Intermediate Accounting Volume 1, 13th Canadian Edition by Donald E. Kieso Test bank

 
Difficulty: Easy
Learning Objective: Explain the need for accounting standards and identify the major entities that influence standard setting and financial reporting.
Section Reference: Standard Setting
CPA: Communication
CPA: Management Accounting
CPA: Strategy & Governance
Bloomcode: Knowledge
AACSB: Communication
 
 
Ex. 1-66 Purpose of accounting standards
Accounting professions in various countries have tried to develop a set of standards that are generally accepted and universally practised. Explain the motivation for creating such a set of standards. How has this influenced the relationship between Canadian GAAP and International Financial Reporting Standards (IFRS).
 
Solution 1-66
Creating standards facilitates comparability across companies and periods. Without standards, each enterprise would develop its own standards, and readers of financial statement would have to become familiar with every company’s particular accounting and reporting practices. It would be almost impossible to prepare statements that could be compared. Since the decision to adopt IFRS was made, Canadian GAAP has been continuously adjusted (converged) to mirror IFRS. Even prior to that convergence, both standards were principles-based (rather than rules-based).
 
Difficulty: Easy
Learning Objective: Explain the need for accounting standards and identify the major entities that influence standard setting and financial reporting.
Section Reference: Standard Setting
CPA: Communication
CPA: Financial Reporting
Bloomcode: Knowledge
AACSB: Communication
 
 
Ex. 1-67 ASPE vs. IFRS
Accounting standards for Private Enterprises (ASPE) are geared towards fewer users who have access to additional information about the company. The need for common language and comparability as facilitated by IFRS is less necessary among private enterprises. Given this, explain why a private company might choose to voluntarily adopt IFRS.
 
Solution 1-67
A private company that is looking to go public might find it easier to follow IFRS right from the beginning. Other motivations might include specific requests from users, or ease of adoption if the small enterprise is a subsidiary of a larger company with IFRS reporting already in place.
 
Difficulty: Easy
Learning Objective: Explain the need for accounting standards and identify the major entities that influence standard setting and financial reporting.
Section Reference: Standard Setting
CPA: Communication
CPA: Financial Reporting
Bloomcode: Knowledge
AACSB: Communication
 
 
Ex. 1-68 IFRS Discussion Group
Explain the purpose of the IFRS Discussion Group.
 
Solution 1-68
The IFRS Discussion Group (IFRS DG) is a sub-committee created by the AcSB mandated to raise awareness of issues arising in Canada as a result of implementing IFRS, and to make recommendations to the AcSB for referral to the International Accounting Standards Board and its subcommittees.
 
Difficulty: Easy
Learning Objective: Explain the need for accounting standards and identify the major entities that influence standard setting and financial reporting.
Section Reference: Standard Setting
CPA: Financial Reporting
Bloomcode: Knowledge
AACSB: Analytic
 
 
Ex. 1-69 Sources of GAAP
International Financial Reporting Standards (IFRS) are the primary source of GAAP for public enterprises in Canada. They are, however, insufficient to address all of the accounting issues facing accountants. When specific guidance cannot be found in primary sources such as the Handbook and Accounting guidelines, what process should the accountant follow in their consultation of other sources? Explain why this is so and outline some other sources of GAAP that accountants use.
 

Solution 1-69

Although IFRS outlines the specific accounting treatment for a multiple items, in some circumstance  the guidelines are very general. Also, the business environment is complex and constantly changing and. Therefore, some items may not be discussed at all. If primary sources do not deal with the specific issue, the entity should use accounting policies that are consistent with primary sources. The policies should be developed through use of professional judgement in accordance with the conceptual framework. The accountant might consider pronouncements of other standard setters, accepted industry practices, and other literature, with the goal of producing information that is as relevant and reliable. Thus, accountants must use IFRS in conjunction with other sources like professional judgement, pronouncements of other standard-setting bodies, accounting literature, and accepted industry practices.