Financial Accounting: IFRS, 11e, GE
Harrison/Horngren/Thomas/Tietz/Suwardy
Test Item File
Chapter 4: Presentation of Financial Statements
4.1-1 The annual report should be a company’s most important strategic communications document, setting
forth the firm’s vision, values and operating philosophy, as well as its communication strategy
4.1-2 The Management Discussion and Analysis Section of the annual report:
A) is required by the SEC.
B) is optional but normally included in the annual report.
C) is required by the SEC only if the company has suffered from unfavorable trends or there are
significant uncertainty concerning liquidity of the company.
D) is required by the SEC only if they have a qualified audit opinion.
4.1-3 An annual report is a comprehensive report on a company’s activities throughout the current year.
4.1-4 The substance of annual report are:
A) grossly pictures and cover page.
B) the audited financial statements
C) the management analysis.
D) the charts and tables
4.1-5 Annual report can be as creative in its theme as possible as long as it meets requirements as dictated
by the regulatory authority.
4.1-6 The auditor report is not part of the annual report.
4.1-7 The annual report outlines the respective responsibilities of the company’s management as well as the
auditor’s responsibilities.
4.1-8 Auditor’s opinion that the consolidated financial statements provide a “true and fair view of the net
assets, financial position and results of the Group” is also known as:
A) qualified opinion.
B) adverse opinion
C) unqualified opinion.
D) fair opinion
4.1-9 An unqualified opinion:
A) is one made with reservation
B) is one made without reservation
C) is made when auditors are not fully qualified to audit the financial statements.
D) is given when there is a conflict of interest.
4.1-10 A qualified opinion is given when:
A) as a whole, the financial statements are fairly presented, except for disagreement on how to treat
a particular transaction
B) disagreement on how to treat a few transactions
C) the auditor is fully satisfied with the preparation of the financial statements.
D) the financial statements were objective and transparent
4.2-1 Notes, comprising of summary of significant accounting policies and other explanatory information is
part of the complete set of financial statements.
4.2-2 Entities are not allowed to use alternative names for the financial statements.
4.2-3 IAS 1 does not requires an entity to clearly identify the presentation currency used
4.2-4 For fair presentation and compliance with IFRS, an entity cannot selectively apply the standards it
like and not apply the ones it does not like.
4.2-5 The following does not constitute fair presentation and compliance with IFRS:
A) an entity apply IFRS, with additional disclosure when necessary
B) an entity rectify inappropriate accounting policies by additional disclosures
C) an entity did not selectively apply standards it likes.
D) an entity follows the recognition criteria for assets, liabilities and expenses set out in the
conceptual framework
4.2-6 Going concern means the entity intends to, and has the ability to operate into the foreseeable future.
4.2-7 IAS I required that an entity prepare its financial statements (except cash flows statement) using the :
A) cash basis of accounting
B) accrual basis of accounting
C) current cost basis of accounting
D) present value basis of accounting
4.2-8 An item is material when its omission or mis-statement could, individually or collectively, influence
the economic decisions that users make n the basis of the financial statements.
4.2-9 Materiality might result in aggregation of accounting information
4.2-10 In general, an entity is allowed to offset assets, liabilities, or income and expenses.
4.2-11 Entities are required to present a complete set of financial information at least:
A) monthly
B) quarterly
C) bi-annually
D) annually
4.2-12 IAS 1 requires entities to disclose, at a minimum:
A) one year of information
B) two years of information
C) three years of information
D) four years of information
4.2-13 Entities are not required to maintain the presentation and classification of items in the financial
statements from one period to another. .
4.3-1 The statement of financial position reports a company’s financial position at a point in time.
4.3-2 All current assets are either cash or assets that will be converted into cash or consumed within twelve
months or the operating cycle, if that is longer than one year.
4.3-3 The statement of financial position reports:
A) Assets and liabilities for a period of time.
B) Cash flows for a period of time.
C) Assets and equities at a point in time.
D) Net income at a point in time.
4.3-4 Current assets include cash and all other assets expected to become cash or be consumed:
A) Within one year.
B) Within one operating cycle.
C) Within one year or one operating cycle, whichever is longer.
D) Within one year or one operating cycle, whichever is shorter.
4.3-5 Assets do not include:
A) Issued capital.
B) Property, plant, and equipment.
C) Prepaid insurance.
D) Investments.
4.3-6 Liquidity means how quickly an item can be readily converted into cash.
4.3-7 IAS 1 prescribes a fixed format for the statement of financial position.
4.3-8 Cash equivalents would not include:
A) Money market funds.
B) Cash not available for current operations.
C) Government treasury bills.
D) Bank drafts.
4.4-1 Other comprehensive income:
A) appears on the income statement in a separate section below net income.
B) is a separate section of shareholders’ equity.
C) appears below retained earnings on the balance sheet.
D) does both B and C.
4.4-2 Classification of expenses by nature does not include:
A) depreciation of building
B) transport cost
C) cost of administration.
D) advertising cost
4.4-3 Classification of expenses by function does not include:
A) cost of sales
B) transport cost
C) cost of administration.
D) cost of distribution
4.4-4 The loss on sale of a business segment is reported in Other Gains and Losses on the income
statement.
4.4-5 A corporation’s net income, including earnings per share, receives more attention than any other item
in the financial statements.
4.4-6 The gain or loss on the disposal of a business segment is shown on the income statement as:
A) a component of comprehensive income.
B) an exceptional item.
C) part of discontinued operations.
D) other gains or losses.
4.4-7 “Extraordinary items”:
A) are treated the same under IFRS and GAAP.
B) include a loss from a lawsuit.
C) include the expropriation of a company’s assets by a foreign government.
D) include a loss from the sale of PPE.
4.4-8 Which of the following criteria must be met before an item is considered “exceptional”?
A) The item must be unusual in its nature.
B) The item must either be unusual in nature or infrequent in its occurrence.
C) The item must be both unusual in nature and infrequent in occurrence.
D) The item must be infrequent in its occurrence.
4.4-9 Which of the following would probably be reported as an exceptional gain or loss?
A) Retiring bonds payable
B) Corporate restructuring
C) A natural disaster
D) All of the above
4.4-10 A business incurs a loss from a hurricane. It is the first time the business has had a loss from such an
event. This loss would probably be classified on an income statement as an:
A) exceptional item.
B) other expense item.
C) operating expense.
D) adjustment to the beginning balance of retained earnings.
4.4-11 Comprehensive income is the company’s change in total shareholders’ equity from all sources other
than from the owners of the business.
4.4-12 Income tax expense appears on the:
A) income statement.
B) tax return.
C) balance sheet.
D) statement of shareholders’ equity.
4.5-1 The shareholder’s equity section of the balance sheet is more comprehensive than the statement of
changes in equity.
4.5-2 A statement of changes in equity reports all items affecting shareholders’ equity for a period.
4.5-3 Net income decreases shareholders’ equity while a net loss increases shareholders’ equity.
4.5-4 The amount of cash dividends declared during the period is reflected in the statement of changes in
equity and the amount of cash dividends paid is reflected in the statement of cash flows.
4.5-5 A statement of changes in equity would NOT include which type of transaction?
A) Cumulative translation adjustment
B) Cash dividends declared by the board of directors
C) Foreign exchange gain
D) Treasury shares reacquired by the corporation
4.5-6 The financial statement that reports the changes in all categories of equity during the period is called
the:
A) statement of changes in equity.
B) statement of changes in financial position.
C) statement of changes in equity.
D) statement of change in total equity.
4.5-7 A statement of shareholders’ equity would NOT include which type of transaction?
A) Inventory acquired for cash
B) Treasury shares reissued by the corporation
C) Land exchanged for ordinary shares
D) Share dividends declared by the board of directors