Conceptual Framework

Question 1

Which of the following concepts does not necessarily impact the reliability of information provided in financial statements under IFRS - (a) substance over form (b) Neutrality (c) conservatism (d) timeliness?

Answer 1

Timeliness (d) does not impact ?reliability?; rather it impacts ?relevance?The fact that the substance of a transaction (a) is conveyed, impacts representational faithfulness, which impacts reliability. Neutrality (b) means that the information is free from bias and therefore impacts the reliability of the information. Use of conservatism (c) enhances the neutrality of the financial statements and hence impacts reliability.

Question 2

An asset by definition, must embody a future benefit. Does the benefit have to be legally enforceable under IFRS?

Answer 2

No - it is not essential for control of access to the benefit to be legally enforceable, for a resource to be an asset.

Question 3

Who are the primary users of general purpose financial statements for profit oriented enterprises?

Answer 3

Investors and creditors are the primary users of general purpose financial statements.

Question 4

If financial information is to be useful, what are the two fundamental qualitative characteristics it must possess?

Answer 4

The two fundamental qualitative characteristics areRelevanceFaithful representation (i.e. it faithfully represents what it purports to represent)

Question 5

How does one define the qualitative characteristic of “relevance”?

Answer 5

Information is relevant if it is capable of making a difference in the decisions made by users in their capacity as capital providersThis will occur when it has <u>predictive value</u>, <u>confirmatory value</u> or bothInformation has predictive value if it has value as an input to predictive processes used by capital providers to form their own expectations about the futureInformation has confirmatory value if it confirms or changes previous evaluations.

Question 6

How does one define “faithful representation”?

Answer 6

Faithful Representation is attained when the depiction of an economic phenomenon is <u>complete</u>, <u>neutra</u>l (free from bias) and <u>free from (material) error</u>.

Question 7

What are some examples of other characteristics that complement the two fundamental characteristics of “relevance” and “faithful representation”, in IFRS?

Answer 7

Other examples would be (a) comparability (b) verifiability (c) timeliness and (d) understandability

Question 8

What are the 4 qualitative characteristics under ASPE?

Answer 8

The 4 characteristics are: (a) Understandability; (b) Comparability; (c) Relevance (includes predictive value and feedback value and timeliness); and (d) reliability (includes representational faithfulness, verifiability, neutrality and conservatism).

Question 9

Which one characteristic is included in IFRS and not in ASPE?

Answer 9

The characteristic of “completeness” is included in IFRS and not in ASPE.

Question 10

What is the definition of a liability?

Answer 10

A liability is defined as a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. (ASPE adds the detail that the entity has little or no discretion to avoid it).

Question 11

What are the 2 basic criteria that need to be met to recognize an asset or liability?

Answer 11

The 2 basic criteria are:\n\n1) It is probable that any future economic benefit associated with the item will flow to or from the entity; and\n\n2) The item has a cost or value that can be measured with reliability.

Question 12

What are four different types of measurement basis employed in financial statements?

Answer 12

Four different types of measurement basis are:\n\nHistorical cost;\n\nCurrent cost;\n\nRealizable (settlement) value; and\n\nPresent value.

Question 13

What is the definition of an asset?

Answer 13

An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.

Question 14

What reason would a company have to not disclose more information beyond what is required by the accounting standards?

Answer 14

The costs of disclosing more information may outweigh the benefits and it is counter-productive to disclose more information.

Question 15

What are the primary sources of GAAP under ASPE?

Answer 15

Primary sources of generally accepted accounting principles (primary sources of GAAP) are, in descending order of authority:\n\n(i) HB Sections including appendices; and\n\n(ii) Accounting Guidelines, including appendices.

Question 16

What is the definition of Generally Accepted Accounting Principles (GAAP) under ASPE (Section 1100)?

Answer 16

Generally accepted accounting principles (GAAP) encompass broad principles and conventions of general application as well as rules and procedures that determine accepted accounting practices at a particular time.

Question 17

Under ASPE is an entity required to apply primary sources of GAAP?

Answer 17

Yes -An entity must apply every primary source of GAAP that deals with the accounting and reporting in financial statements of transactions or events encountered by the entity.\n<div></div>

Question 18

Under what circumstances would a company consult sources of GAAP that are not primary?

Answer 18

<div>\n\nWhen the primary sources of GAAP do not deal with the accounting and reporting in financial statements of transactions or events encountered by the entity, or additional guidance is needed to apply a primary source to specific circumstances, an entity would consider other sources that are:\n\n</div>

\n(a) consistent with the primary sources of GAAP; and\n<div>\n<p class="bullet">(b) developed through the exercise of professional judgment and the application of the concepts described in FINANCIAL STATEMENT CONCEPTS, Section <a>1000.</a></p>\n\n</div>

Question 19

What are examples of GAAP that are not primary sources that an accountant might consult?

Answer 19

Other non-primary sources would include:Background Information and Basis for Conclusions documents issued by the Board\n\n\n<a>– Part I</a> of the HandbookOrganizations on matters not covered by Part IIStandards in other jurisdictionsGuidance issued by organizations other than the Accounting Standards Board indicating how primary sources of GAAP may be applied in particular circumstances\n<div>\n<p class="Paragraph">– Approved drafts including exposure drafts and other documents for comment approved by the Accounting Standards Board</p>\n\n</div>\n<div>\n<p class="Paragraph">– A study group’s conclusions in a research report or research study</p>\n\n</div>\n<div>\n<p class="Paragraph">– Accounting textbooks, journals, studies and articles</p>\n<p class="Paragraph">– Industry practice</p></div>

Question 20

Under IFRS, if a company designates a liability as FVTPL would the full change in the value of the liability from period to period be debited or credited to the the P & L?

Answer 20

No -An entity would present a gain or loss on a financial liability that is designated as at fair value through profit or loss as followsThe amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability would be presented in other comprehensive income andThe remaining amount of change in the fair value of the liability would be presented in profit or loss