A conceptual and regulatory framework

Question 1

International Financial Reporting Standards Foundation (theFoundation):

Answer 1

responsible for governance of the IFRS Standard setting process

Question 2

International Financial Reporting Standards Board (the Board):

Answer 2

responsible for setting IFRS Standards

Question 3

IFRS® Interpretations Committee (IFRIC®):

Answer 3

issues guidance where divergent interpretations have arisen

Question 4

IFRS Advisory Council:

Answer 4

forum for experts to offer advice to the Board

Question 5

International Sustainability Standards Board(ISSB):

Answer 5

established with the
objective of delivering global guidance on sustainability-related disclosure

Question 6

Qualitative characteristics are attributes that make information useful. The Framework splits the characteristics between:

Answer 6

Fundamental
– Relevance
 Predictive value – evaluates past, present or future events
 Confirmatory value – confirms or corrects past evaluations.
– Faithful representation (including substance, neutral and free from error)
 Complete
 Neutral
 Free from error
Enhancing
– Comparability
– Verifiability
– Timeliness
– Understandability

Question 7

Asset

Answer 7

– ‘present economic resource controlled by the entity as a result of
past events’ (Framework, para 4.3)
– ‘economic resource is a right that has the potential to produce
economic benefits’

Question 8

Liability

Answer 8

‘present obligation of the entity to transfer an economic resource as a result of past events

Question 9

Equity

Answer 9

residual interest in assets after deducting all liabilities.

Question 10

Income

Answer 10

– ‘increases in assets or decreases in liabilities, that
– result in increases in equity
– other than those relating to contributions from holders of equity claims.’

Question 11

Expenses

Answer 11

– ‘decreases in assets or increases in liabilities, that
– result in decreases in equity
– other than those relating to distributions to holders of equity claims.’

Question 12

Recognition

Answer 12

An item that meets the definition of an element will be recognised if its recognition provides:
 relevantinformation
 faithfulrepresentationoftheelement.
These may not be provided where there are high levels of uncertainty or low probabilities of inflow or outflow of economic resources.

Question 13

Measurement bases

Answer 13

Historical, current, value in use, fair value

Question 14

Historical cost items are recorded at

Answer 14

the amount of consideration given at the time of acquisition.

Question 15

Current cost items are carried at the value

Answer 15

to be paid to acquire the equivalent item currently

Question 16

Value in use items are carried at

Answer 16

the discounted present value of future cash flows relating to the item.

Question 17

Fair value items are carried at

Answer 17

the amount that could be obtained from an orderly disposal.

Question 18

There are two main forms of current value accounting which seek to tackle the disadvantages of historical cost accounting.

Answer 18

Current cost accounting
ConstantPurchasingPower

Question 19

Constant Purchasing Power

Answer 19

All costs in the statement of profit or loss are adjusted to show the value of assets
consumed during the period, based on current rather than historical values.
The statement of financial position shows the current value of inventory and non- current assets.

Question 20

Current Cost Accounting

Answer 20

Figures in the financial statements are adjusted to reflect amounts with the same
purchasing power, using a general price index.
In this way the financial statements reflect the impact of inflation, although it is only a general inflationary impact.

Question 21

Why a regulatory framework is necessary

Answer 21

Regulation of accounting information is aimed at ensuring that users of financial statements receive a minimum amount of information that will enable them to make meaningful decisions regarding their interest in a reporting entity. A regulatory framework is required to ensure that relevant and reliable financial reporting is achieved to meet the needs of shareholders and other users.

Question 22

Qualitative characteristics

Answer 22

(i) Fundamental qualitative characteristics
– Relevance
– Faithfulrepresentation
(ii) Enhancing qualitative characteristics
– Comparability
– Verifiability
– Timeliness
– Understandability

Question 23

Relevance

Answer 23

Information is relevant if:
 it has the ability to influence the economic decisions of users, and
 is provided in time to influence those decisions.

Question 24

Completeness

Answer 24

To be understandable, information must contain all the necessary descriptions and explanations.

Question 25

Neutrality

Answer 25

Information must be neutral, i.e. free from bias. Financial statements are not neutral if, by the selection or presentation of information, they deliberately influence the making of a decision or judgement in order to achieve a predetermined result or outcome.

Question 26

Free from error

Answer 26

Information must be free from error within the bounds of materiality. A material error or omission can cause the financial statements to be false or misleading, and thus unreliable and deficient in terms of their relevance.

Question 27

Comparability, verifiability, timeliness and understandability are qualitative characteristics that

Answer 27

enhance the usefulness of information that both is relevant and provides a faithful representation

Question 28

Equity is

Answer 28

the residual interest in the assets of the entity after deducting all
its liabilities

Question 29

Income is

Answer 29

increases in assets or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims

Question 30

CPP factor =

Answer 30

(Index at the reporting date/Index at date of initial recognition)CPP factor = (Index at the reporting date/Index at date of initial recognition)

Question 31

IAS 8 requires accounting policies to be changed ‘only if the change:

Answer 31

 is required by an IFRS Accounting Standard or
 results in the financial statements providing reliable and more relevant information’

Question 32

The requirements of IAS 8 are:

Answer 32

 effects of a change in accounting estimate should be included in the statement of profit or loss in the period of the change and, if subsequent periods are affected, in those subsequent periods
 effects of the change should be included in the same income or expense classification as was used for the original estimate
 if material, the nature and amount of effect of the change must be disclosed.

Question 33

Examples of changes in accounting estimates are changes in:

Answer 33

 useful lives of non-current assets
 method of depreciating non-current assets
 warranty provisions, based upon more up-to-date information about claims frequency and value.

Question 34

Prior period errors are omissions from, and misstatements in, the financial statements for

Answer 34

one or more prior periods arising from a failure to use information that

 was available when the financial statements for those periods were authorised for issue and
 could reasonably be expected to have been taken into account in preparing those financial statements.

Question 35

Prior period errors are dealt with by:

Answer 35

 restating the opening balance of assets, liabilities and equity as if the error had never occurred, and presenting the necessary adjustment to the opening balance of retained earnings in the statement of changes in equity
 restating the comparative figures presented, as if the error had never occurred
 disclosing within the accounts a statement of financial position at the beginning of the earliest comparative period. In effect this means that three statements of financial position will be presented within a set of financial statements:
– at the end of the current year
– at the end of the previous year
– at the beginning of the previous year.

Question 36

IAS 41 Agriculture relates to Biological assets, government grants and agricultural produce at the point of harvest. Products which are the result of processing after harvest will be dealt with under

Answer 36

IAS 2 Inventories, or other applicable standards.

Question 37

A biological asset is a living animal or plant. A biological asset should be recognised if:

Answer 37

 it is probable that economic benefits will flow to the entity
 the cost or fair value of the asset can be reliably measured, and
 the entity controls the asset.

Question 38

Recognition and measurement
Initial measurement is at:

Answer 38

 fair value less any estimated ‘point of sale’ costs
 if there is no fair value, then the cost model should be used.

Question 39

Subsequent measurement:

Answer 39

 revalue to fair value less point of sale costs at year-end, taking any gain or loss to the statement of profit or loss.

Question 40

Bearer plants are accounted for under

Answer 40

IAS 16 Property, Plant and Equipment,

Question 41

A bearer plant is a living plant that:

Answer 41

 is used in the production or supply of agricultural produce;
 is expected to bear fruit for more than one period; and
 has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales

Question 42

At the date of harvest the produce should be recognised and measured at X.

Gains and losses on initial recognition are included in

Answer 42

fair value less estimated costs to sell.

profit or loss (profit from operations) for the period.