SBR Ethics, the framework and judgement

ACCA · Strategic Professional · 8 questions

Name: ____________________ Date: ____________

Which pair are the fundamental qualitative characteristics of useful financial information in the Conceptual Framework?
- A Relevance and faithful representation
- B Comparability and timeliness
- C Verifiability and understandability
- D Prudence and materiality
A finance director is asked by the chief executive to delay recognising a large expense so that a bonus target is met. Which fundamental principle is most directly threatened?
- A Professional behaviour only
- B Professional competence
- C Integrity
- D Confidentiality
Under IAS 8, a change from one acceptable accounting policy to another is accounted for:
- A Retrospectively, by restating comparatives
- B By adjusting the opening reserves only
- C Prospectively in the current year only
- D As a prior period error
A company revises the useful life of a machine from 10 to 8 years. Under IAS 8 this is:
- A A change in estimate, applied prospectively
- B A change in policy, applied retrospectively
- C An adjustment to opening reserves
- D A prior period error
Which of the following is a consequence of a prior period error that is material?
- A Ignore it if profit is not affected
- B Adjust only the current year profit
- C Disclose it in the directors' report only
- D Restate the comparative amounts and the opening balance of the earliest period presented
In the Conceptual Framework, an asset is defined as:
- A A right to receive cash only
- B A resource owned by the entity with a known cost
- C A present economic resource controlled by the entity as a result of past events
- D Anything that will generate cash in the future
The going concern assumption means that financial statements are prepared:
- A On the basis that the entity will continue in operation for the foreseeable future
- B Using only historical cost
- C With all assets at current value
- D On a break-up basis
Which of the following is a reason that earnings management harms users of financial statements?
- A It improves comparability
- B It raises the cost of audit only
- C It increases the information given
- D It reduces the faithful representation of performance

Answer key

1. A, 2. C, 3. A, 4. A, 5. D, 6. C, 7. A, 8. D

Comparability, verifiability, timeliness and understandability are enhancing characteristics.
Manipulating the figures to hit a target is a lack of integrity and objectivity, with a self-interest and intimidation threat.
Voluntary changes of policy are applied retrospectively unless impracticable. Changes in estimates are prospective.
Revised useful lives are changes in accounting estimates and affect current and future periods.
Material prior period errors are corrected retrospectively by restating comparatives.
The definition has three parts: a present economic resource, control and a past event.
If management intends to cease trading, the basis is not going concern.
Smoothing or inflating profit makes the information less reliable for decisions.