37 Lecture

1. Which of the following is not a change in accounting policy according to IAS 8? a) Changing from FIFO to LIFO b) Changing from cost model to revaluation model c) Changing from straight-line method to accelerated method d) Changing from accrual basis to cash basis

Answer: d) Changing from accrual basis to cash basis

2. According to IAS 8, an accounting policy change should be: a) Applied retrospectively b) Applied prospectively c) Applied prospectively with disclosure of the effect on current and future periods d) Disclosed in the notes to the financial statements only

Answer: c) Applied prospectively with disclosure of the effect on current and future periods

3. Which of the following is an example of an error in financial reporting? a) Misapplication of accounting policy b) Misuse of an asset c) Misclassification of an expense d) All of the above

Answer: d) All of the above

4. Which of the following is not an example of a cash flow from investing activities? a) Sale of property, plant, and equipment b) Purchase of a building c) Purchase of shares in another company d) Sale of an investment

Answer: c) Purchase of shares in another company

5. When preparing the statement of cash flows using the indirect method, which of the following adjustments should be made to net income? a) Add back depreciation expense b) Deduct interest expense c) Deduct gain on sale of an asset d) Add back a decrease in accounts receivable

Answer: a) Add back depreciation expense

6. Which of the following is true regarding the statement of changes in equity? a) It is required under IFRS but not under US GAAP b) It reports only changes in retained earnings c) It reports all changes in equity, including transactions with owners and changes in accounting policies d) It is not required for private companies

Answer: c) It reports all changes in equity, including transactions with owners and changes in accounting policies

7. Which of the following is an example of a change in accounting estimate? a) Changing from LIFO to FIFO b) Changing the useful life of an asset c) Changing from the cost model to the revaluation model d) Changing the method of recognizing revenue

Answer: b) Changing the useful life of an asset

8. According to IAS 7, which of the following items is not considered a cash equivalent? a) Short-term investments with high liquidity b) Bank overdrafts c) Commercial paper d) Treasury bills

Answer: b) Bank overdrafts

9. Which of the following is true regarding errors in financial reporting? a) They are always intentional b) They can be corrected in the current period only c) They can have a material effect on the financial statements d) They are always immaterial

Answer: c) They can have a material effect on the financial statements

10. Which of the following is an example of a noncash item that would be reported on the statement of cash flows? a) Amortization expense b) Interest expense c) Depreciation expense d) Accounts receivable write-off

Answer: d) Accounts receivable write-off

1. What is the purpose of IAS 8? Answer: IAS 8 is used to provide guidelines to entities to apply accounting policies consistently and to deal with changes in accounting policies, accounting errors, and the correction of errors in financial statements.

2. What is an accounting policy? Answer: An accounting policy is a set of principles, procedures, and rules adopted by an entity in preparing and presenting financial statements.

3. What is a retrospective adjustment? Answer: A retrospective adjustment is a correction of an error in previously issued financial statements, which requires the restatement of prior period financial statements.

4. What is the difference between a change in accounting policy and a change in accounting estimate? Answer: A change in accounting policy refers to a change in the principles, basis, or method of accounting used by an entity, whereas a change in accounting estimate refers to a change in the estimation technique, or the assumption used in calculating an accounting value.

5. How is the effect of a change in accounting policy reflected in financial statements? Answer: A change in accounting policy is applied retrospectively unless impractical, and the impact of the change is reflected in the opening balance of retained earnings of the earliest period presented.

6. What is a cash flow statement? Answer: A cash flow statement is a financial statement that provides information about the cash inflows and outflows of an entity during a specific period.

7. What is the purpose of a cash flow statement? Answer: The purpose of a cash flow statement is to provide information about an entity's liquidity, solvency, and financial flexibility.

8. What is a cash equivalent? Answer: A cash equivalent is a short-term, highly liquid investment that is readily convertible into cash, and which carries an insignificant risk of changes in value.

9. What is the difference between an operating activity and an investing activity? Answer: An operating activity is a cash inflow or outflow that results from an entity's core business operations, whereas an investing activity is a cash inflow or outflow that results from the acquisition or disposal of long-term assets.

10. What is the purpose of disclosing non-cash transactions in the cash flow statement? Answer: The purpose of disclosing non-cash transactions in the cash flow statement is to provide information about significant investing and financing activities that did not involve the exchange of cash.

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provide guidance on selecting and changing accounting policies and correcting errors in financial statements. It defines an accounting policy as the specific principles, bases, conventions, rules, and practices applied by an entity in preparing and presenting financial statements. When an entity changes its accounting policy, it must disclose the nature, reason for the change, and its impact on financial statements. IAS 8 requires retrospective application of the new accounting policy, except in certain circumstances. Accounting estimates are the approximations used by entities to account for transactions or events when precise measurements cannot be obtained. IAS 8 requires entities to review and update accounting estimates regularly and revise them as necessary. Errors can arise due to mathematical mistakes, misapplication of accounting policies, or oversight. When an error is discovered, entities must correct it retrospectively unless it is impracticable to do so. Cash flow statements report the inflows and outflows of cash and cash equivalents during the period. IAS 7 requires entities to present a cash flow statement that shows the changes in cash and cash equivalents during the period, categorized into operating, investing, and financing activities. Proper application of IAS 8, 7 and other relevant accounting standards is important to ensure the reliability and comparability of financial statements.