Questions and Answers of Corporate Finance Core Principles

How does the treatment of changes in foreign exchange rates relate to the prudence and accruals concepts?
It was reported that ‘Belarus’ cumulative inflation index will exceed 100%, which means that IAS 29is likely to be applicable to Belarus up to 2014 . . . does not expect any significant
In connection with IAS 33 Earnings per Share:(a) Define the profit used to calculate basic and diluted EPS. (b) Explain the relationship between EPS and the price/earnings (PE) ratio. Why may
Would the following items justify the calculation of a separate EPS figure under IAS 33?(a) A charge of £1,500 million that appeared in the accounts, described as additional provisions relating to
Explain the adjustments made to earnings when reporting an underlying or headline EPS figure and discuss why this is more relevant than an EPS calculated in accordance with IAS 33.
Why are issues at full market value treated differently from rights issues?
Explain why companies buy back shares and the effect that this has on the earnings per share figure.
Explain reverse share splits and the effect that this has on a company’s market capitalisation.
Discuss the limitations of EPS as a criterion for setting executive remuneration targets.
Discuss the review findings of the European Securities and Markets Authority (ESMA) in relation to the role of the chief operating decision maker.
Discuss the limitations of a statement of cash flows when evaluating a company’s control over its working capital.
Access http://scheller.gatech.edu/centers-initiatives/financial-analysis-lab/index.html and discuss what accounts for the difference in free cash flow between the top three and bottom three
Why is it necessary for financial reporting to be subject to both(a) Mandatory control (b) Statutory control?
Discuss how the Financial Reporting Review Panel plans its activities.
The increasing perception is that IFRS is overly complex and is complicating the search for appropriate forms of financial reporting for entities not covered by the EU Regulation. Discuss:(a) Whether
‘The most favoured way to reduce information overload was to have the company filter the available information set based on users’ specifications of their needs’. given that users have
A continuing problem in accounting is where companies use multiple contracts to circumvent the intentions of rules. Sometimes this is called ‘the need for accounting to reflect substance over
One of the problems faced by the standard setters was the untangling of contracts which delivered multiple performance obligations. Identify a business which supplies multiple services in one
Explain why two companies carrying out identical trading transactions could produce different gross profit figures.
‘We analyze a sample of UK public companies that invoked a True and Fair View (TFV) override during 1998–2000 to assess whether overrides are used opportunistically. We find overrides increase
When preparing accounts under Format 1, how would a bad debt that was materially larger than normal be disclosed?
Annual accounts have been put into such a straitjacket of overemphasis on uniform disclosure that there will be a growing pressure by national bodies to introduce changes unilaterally which will
Explain the relevance to the user of accounts if expenses are classified as ‘administrative expenses’ rather than as ‘cost of sales’.
IAS 1 Presentation of Financial Statements requires ‘other comprehensive income’ items to be included in the statement of comprehensive income and it also requires a statement of changes in
Explain why non-adjusting items are not reported in the financial statements if they are of sufficient materiality to be disclosed.
Explain the criteria that have to be satisfied when identifying an operating segment.
Explain the criteria that have to be satisfied to identify a reportable segment.
Explain why it is necessary to identify a chief operating decision maker and describe the key identifying factors.
Explain the conditions set out in IFRS 5 for determining whether operations have been discontinued and the problems that might arise in applying them.
Explain the conditions that must be satisfied if a non-current asset is to be reported in the statement of financial position as held for sale.
Explain why it is important to an investor to be informed about assets held for sale.
Explain the entries in the statement of cash flows when a non-current asset is sold(a) At a loss (b) At a profit.
Explain the two ways in which dividends received might be classified and discuss which provides the more relevant information.
Discuss if long term debts are ever included with cash equivalents.
Discuss three ways in which free cash flow might be improved.
Discuss the significance of a ratio relating free cash flow to EBITDA.
Explain why depreciation appears in a statement of cash flows prepared applying the indirect method but not in that applying the direct method.
Explain the information that a user can obtain from a statement of cash flows that cannot be obtained from the current or comparative statements of financial position.
It is suggested that a reconciliation of net cash flows to net debt should be required by IFRS. Discuss the relevance of such a reconciliation and the suggestion that it should be a mandatory
Discuss why the financing section of a statement of cash flows does not allow a user to assess a company’s financing policy.
Select an Industry sector from the FTSE 100 companies.(i) Discuss risk factors you consider material.(ii) Review the annual report of a company in that sector and critically comment on the coverage
How is it possible to make shareholders aware of the significance of the exercise of judgement by directors which can turn profits of £6 million into losses of £2 million?
Discuss the effect on reporting standards of the way in which industry is financed.
‘Foreign equity investment increases when countries have mandatory adoption of IFRS and effective enforcement’. Discuss why this may not be required by investors in bonds.
‘The existence of a strong accounting profession is more important than uniform accounting standards in providing relevant information’. Discuss.
Discuss the extent to which creative compliance can have a positive influence on financial reporting standards.
Access the FRC Annual Review of Corporate Reports and discuss the main areas that it proposes to review over the following 2 years.
Using the following link, http://www.ifrs.org/about-us/how we set-standards/ Explain how IFRSs are set by the IFR Foundation’s standard-setting body, the International Accounting Standards Boards.
The following extract is from the IASB Conceptual Framework for Financial Reporting published in March 2018: The Conceptual Framework for Financial Reporting (Conceptual Framework) describes the
‘The replacement of accrual accounting with cash flow accounting would avoid the need for a conceptual framework.’ Discuss.
The IASB has allowed the selective choice of a measurement base. Discuss why this may or may not be preferable to adopting a single measurement base for all elements.
Financial accounting theory has accumulated a vast literature. A cynic might be inclined to say that the vastness of the literature is in sharp contrast to its impact on practice.(a) Describe the
The IASB has a number of projects underway to promote the effective communication of information in the financial statements. Key projects include Principles of Disclosure. The objective of this
‘Rules-based accounting adds unnecessary complexity, encourages financial engineering and does not necessarily lead to a “true and fair view” or a “fair presentation”.’ Discuss.
‘Tax avoidance would not occur if there was a principles rather than rules based approach.’ Discuss.
Explain what you understand by a ‘balance sheet approach’ to income determination and how this is demonstrated in the definition of elements.
Explain how a company assesses materiality when attempting to report a true and fair view of its income.
‘The key qualitative characteristics in the Conceptual Framework are relevance and faithful representation. Preparers of financial statements may face a dilemma in satisfying both criteria at
‘An asset is to be defined in the Framework as ‘a present economic resource controlled by the entity as a result of past events’. Discuss whether property, plant and equipment would
‘The Conceptual Framework regards neutrality as necessary for financial statements to provide a faithful representation of transactions. However, it could be argued that neutrality is impossible to
The concept of materiality is fundamental to financial statement preparation. Therefore the IASB’s proposed practice statement on materiality should have the status of a financial reporting
Select three companies in any sector and review how the auditors have approached setting a materiality threshold in the new enhanced audit reports. Assess if there is a common approach to materiality
Identify two ethical issues which university students experience and where they look for guidance. How useful is that guidance?
The International Association for Accounting Education and Research states that: ‘Professional ethics should pervade the teaching of accounting’ (www.iaaer.org). Discuss how this can be achieved
As a trainee auditor, what ethical issues are you most likely to encounter?
Explain what you think are four common types of ethical issues associated with (a) auditing, (b) public practice and (c) accounting in a corporate environment.
Lord Borrie QC has said of the Public Interest Disclosure Bill that came into force in July 1999 that the new law would encourage people to recognise and identify with the wider public interest, not
An interesting ethical case arose when an employee of a Swiss bank stole records of the accounts of international investors. The records were then offered for sale to the German government on the
‘Confidentiality means that an accountant in business has a loyalty to the business which employs him or her which is greater than any commitment to a professional code of ethics.’ Discuss.
Refer to the Ernst & Young Code of Conduct and discuss the questions they suggest when putting their Global Code of Conduct into action.
Should ethics be applicable at the standard-setting level? Express and justify your own views on this as distinct from repeating the material in the chapter.
Discuss the role of the accounting profession in the issue of ethics.
‘The management of a listed company has a fiduciary duty to act in the best interest of the current shareholders and it would be unethical for them to act in the interest of other parties if this
How might a company develop a code of ethics for its own use?
Outline the advantages and disadvantages of a written code of ethics.
In relation to the following scenarios explain why it is a breach of ethics and what steps could have been taken to avoid the issue:(a) The son of the accountant of a company is employed during the
In each of the following scenarios, outline the ethical problem and suggest ways in which the organisation may solve the problem and prevent its recurrence;(a) A director’s wife uses his company
What is the purpose of measuring income?
Explain the nature of economic income.
The historical cost concept has withstood the test of time. Specify the reasons for this success, together with any aspects of historical cost that you consider are detrimental in the sphere of
What is meant by present value? Does it take account of inflation?
Explain what you understand by an exante model.
Explain the principal criticisms of the economist’s measure of income.
To an accountant, net income is essentially a historical record of the past. To an economist, net income is essentially a speculation about the future. Examine the relative merits of these two
Explain why financial reports prepared under the historical cost convention are subject to the following major limitations:● Periodic comparisons are invalidated; the depreciation charge may be
Compare the operating and financial capital maintenance concepts and discuss if they are mutually exclusive.
‘To be relevant to investors, the profit for the year should include both realised and unrealised gains/ losses.’ Discuss.
Discuss why there are objections to financial statements being prepared using the NRVA model.
Explain the criteria for determining whether hyperinflation exists.
‘Investors benefit when unrealised changes in assets arising from fair value measurement are incorporated in the financial report even if this means that there is greater volatility in income and
The Accounting Onion, a very good US accounting blog,7 critically reviews the revenue recognition policy of a for profit university and provides an extract from the policy as follows;Students are
The ASB made a submission on the 2010 proposed revenue standard and in that submission indicated that the revenue allocation in relation to a contract which involved multiple performance obligations
In the technology sector there has been a high proportion of problems centred on what accountants call improper ‘revenue recognition’ – the recording of revenue that does not exist. Discuss why
Do the proposed/new recognition rules give primary importance to calculating income or fairly presenting the statement of financial position (balance sheet)? How do you support that conclusion?
Executory contracts are contracts where both sides have not yet performed their obligations. If your company has a long-term contract for the supply of raw materials to XYZ Ltd for 50,000 tons per
There is a company which facilitates barter exchanges. Thus the barter company may ask a restaurant to make available a number of free meals which are then effectively exchanged for other services
As soon as the authorities identify new rules, accountants for hire will attempt to find ways around the rules. Identify as many ways as you can in which the new rules can be circumvented.
Access the IASB website and critically review the various decisions made to arrive at the final IFRS on revenue recognition.
A property developer sells a building to a company which has little cash but is willing to exchange vacant land which it owns at a sought-after location. An independent valuer assesses the vacant
HP limits the amount of revenue recognised for a delivered element to the amount that is not contingent on the future delivery of products or services, future performance obligations or subject to

Showing 200 - 300 of 1172