Reviewing for Contingencies

How can the accounting concept of materiality be applied to the recognition and disclosure of contingent liabilities? Explore the factors that accountants should consider when determining the appropriate level of detail to include in financial statements regarding potential future obligations.

Which of the following statements about IFRS and GAAP accounting and reporting requirements for the balance sheet is not correct? a.    Both IFRS and GAAP distinguish between current and non-current assets and liabilities. b.    The presentation formats required by IFRS and GAAP for the balance sheet are similar. c.    Both IFRS and GAAP require that comparative information be reported. d.    One difference between the reporting requirements under IFRS and those of the GAAP balance sheet is that an IFRS balance sheet may list long-term assets first.

With respect to the concept of materiality, which of the following statements is correct?a. Materiality depends only on the dollar amount of an item relative to other items in the financial statements.b. Materiality depends on the nature of a transaction rather than the dollar amount of the transaction.c. Materiality is determined by reference to AICPA guidelines.d. Materiality is a matter of professional judgment.

Application of the full disclosure principle requires that the financial statements be consistent and comparable. is violated when important financial information is buried in the notes to the financial statements. is theoretically desirable but not practical because the costs of complete disclosure exceed the benefits. is demonstrated by the inclusion of information such as contingencies.

For a liability to be recognised within the financial statements, it needs to be reasonably apparent that an obligation to an ____________exists. Select one alternative: legal obligation external party another party counter party

Comment on the statement that materiality is in the eye of the beholder. How does this statement relate to the discussion in this chapter of how to gauge materiality in assessing financial statement restatements? Is materiality inconsistent with the notion of representational faithfulness?

Which of the following is not a criterion that must be met for an item to be classified as a liability? A certain cash payment will occur in the future. A sacrifice will require the entity’s assets or services. There is a probable future sacrifice. There is a present obligation that results from a past transaction.

Accdg. to PAS , related party disclosures are necessary *       to indicate the possibility that an entity's financial position and performance might have been affected by the existence of such relationship       because related party transactions may have resulted to assets and liabilities that were recognized in the financial statements of the reporting entity       to notify users of financial statements of the fact that related party transactions may not have been made on arm's length basis       in order to eliminate or minimize the effects of related party transactions on the FS of the reporting entity

When an event impacts a financial statement element, it should be recognized in the accounting records even if reliability of the amount is questionable. True False

Which of the following statements is correct? I. To enable users of financial statements to form a view about the effects of related party relationships on an entity, it is appropriate to disclose the related party relationship when control exists, irrespective of whether there have been transactions between the related parties. II. If there have been transactions between related parties, an entity shall disclose the nature of the related party relationship as well as information about the transactions and outstanding balances necessary for an understanding of the potential effect of the relationship on the financial statements. III. Disclosures that related party transactions were made on terms equivalent to those that prevail in arm’s length transactions are encouraged by GAAP. IV. Government-controlled entities are within the scope of IFRSs, i.e. those that are profit-oriented are no longer exempted from disclosing transactions with other state-controlled entities.

What are accounting errors and how they are reported. What are the disclosure requirements for correction of errors.  Please see FASB codification to discuss the disclosure requirements.

1. Which statement is incorrect regarding materiality judgments? A. An entity is only required to apply recognition and measurement equirements in PFRSS when the effect of applying them material. B. An entity need not provide a disclosure specified by a PFRS if the information resulting from that disclosure is not material. C. Public availability of information relieves an entity of the obligation to provide material information in its financial statements. D. It is inappropriate for the entity to make, or leave uncorrected, immaterial departures from PFRSs to achieve a particular presentation of its financial position, financial performance or cash flows.   2. Which of the following is an appropriate aggregation? A. Cash and cash equivalents (Cash in bank and sinking fund) B. Trade and other receivables (Accounts receivable and investment in bonds) C. Trade and other payables (Accounts payable and accruals) D. Provisions (Income tax payable and warranty liability)   3. Which of the…

Which of the following does not require disclosure in the financial statements?   choices: There is a present obligation that probably requires an outflow of resources that can be measured reliably.   There is a present obligation that probably requires an outflow of resources but the amount cannot be measured reliably.   There is a possible obligation or a present obligation that may, but probably will not require an outflow of resources   There is a possible obligation or a present obligation where the likelihood of an outflow of resource is remote.

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1. Explain the purpose of operational accountability and the purpose of fiscal accountability. Which category of financial statements is most useful in reporting on each of these accountability concepts? 2. Under GASB guidance, when should an item be recognized on the face of the financial statements? Under what conditions would the GASB indicate that a note disclosure should accompany an item that has been recognized on the financial statements?

When is it permissible to violate generally accepted accounting principles (GAAP)?

Which statement is incorrect in the measurement of a provision? *a. The risks and uncertainties that inevitably surround many events and circumstances shall be taken into account in reaching the best estimate of a provisionb. Where the effect of the time value of money is material, the amount of a provision shall be the present value of the expenditure expected to settle the obligationc. Future events that may affect the amount required to settle the obligation shall be reflected in the amount of the provision where there is sufficient objective evidence that the future events will occurd. Gains from expected disposal of assets shall be taken into account in measuring a provision

The Normative Structure for Reporting emphasise the importance of transactions that should be reported on the basis of their economic substance and their legal form. Explain the advantage of “substance over form” and how the financial statements would indicate that the substance of the underlying transaction varies from the legal form.