A matter of professional judgment

In order to be awarded CPD units you must answer the following five random questions correctly. If you fail the test, please re-read the article before attempting the questions again.

  1. The selection of accounting policy and estimation techniques is intended to aid comparability and consistency in financial statements. However, International Financial Reporting Standards (IFRS) also place particular emphasis on the need to take into account other factors when preparing financial statements. What other factors should be taken into account when preparing financial statements?

  2. Readers of the accounts may be interested in using financial information for making political decisions as well as economic decisions. Different entities may have a range of readers and thus the assessment of the common needs of users should be informed by the entity's experience of their readership. What is the key qualitative characteristic that must be taken into account when selecting accounting policies and estimation techniques?

  3. Entities should follow the requirements of IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, when selecting or changing accounting policies, changing estimation techniques, and correcting errors. An entity should determine the accounting policy to be applied to an item with direct reference to IFRS. In what situation may an accounting policy not be applied in financial statements?

  4. IAS 1, Presentation of Financial Statements, requires that an entity whose financial statements comply with IFRSs should make an explicit and unreserved statement of such compliance in the notes. How can inappropriate accounting policies be rectified?

  5. In extremely rare circumstances, management may conclude that compliance with an IFRS requirement would be so misleading that it would conflict with the objective of financial statements set out in the Framework. What action should management take in these circumstances?

  6. Where IFRS does not specifically apply to a transaction, judgement should be used in developing or applying an accounting policy, which results in financial information, which is relevant to the decision-making and assessment needs of users. In making that judgement, which of the following would not be relevant guidance?

  7. Changes in accounting policy are relatively rare such that significant changes in accounting policy other than those specified by IFRS would hardly occur. Which of the following is not an acceptable reason for changing an accounting policy?

  8. Which of the following is a change in an accounting policy?

  9. When making estimates for prior periods, the basis of estimation should reflect the circumstances that existed at the time and it becomes increasingly difficult to define those circumstances with the passage of time. Estimates and circumstances might be influenced by knowledge of events and circumstances that have arisen since the prior period. In what circumstances can hindsight be used in applying a new accounting policy?

  10. What is the fundamental difference between accounting estimates and accounting policies?