International Financial Statement Analysis Workbook. Elaine Henry

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СКАЧАТЬ Operating, Investing, and Financing.

      C. Operating, Nonoperating, and Investing.

      15. Which of the following statements about cash received prior to the recognition of revenue in the financial statements is most accurate? The cash is recorded as:

      A. deferred revenue, an asset.

      B. accrued revenue, a liability.

      C. deferred revenue, a liability.

      16. When, at the end of an accounting period, a revenue has been recognized in the financial statements but no billing has occurred and no cash has been received, the accrual is to:

      A. unbilled (accrued) revenue, an asset.

      B. deferred revenue, an asset.

      C. unbilled (accrued) revenue, a liability.

      17. When, at the end of an accounting period, cash has been paid with respect to an expense, the business should then record:

      A. an accrued expense, an asset.

      B. a prepaid expense, an asset.

      C. an accrued expense, a liability.

      18. When, at the end of an accounting period, cash has not been paid with respect to an expense that has been incurred, the business should then record:

      A. an accrued expense, an asset.

      B. a prepaid expense, an asset.

      C. an accrued expense, a liability.

      19. The collection of all business transactions sorted by account in an accounting system is referred to as:

      A. a trial balance.

      B. a general ledger.

      C. a general journal.

      20. If a company reported fictitious revenue, it could try to cover up its fraud by:

      A. decreasing assets.

      B. increasing liabilities.

      C. creating a fictitious asset.

      CHAPTER 3

      FINANCIAL REPORTING STANDARDS

      LEARNING OUTCOMES

      After completing this chapter, you will be able to do the following:

      ● describe the objective of financial statements and the importance of financial reporting standards in security analysis and valuation;

      ● describe roles and desirable attributes of financial reporting standard-setting bodies and regulatory authorities in establishing and enforcing reporting standards, and describe the role of the International Organization of Securities Commissions;

      ● describe the status of global convergence of accounting standards and ongoing barriers to developing one universally accepted set of financial reporting standards;

      ● describe the International Accounting Standards Board's conceptual framework, including the objective and qualitative characteristics of financial statements, required reporting elements, and constraints and assumptions in preparing financial statements;

      ● describe general requirements for financial statements under International Financial Reporting Standards (IFRS);

      ● compare key concepts of financial reporting standards under IFRS and US generally accepted accounting principles (US GAAP) reporting systems;

      ● identify characteristics of a coherent financial reporting framework and the barriers to creating such a framework;

      ● describe implications for financial analysis of differing financial reporting systems and the importance of monitoring developments in financial reporting standards;

      ● analyze company disclosures of significant accounting policies.

      SUMMARY OVERVIEW

      ● The Objective of Financial Reporting:

      ● The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity. Those decisions involve buying, selling, or holding equity and debt instruments, and providing or settling loans and other forms of credit.1

      ● Financial reporting requires policy choices and estimates. These choices and estimates require judgment, which can vary from one preparer to the next. Accordingly, standards are needed to ensure increased consistency in these judgments.

      ● Financial Reporting Standard-Setting Bodies and Regulatory Authorities: Private sector standard-setting bodies and regulatory authorities play significant but different roles in the standard-setting process. In general, standard-setting bodies make the rules, and regulatory authorities enforce the rules. However, regulators typically retain legal authority to establish financial reporting standards in their jurisdiction.

      ● Convergence of Global Financial Reporting Standards: The IASB and FASB, along with other standard setters, are working to achieve convergence of financial reporting standards. Many countries have adopted or permit the use of IFRS, have indicated that they will adopt IFRS in the future, or have indicated that they are working on convergence with IFRS. Listed companies in many countries are adopting IFRS. Barriers and challenges to full convergence still exist.

      ● The IFRS Framework: The IFRS Framework sets forth the concepts that underlie the preparation and presentation of financial statements for external users, provides further guidance on the elements from which financial statements are constructed, and discusses concepts of capital and capital maintenance.

      ● The objective of fair presentation of useful information is the center of the Conceptual Framework (2010). The qualitative characteristics of useful information include fundamental and enhancing characteristics. Information must exhibit the fundamental characteristics of relevance and faithful representation to be useful. The enhancing characteristics identified are comparability, verifiability, timeliness, and understandability.

      ● The IFRS Framework identifies the following elements of financial statements: assets, liabilities, equity, income, expenses, and capital maintenance adjustments.

      ● The Conceptual Framework (2010) is constructed based on the underlying assumptions of accrual basis and going concern and acknowledges the inherent constraint of benefit versus cost.

      ● IFRS Financial Statements: IAS No. 1 prescribes that a complete set of financial statements includes a statement of financial position (balance sheet), a statement of comprehensive income (either two statements – one for net income and one for comprehensive income – or a single statement combining both net income and comprehensive income), a statement of changes in equity, a cash flow statement, and notes. The notes include a summary of significant accounting policies and other explanatory information.

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