of $40 000.The journal entry made in Myall Ltd's accounts to record the receipt of the dividend is:
A) debit cash at bank $10 000; credit investment in K Company $10 000
B) debit cash at bank $10 000; credit dividend income $10 000
C) debit cash at bank $40 000; credit dividend income $40 000
D) debit cash at bank $40 000; credit Investment in K Company $40 000
Q4) Accounting for shares held by one company in another varies according to the proportion the shares held by the investor are of the investee's share capital.Explain.
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Chapter 11: Accounting for Intangible Assets
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Q1) Which of these provisions of AASB 138 is inconsistent with the asset recognition criteria of the Framework?
A) Reviewing the unamortised balance of goodwill annually and, to the extent it is no longer supported by probable future economic benefits, writing it down
B) Recognising purchased goodwill as an asset
C) Not recognising internally generated goodwill as an asset when the market value of an entity can be measured reliably
D) Amortising goodwill
Q2) Internally generated goodwill:
A) is not recognised because it does not provide future economic benefits
B) is not recognised because of the difficulty of valuing it reliably
C) is recognised because it provides a future economic benefit
D) A and B are incorrect
Q3) Purchased computer software should be:
A) recognised as an asset and recorded at cost
B) amortised over its useful life
C) subject to an impairment test
D) all of the above
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Chapter 12: Accounting for Leases
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Q1) Paragraph 15A of AASB 117 requires that when accounting for leases of land and buildings the value of the land should be:
A) treated separately for the purpose of the lease
B) never be separated from the buildings erected on the land
C) recognised as an expense in the period in which the cost was incurred
D) recognised as having a finite economic life
Q2) Explain the main similarities and differences between an operating lease and a finance lease,and state how each is treated in the financial statements of a business.
Q3) A 'sale-and-leaseback' transaction:
A) can be classified as neither a finance lease nor an operating lease
B) is always classified as a finance lease
C) can be classified as either a finance lease or an operating lease
D) is always classified as an operating lease
Q4) Which of the following is not a typical characteristic of an operating lease?
A) It can be used for almost any type of asset
B) It is essentially a rental agreement
C) It is similar to a leveraged lease
D) It is cancellable by the lessee at little or no cost
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Chapter 13: Accounting for Employee Benefits
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Q1) Under AASB 119,the recognition criteria for liabilities for profit sharing and bonus plans is:
A) It is probable the liability will be settled and the amount of the liability can be measured consistently
B) It is reasonably certain the liability will be settled
C) It is probable the liability will be settled
D) The entity has a present legal or constructive obligation to settle the liability, and the amount of the liability is capable of being measured reliably
Q2) Slater is entitled to 4 weeks annual leave a year and has four weeks leave,to the value of $20 000,accrued at the end of his first year of employment.On the first day of his second year of service Slater is given a pay rise to bring his salary up to $300 000 per annum.After the pay rise,Slater's annual leave payable must be adjusted by:
A) $50 000
B) $3077
C) $23 077
D) No adjustment is necessary
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Chapter 14: Accounting for Financial Instruments
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Q1) AASB 139 requires that,subsequent to initial recognition,financial liabilities other than those designated as at fair value through profit and loss must be measured at amortised cost using the:
A) effective interest method
B) nominal interest method
C) simple interest method
D) compound interest method
Q2) A trader sells 2 futures contracts (a total value of $50)when the price of the contracts (based on the SPI 200 share price index)is 3030.When these contracts expire,the index itself is at 3015 points and the price of the SPI 200 contract units is 2995.The trader has:
A) made a gain of $1750
B) made a loss of $1750
C) made a loss of $875
D) made a gain of $875
Q3) SPI 200 futures contracts:
A) cease trading on the third Thursday of the contract month
B) are settled on the third Thursday of the contract month
C) may only be used by traders
D) all of the above
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Chapter 15: Equity
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Q1) Which of these is a way in which a company can raise capital through the issue of shares?
A) Dividend reinvestment plan
B) Employee share plan
C) Rights issue
D) All of the above
Q2) Which of the following is not an implication of the framework's definition of equity?
A) Measurement of equity depends on the concept of capital employed
B) Components of equity, such as share capital, can be identified
C) It cannot be identified independently of assets and liabilities
D) It ranks after liabilities on winding up
Q3) The treatment recommended under AASB 2,for share options granted as remuneration to employees is:
A) not to record the options, as the entity is not required to sacrifice cash
B) to recognise the options as an expense
C) to measure the value of the option on the grant date
D) both B and C
Q4) Discuss the arguments against recognising share options as an expense in the period in which the employee provides services.
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Chapter 16: The Income Statement
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Q1) Under AASB 101,the nature and amount of which type of items should be disclosed separately?
A) Extraordinary items
B) Significant items
C) Material items
D) None of the above
Q2) Which of the following categories of revenue are not required to be disclosed separately under AASB 118?
A) Extraordinary items
B) Interest
C) Dividends
D) None; all of the above are required disclosure
Q3) Explain and discuss the advantages and disadvantages of the operating-profit and the comprehensive income approaches to profit measurement.Which approach do you think is the most useful for decision making?
Q4) AASB 101 allows preparers two options in the classification of items for the statement of comprehensive income statements.Discuss.
Q5) Define income and explain how it differs from revenue.
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Chapter 17: The Cash Flow Statement
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Q1) The cash flow statement provides information that enables users to evaluate changes in an entity's:
A) liquidity
B) solvency
C) ability to generate cash from core operating activities
D) all of the above
Q2) All of these are possible definitions of 'funds' except:
A) working capital
B) investment
C) total resources
D) cash
Q3) In the cash flow statement,net cash flows from operating activities plus net cash flows from investing activities plus net cash flows from financing activities for the period equal:
A) the cash balances at the beginning of the period
B) net profit
C) the cash balances at the end of the period
D) the total net increase or decrease in cash held for the period
Q4) Discuss the concept of cash and cash equivalents.Provide examples to illustrate your answer.
Page 19
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Q1) Reporting by segments of a business is believed to have a number of disadvantages.Which of the following is not likely to be such a disadvantage?
A) Segment information may not be sufficiently reliable
B) The costs to a business of providing segment information may exceed the benefits to investors
C) Providing segment information may assist a business's competitors
D) Investors invest in a whole company and not in its individual segments
Q2) A company reports the following in relation to the year ended 30/6/2012:
Number of ordinary shares issued at 1/7/2011 \(\quad10 000\)
Number of preference shares issued (paying an annual dividend of \(\$ 2.00\) per share) \(\quad1800\)
On \(31 / 3 / 2012\) a further 1000 ordinary shares were issued.
Net profit from ordinary activities, after income tax \(\quad \$ 20000\)
The company's basic earnings per share figure (to the nearest tenth of a cent)is:
A) $1.95
B) $1.67
C) $2.00
D) $1.79
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Chapter 19: Further Financial Reporting Issues
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Q1) Where a business makes a change in an accounting policy,it must disclose:
A) only the nature of the change and the reasons for it
B) the nature of the change, the reasons for it and the financial effects of the change if it will affect the results of future periods
C) the nature of the change, the reasons for it and the financial effects of the change if it has affected the current period's results or may affect the results of future periods
D) the nature of the change, the reasons for it and the financial effects of the change if it has affected the current period's results
Q2) Which of the following is not a 'related party' as defined by AASB 124?
A) A company in which 72% of the shares are owned by the chief executive officer's husband
B) A company in which 72% of the shares are owned by a non-executive director's husband
C) A company in which 72% of the shares are owned by a non-executive director's husband's self-managed superannuation plan
D) All of the above are related parties
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Chapter 20: Accounting for the Extractive Industries
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Q1) Describe the activities involved in the pre-production phase in the production of minerals,oil and gas and the accounting treatments that might be allowed for costs arising from this phase.
Q2) Which of the following methods of accounting for exploration and evaluation costs in the extractive industries is most consistent with the provisions of Statement of Accounting Concepts and the Framework?
A) The expense-and-reinstate method
B) The successful-efforts method
C) The expense (costs written-off) method
D) The full-cost method
Q3) Which of the following statements is correct? The expense (costs written-off)method of accounting for exploration and evaluation costs in the extractive industries:
A) is inconsistent with the framework of accounting
B) is likely to be accepted for income tax purposes
C) is simple and conservative
D) all of the above are correct
Q4) Describe the units-of-production method of amortizing pre-production costs that have been capitalized.
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Chapter 21: Accounting for Real Estate Development and Construction Contracts
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Q1) The completed-contract method for recognising profit on a construction contract will usually,during the life of a particular contract:
A) shows a higher amount in some years and a lower amount in other years for the asset 'construction-in-progress' than will the percentage-of-completion method
B) shows the same amount for the asset 'construction-in-progress' than will the percentage-of-completion method
C) shows a higher amount for the asset 'construction-in-progress' than will the percentage-of-completion method
D) shows a lower amount for the asset 'construction-in-progress' than will the percentage-of-completion method
Q2) Real estate assets owned by a business should be classified:
A) as inventories
B) as either inventories or non-current assets depending on the purpose(s) for which they are held
C) in a separate classification for real estate only
D) as non-current assets
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Chapter 22: Accounting for Agricultural Activity
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Q1) In what ways is agricultural activity different from other forms of assets? In what ways are they similar to other forms of assets? How do these differences,and similarities,affect accounting for agricultural activity?
Q2) AASB 141 requires that biological assets be measured at net realisable value that is:
A) fair value less estimated point of sale costs
B) fair value less point of sales costs
C) fair value
D) none of the above
Q3) Which of the following activities do not fall under the auspices of AASB 141?
A) Circus animals
B) Greyhounds and horses held for racing
C) Investment in a carbon sink
D) All of the above
Q4) The accounting treatment of government grants under AASB 141 requires that:
A) unconditional grants are to be treated as non-current assets when they become receivable
B) unconditional grants are to be treated as income when they become receivable
C) unconditional grants are to be treated as income
D) none of the above
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Chapter 23: Accounting for Superannuation Plans
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Q1) The inclusion of a report of the trustees of a superannuation plan is:
A) required by AAS 25
B) the same as an actuarial report
C) recommended by the ASFA
D) not relevant for a self-managed plan
Q2) Discuss this statement,'Property,Plant and Equipment held by the fund for its intended use in the operation of the fund and not for sale or investments should not be measured at net market value'.
Q3) The definition of the accrued benefits of the members of a superannuation plan as 'the present value of expected future payments arising from membership of the plan up to the measurement date' is relevant for:
A) externally managed plans
B) all superannuation plans
C) defined benefit plans
D) defined contribution plans
Q4) Explain the essential features of a defined benefit,externally managed,non-contributory superannuation plan whose benefits are not vested.
Q5) Discuss the differences between the requirements of ED179 and AAS 25.
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Chapter 24: Accounting for Financial Institutions
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Q1) 'Long-tail business' and 'short-tail business' are terms usually associated with companies involved in:
A) investment banking
B) life insurance
C) general banking
D) general insurance
Q2) Under AASB 4 'Insurance Contracts' the insurer at each reporting date must determine whether its insurance liabilities are understated; if they are,the amount should:
A) be recorded a liability
B) be charged as an expense
C) be disclosed in the notes
D) be disclosed as a provision
Q3) 'Underwriting' by an insurer involves:
A) assessment of risks
B) settling claims
C) collection of premiums on insurance policies
D) all of the above
Q4) Explain what is meant by reinsurance.In your answer,discuss inwards and outwards reinsurance.
Page 26
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Chapter 25: Financial Reporting in the Public Sector
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Q1) It can be argued that 'heritage assets' deserve special accounting treatment as they are different from all other types of assets because:
A) they cannot be replaced and will be preserved indefinitely
B) they are owned by the government
C) they are not readily saleable or have no market value
D) all of the above
Q2) All of these are current differences between Government Finance Statistics (GFS)and Generally Accepted Accounting Principles (GAAP)reporting,except:
A) GPS has two performance statements whereas GAAP has only one statement of financial performance
B) GPS requires all borrowing costs to be recognised as expenses whereas GAAP, in some circumstances, allows them to be capitalised
C) GFS only recognises bad debts when they are written off and does not recognise expenses arising from establishing a provision for doubtful debts, whereas GAAP recognises expenses arising from establishing a provision for doubtful debts
D) Accrual accounting only applies to GAAP not to GFS
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Chapter 26: International Accounting Standards, harmonisation and Convergence
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Q1) Australia initially adopted the 'internationalisation' approach to setting accounting standards.This approach involves:
A) adopting accounting standards developed and adopted in other countries
B) developing local accounting standards based on an examination of accounting standards and practices developed outside Australia
C) the adoption by Australia and other countries of a single set of accounting standards for all countries
D) all of the above
Q2) Which of these statements is not correct concerning the adoption by Australia of international accounting standards?
A) Where words need to be changed in AASB adaptations of international standards to accommodate Australian legislation, these are identified by the use of 'Aus' paragraphs
B) Australian standards, where there is no international equivalent, have been withdrawn
C) The AASB is committed to ensuring that AASB equivalents will be issued for all international accounting standards
D) None of the above, i.e., all are correct statements
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Chapter 27: Foreign Currency Translation
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Q1) Which of the following best describes the requirements under Australian Accounting Standard AASB 139?
A) All financial instruments are accounted for using hedge accounting
B) Hedging arrangements must meet certain requirements before hedge accounting can be applied
C) Financial instruments must meet certain requirements before hedge accounting can be applied
D) All hedging arrangements are accounted for using the general principles of accounting for financial instruments
Q2) Explain,using simple numerical example(s),how hedging a foreign currency transaction can remove uncertainty about the outcome of the transaction.Based on the same example(s),illustrate both how hedging can prevent a business from incurring a loss because of movements in exchange rates and also how it can cause a business to miss out on a potential gain from such movements.
Q3) There are four methods suggested for translating foreign currency financial statements.Identify these four methods and explain the translation methods used under each.
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Chapter 28: Accounting for Corporate Social Responsibilities
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21 Verified Questions
21 Flashcards
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Sample Questions
Q1) When companies adopt social reporting by estimating and considering the cost of purchasing the most sustainable alternative on the market and the cost of remediation of environmental effects arising from the operations,they are applying the:
A) maintenance cost approach
B) damage cost approach
C) asset valuation approach
D) none of the above
Q2) Some requirements to account for corporate social responsibility in Australia are contained in:
A) AASB 1018
B) the Corporations Act
C) the Framework
D) There are no legal, accounting standard or Framework requirements for reporting on corporate social responsibility in Australia
Q3) Discuss the basic characteristics of the Carbon Pricing Mechanism (CPM).In your answer,explain the cap and trade scheme.
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Chapter 29: Ethics in Accounting
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20 Verified Questions
20 Flashcards
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Sample Questions
Q1) The Code of Ethics for Professional Accountants is best described as:
A) deontological in nature
B) voluntary for all members of the ICAA, CPA Australia and the NIA
C) descriptive in nature
D) teleological in nature
Q2) Which of the following statements about the costs and benefits of unethical behaviour is not true?
A) The benefits of unethical behaviour are nearly always material
B) The costs of unethical behaviour are nearly always material
C) The penalties for unethical behaviour are not imposed in many cases
D) A cost of unethical behaviour may be the loss of freedom of choice in future decisions about whether to act ethically
Q3) Normative ethical theories are:
A) derived from common law rules of behaviour
B) descriptions of how people actually behave
C) beliefs about how people should behave
D) beliefs about how people actually behave
Q4) Briefly describe the classes of teleological theories that have been used to examine ethical behaviour.
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