International Accounting Standards (IASs) and IFRSs Quiz

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What do accounting principles determine?

Where the business entity should be located

Which assets and liabilities are recorded on a statement of financial position (correct)

What products a company should sell

How many employees a company should have

How are the business accounts prepared?

As though the business is not separate from its owner

As though the business is an entity separate from its owner (correct)

Only including the personal activities of its owners

Combined with the personal activities of its owners

In accounting, how are sole traders regarded despite not being legally separate from their owners?

As part of the personal activities of the owners

As tax-exempt entities

As entities with unlimited liability

As separate entities for accounting purposes (correct)

What type of legal entity is a limited company according to the text?

A separate legal entity distinct from its owners Signup and view all the answers

What activities does financial accounting information relate to according to the text?

Only to the activities of the business entity, not to the personal activities of its owners Signup and view all the answers

What can a company do in its own right according to the text?

Enter into legal contracts Signup and view all the answers

Which characteristic ensures that financial information is complete, neutral, and free from error?

Faithful representation Signup and view all the answers

What characteristic enables users to compare the financial statements of different entities to evaluate their relative financial performance and position?

Comparability Signup and view all the answers

If financial information is not capable of being verified, what should be provided to users?

Relevant assumptions and other relevant information Signup and view all the answers

What does timeliness of information influence?

Relevance and understandability Signup and view all the answers

What does understandability depend on?

The way in which effects of transactions are classified, the way in which information is presented, and the capabilities of users Signup and view all the answers

What quality seeks to ensure that where there is uncertainty, profits and assets are not overstated while losses and liabilities are not understated?

Prudence Signup and view all the answers

What does an entity need to find when there is a conflict between relevance and reliability?

A balance between cost and benefit Signup and view all the answers

What is a trade-off usually appropriate when there is a conflict between relevance and reliability?

Using the most relevant information even if it is not reliable Signup and view all the answers

What provides assurance to users regarding the credibility and reliability of financial information?

Verifiability Signup and view all the answers

What should preparers disclose in financial statements according to the text?

Accounting policies adopted Signup and view all the answers

Which characteristic enables users to identify trends in an entity's financial position and performance over time?

Comparability Signup and view all the answers

What must information be without in order to be faithfully presented?

Bias, manipulation, or error Signup and view all the answers

What is the purpose of International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs)?

To define the best accounting practices for companies Signup and view all the answers

Why do many countries permit or require companies to use International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs) instead of local accounting standards?

Because they represent global best accounting practices Signup and view all the answers

Why do sole traders and partnerships tend to apply the principles of International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs)?

To comply with legal requirements Signup and view all the answers

In what circumstances should financial statements be prepared on a going concern basis?

When the directors have no realistic alternative to liquidation Signup and view all the answers

What is an essential part of the preparation of final accounts when items cannot be measured precisely?

Estimation Signup and view all the answers

What does an accounting policy specify?

The principles adopted by an enterprise in preparing financial statements Signup and view all the answers

What determines whether an entity should select a particular accounting policy?

Whether it results in information that is useful to users Signup and view all the answers

What is meant by 'Relevance' in the Conceptual Framework for Financial Reporting?

It refers to information that has the ability to influence economic decisions of users and is provided in time to influence those decisions Signup and view all the answers

What is meant by 'Fair Presentation' according to IAS 1?

It refers to presenting information in a manner that provides relevant, reliable, comparable, and understandable information Signup and view all the answers

'Fair Presentation' can be achieved by:

<ul> <li>Selecting and applying appropriate accounting policies; and presenting information in a manner that provides relevant, reliable, comparable and understandable information.</li> </ul> Signup and view all the answers

What are some possible measurement bases for assets according to the text?

Cost, net realizable value, replacement cost Signup and view all the answers

Why do limited company financial statements need to be fairly presented according to certain countries' laws?

To ensure that limited company financial statements provide relevant, reliable, comparable, and understandable information Signup and view all the answers

What does the historical cost accounting system entail?

It values items based on the original cost when the transaction occurred. Signup and view all the answers

What does the going concern assumption imply?

Financial statements are prepared assuming the business will continue to operate in the foreseeable future. Signup and view all the answers

What is the concept of accruals in accounting?

Income and expenditure are recognized as they are earned and incurred, respectively. Signup and view all the answers

What does consistency in accounting prevent?

Prevents treating similar items of expenditure as capital items. Signup and view all the answers

What does prudence in accounting underpin?

Underpins the recognition of losses only when they are certain. Signup and view all the answers

Why are accounting standards needed?

To ensure a meaningful comparison of financial statements of different entities. Signup and view all the answers

How does materiality affect financial statements?

It demands that only significant items be separately disclosed in financial statements. Signup and view all the answers

'Accruals' in accounting require that:

Income and expenditure should relate to time period and not to cash receipts or payments Signup and view all the answers

What does 'prudence' suggest about losses?

Losses should be recognized as soon as they are foreseen and considered reasonably certain. Signup and view all the answers

Why do financial statements need to be prepared on a going concern basis?

To justify a range of other practices such as valuing assets differently. Signup and view all the answers