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A The context and purpose of financial reporting

Written by Fahad Mirza (ACCA)

ACCA · Financial Accounting · 6 questions

Name: ____________________   Date: ____________

  1. Which statement shows an entity's assets, liabilities and equity at a particular date?

    • A The statement of changes in equity
    • B The statement of financial position
    • C The statement of profit or loss
    • D The statement of cash flows

  2. Which body sets IFRS Accounting Standards?

    • A The IFRS Advisory Council
    • B The International Sustainability Standards Board
    • C The IFRS Interpretations Committee
    • D The International Accounting Standards Board

  3. Which statement about a limited liability company is correct?

    • A It is a separate legal entity from its owners
    • B Its owners are always personally liable for all of its debts
    • C It cannot own assets in its own name
    • D Its owners must also manage it

  4. Which of these is the main interest of a lender in the financial statements?

    • A How many employees the entity plans to hire
    • B Whether the entity will keep the lender as a customer
    • C Whether directors are using a particular accounting package
    • D Whether the entity can pay interest and repay the loan

  5. Which of these is the best definition of a liability?

    • A The residual interest in the assets after deducting liabilities
    • B A present obligation to transfer an economic resource as a result of past events
    • C A cost that the entity expects to incur in a future period
    • D Any resource expected to bring economic benefits

  6. Who is responsible for preparing a company's financial statements?

    • A The company's customers
    • B The external auditor
    • C The directors
    • D The tax authority

Answer key

1. B, 2. D, 3. A, 4. D, 5. B, 6. C

  1. The statement of financial position is a snapshot at the reporting date. The other statements cover a period.

  2. The IASB issues IFRS Accounting Standards. IFRIC gives guidance, the Advisory Council advises and the ISSB sets sustainability disclosure standards.

  3. A company has its own legal personality, so it can own assets and enter contracts, and shareholders' liability is limited.

  4. Lenders look at profit, cash flow and the position to judge repayment ability.

  5. A liability is a present obligation arising from past events. The other options describe an asset, equity and a future expense.

  6. The directors prepare the statements. The auditor gives an opinion on them.