Apply the case analysis framework to
solve accounting and reporting issues.
17.
Award: 10.00 points
18.
Award: 10.00 points
A generic framework for case analysis is recommended not only for integration and analysis cases
in an academic setting but can also be applied to business decision-making situations. Which of the
following steps in a case analysis would NOT be appropriate?
Identifying the needs of the users.
Identifying and ranking the issues that must be addressed.
Creating a list of alternatives that are relevant and viable to the situation.
Providing all identified alternatives to the users in the final report.
The final report would not have a discussion of alternatives for each issue unless the issue was very
contentious. Furthermore, if an alternative was dismissed or determined to be inappropriate, it
would be redundant to provide arguments to the users in the final report.
References
Multiple Choice Difficulty: Easy Learning Objective: 01-05 (Appendix A)
Apply the case analysis framework to
solve accounting and reporting issues.
Explain the purpose or use of "The Conceptual Framework for Financial Reporting" ( Conceptual
Framework) in relation to International Financial Reporting Standards (IFRS).
In 2006, CPA Canada decided to harmonize the CPA Canada Handbook with IFRS for publicly
accountable enterprises. In most cases, the IFRS Standards were similar to Canadian GAAP prior to
the adoption of the international standards; however, in some cases, there were differences
because the IFRS were not based on the Conceptual Framework . These IFRS were not accepted.
The Conceptual Framework is referenced to assist the International Accounting Standards Board
(IASB) to develop IFRS to ensure they are based on consistent concepts and so that similar
transactions are treated the same way to provide useful information for investors, lenders and other
creditors.
In addition, if no IFRS Standards apply to a particular transaction, the Conceptual Framework is used
by companies to develop an accounting policy. Furthermore, on a broader basis, helps stakeholders
to understand and interpret the Standards.
References
Short Answer Difficulty: Easy Learning Objective: 01-05 (Appendix A)
Apply the case analysis framework to
solve accounting and reporting issues.
19.
Award: 10.00 points
X Inc. and Y Inc. are virtually identical companies with identical cost structures and very similar
business practices operating in the same lines of business. X Inc. and Y Inc. are both public
companies based in Canada and follow IFRS. The following are the condensed income statements
for both companies:
X Inc. Y Inc.
Sales: $1,000,000 $2,000,000
Less:
Cost of Goods Sold 500,000 1,600,000
Gross Margin $500,000 $400,000
Administrative Expenses 200,000 300,000
Net Income $300,000 $100,000
Required:
Given the information provided, what are some possible causes for the differing results of these
companies?
There could be many possible explanations for these differing results.
Y Inc.'s net income is $100,000, compared to X Inc.'s $300,000. Conversely, Y Inc.'s sales are twice
those of X Inc. What is particularly noteworthy is Y Inc.'s 20% gross margin compared to X Inc.'s 50%
gross margin. This could be due to the accelerated depreciation (double-declining versus straight-
line) on Y Inc.'s depreciable properties. Y Inc. could have also accelerated revenue recognition.
Smoothing practices may have been applied to reduce Y Inc.'s income, and of course, its tax liability.
Y Inc.'s income may have been further reduced by higher estimates (for example, bad debt expense,
warranty costs, etc.) which are not necessarily be indicative of economic conditions.
If Y Inc. has attempted to distort the real situation, it is possible that Y Inc. may have reported sales
that never occurred or reported inventory that does not exist.
Note: The above analysis is not exhaustive. Students may be able to identify other valid differences.
References
Short Answer Learning Objective:
01-02 Describe how
accounting
standards in Canada
are tailored to
different types of
organizations.
20.
Award: 10.00 points
Difficulty:
Medium
Learning Objective:
01-04 Analyze and
interpret financial
statements to assess
the impact of
different accounting
methods on key
financial statements
ratios.
Briefly discuss the external users need for high-quality financial information.