Financial Statements

Question 1

What are financial statements?

Answer 1

Financial statements are the principal means through which financial information is communicated to those outside an enterprise.

Question 2

How are capital markets changing?

Answer 2

Capital markets are increasingly integrated and companies have greater flexibility in deciding where to raise capital.

Question 3

What are the major financial statements under IFRS?

Answer 3

The major financial statements used under International Financial Reporting Standards (IFRS) include the statement of changes in financial position and the statement of stockholders’ equity.

Question 4

What does IFRS require for financial reporting?

Answer 4

In order to provide information that is useful in decision making and capital allocation, IFRS requires all companies to use a common currency.

Question 5

What do users of financial information do?

Answer 5

Users of the financial information provided by a company use that information to make capital allocation decisions.

Question 6

What does an effective process of capital allocation promote?

Answer 6

An effective process of capital allocation promotes productivity and provides an efficient market for buying and selling securities and obtaining and granting credit.

Question 7

How many countries require or permit IFRS?

Answer 7

Over 115 countries require or permit use of International Financial Reporting Standards (IFRS).

Question 8

Are there formal objectives for financial reporting?

Answer 8

While objectives for financial reporting exist on an informal basis, no formal objectives have been adopted.

Question 9

What is a weakness of accrual accounting?

Answer 9

One weakness of accrual accounting is that it does not provide a good indication of the enterprise’s present and continuing ability to generate favorable cash flows.

Question 10

What is required for the passage of a new IFRS Statement?

Answer 10

The passage of a new International Financial Reporting Standards Statement requires the support of ten of the sixteen board members.

Question 11

What preceded IFRS?

Answer 11

International Financial Reporting Standards preceded International Accounting Standards.

Question 12

How does the IASB’s standard-setting structure compare to the FASB’s?

Answer 12

The standard-setting structure used by the International Accounting Standards Board is very similar to that used by the Financial Accounting Standards Board.

Question 13

How do IASB standards compare to U.S. GAAP?

Answer 13

The rules-based standards of IASB are more detailed than the simpler, principles-based standards of U.S. GAAP.

Question 14

Who issues IFRS?

Answer 14

The International Accounting Standards Board issues International Financial Reporting Standards.

Question 15

Are International Accounting Standards still applicable?

Answer 15

International Accounting Standards are no longer considered applicable because they have been replaced by International Financial Reporting Standards.

Question 16

What types of standards do various standard-setting organizations issue?

Answer 16

The standards issued by various standard-setting organizations around the world include standards that are profit-oriented and investor-focused.

Question 17

What are the two major standard-setting organizations?

Answer 17

The two major standard-setting organizations in the world are the International Accounting Standards Board (IASB) and International Organization of Securities Commission (IOSCO).

Question 18

How does IFRS compare to U.S. GAAP in terms of comprehensiveness?

Answer 18

IFRS is considered more comprehensive than U.S. GAAP and the standards contain more implementation guidance than U.S. GAAP.

Question 19

What does IOSCO do?

Answer 19

The International Organization of Securities Commissions (IOSCO) sets accounting standards for those countries which have not yet adopted IFRS.

Question 20

What is the first step in developing IFRS?

Answer 20

The International Accounting Standards Board (IASB) follows specific steps in developing International Financial Reporting Standards (IFRS); the first step in the process is holding a public hearing.

Question 21

What is needed to issue a new IFRS?

Answer 21

A unanimous vote by all Board members is needed to issue a new International Financial Reporting Standard (IFRS).

Question 22

How many members are in the IASB?

Answer 22

The International Accounting Standards Board (IASB) has 16 members and each member of the IASB must come from a different country.

Question 23

What is the authority of interpretations issued by the IFRS Interpretations Committee?

Answer 23

Interpretations issued by the IFRS Interpretations Committee are more authoritative than IASB Standards and Interpretations.

Question 24

What is the role of the IASB?

Answer 24

The International Accounting Standards Board (IASB) is a regulatory agency with enforcement powers for its International Financial Reporting Standards (IFRS).

Question 25

Are IFRS interpretations considered authoritative?

Answer 25

International financial reporting interpretations (issued by the International Accounting Standards Board) are considered authoritative and must be followed.

Question 26

What information did early 21st-century financial reports lack?

Answer 26

Financial reports in the early 21st century did not provide any information about a company’s soft assets.

Question 27

How are accounting standards changing regarding fair value information?

Answer 27

Accounting standards are now less likely to require the recording or disclosure of fair value information due to its inherent subjectivity.

Question 28

What influences IFRS?

Answer 28

IFRS are a product of careful logic or empirical findings and are not influenced by political action.

Question 29

What is the expectations gap?

Answer 29

The expectations gap is caused by what the public thinks accountants should be doing and what accountants think they can do.

Question 30

Who governs ethical issues in financial accounting?

Answer 30

Ethical issues in financial accounting are governed by the AICPA.

Question 31

What negative force affects IFRS?

Answer 31

Politics and political pressure in establishing IFRS is a negative force.

Question 32

What significant issues face global financial reporting?

Answer 32

Significant financial reporting issues facing global financial reporting and efficient capital allocation include how to provide backward-looking information.

Question 33

What does the IASB rely on for regulation?

Answer 33

The IASB relies primarily on the International Organization of Securities Commissions (IOSCO) for regulation and enforcement of its standards.

Question 34

What agreement exists between U.S. and European regulators?

Answer 34

U.S. and European regulators have agreed to recognize each other’s standards for listing on the various world securities exchanges.

Question 35

How does IFRS compare to U.S. GAAP in terms of complexity?

Answer 35

IFRS tends to be simpler and more flexible in the accounting and disclosure requirements than U.S. GAAP.