,SOLUTION MANUAL FOR Intermediate Accounting
IFRS 5e Kieso
Notes
1- The file is chapter after chapter.
2- We have shown you few pages sample.
3- The file contains all Appendix and Excel sheet
if it exists.
4- We have all what you need, we make update
at every time. There are many new editions
waiting you.
5- If you think you purchased the wrong file You
can contact us at every time, we can replace it
with true one.
Our email:
, CHAPTER 1
The Environment and Conceptual Framework of
Financial Reporting
Financial Reporting and Accounting Standards
ASSIGNMENT CLASSIFICATION TABLE
Topics Questions Exercises Concepts f
Analysis
1. Global financial markets, 1, 2, 3, 4, 5, 6, 7, E1.11 CA1.1, CA1
8, 9, 10
and financial reportingmajor standard-
setting bodies,
and the meaning of IFRS.
2. Objective of financial 11, 12, 13, 14, E1.1, E1.2, E1.3, CA1.32, 3
reportingConceptual framework, 15, 16, 17, 18, E.14, E1.5, E1.11
qualitative characteristics, basic 19, 20, 21, 22, 37
5, 6, 7, 8, 9, 10
elements of financial statements.
3. Standard-setting 23, 24, 25, 26, E1.3, E1.6, E1.7, CA1.4, CA1
organizationsAssumptions and principles 27, 28, 29, 30, E1.8, E1.9, CA1.7, CA1
of accounting. 31, 32, 33, 34, E1.10, E1.11 2, 3, 5, 6, 8
35, 36, 37, 38,
39, 40, 41, 4211,
12, 13, 14,
15, 16, 17, 18
4. Financial reporting challenges. 43, 4419, 20, 21, E1.11 3, 7, 8, 10,
22, 12CA1.6
23, 24, 25
Copyright © 2020 2024 Wiley Kieso, IFRS, 45/e, Solutions Manual (For Instructor Use Only) 1-1
,ASSIGNMENT CHARACTERISTICS TABLE
Level of Time
Item Description Difficulty (minutes)
CA1.1 IFRS and standard-setting. Simple 5–10
CA1.2 IFRS and standard-setting. Simple 5–10
CA2.41. Qualitative characteristics Moderate 30–35
3
CA2.51. Revenue recognition principle Complex 25–30
4
CA2.61. Expense recognition principle Complex 20–25
5
CA1.1.8 Politicalization of IFRS. Complex 15–20
6
CA2.91. Expense recognition principle Moderate 20–25
7
CA2.10 Cost-constraint Moderate 30–35
1.8
E2E1.1 Usefulness, objective of financial reporting Moderate 10–15
E2E1.2 Usefulness, objective of financial reporting, qualitative Moderate 10–15
characteristics
E2E1.3 Qualitative characteristics Moderate 15–20
E2E1.4 Qualitative characteristics Simple 15–20
E2E1.5 Elements of financial statements Simple 10–15
E2E1.6 Assumptions, principles, and constraint Simple 15–20
E21.7 Assumptions, principles, and constraint Moderate 20–25
E2E1.8 Full disclosure principle Complex 20–25
E2E1.9 Accounting principles–comprehensive Moderate 20–25
E2E1.1 Accounting principles–comprehensive Moderate 20–25
0
CA1.3E Financial reporting and accounting standards. Simple 15–20
1.11
1-2 Copyright © 2020 2024 Wiley Kieso, IFRS, 45/e, Solutions Manual (For Instructor Use Only)
, ANSWERS TO QUESTIONS
1. World markets are becoming increasingly intertwined. The tremendous variety and volume of both
exported and imported goods indicates the extensive involvement in international trade. As a
result, the move towards adoption of international financial reporting standards has and will
continue in the future.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
2. Financial accounting measures, classifies, and summarizes in report form those activities and that
information which relate to the enterprise as a whole for use by parties both internal and external
to a business enterprise. Managerial accounting also measures, classifies, and summarizes in
report form enterprise activities, but the communication is for the use of internal, managerial
parties, and relates more to subsystems of the entity. Managerial accounting is management
decision-oriented and directed more toward product line, division, and profit center reporting.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
3. Financial statements generally refer to the four basic financial statements: statement of financial
position, statement of comprehensive income (or income statement), statement of cash flows, and
statement of changes in equity. Financial reporting is a broader concept; it includes the basic
financial statements and any other means of communicating financial and economic data to
interested external parties.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
4. If a company’s financial performance is measured accurately, fairly, and on a timely basis, the right
managers and companies are able to attract investment capital. To provide unreliable and
irrelevant information leads to poor capital allocation which adversely affects the securities market.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
5. A single set of high- quality accounting standards ensures adequate comparability. Investors are
able to make better investment decisions if they receive financial information from a U.S. company
that is comparable to an international competitor.
LO: 12, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
6. The objective of general-purpose financial reporting is to provide financial information about the
reporting entity that is useful to present and potential equity investors, lenders, and other creditors
in making decisions about providing resources to the entity.¶
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication¶
¶
7. General-purpose financial statements provide financial reporting information to a wide variety of
users. To be cost effective in providing this information, general-purpose financial statements
provide at the least cost the most useful information possible.¶
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication¶
¶
8. Shareholders, creditors, suppliers, employees, and regulators all use general-purpose financial
statements. The primary user group is capital providers (shareholders and creditors).¶
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication¶
¶
9. The proprietary perspective is not considered appropriate because this perspective generally does
not reflect a realistic view of the financial reporting environment. Instead, the entity perspective
is adopted which is consistent with the present business environment where most companies
engaged in financial reporting have substance separate and distinct from their owners.¶
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication¶
Copyright © 2020 2024 Wiley Kieso, IFRS, 45/e, Solutions Manual (For Instructor Use Only) 1-3
, ¶
1-4 Copyright © 2020 2024 Wiley Kieso, IFRS, 45/e, Solutions Manual (For Instructor Use Only)
,Questions Chapter 1 (Continued)¶
¶
10. This statement is not correct. The objective of financial reporting is primarily to provide information
to investors interested in assessing the company’s ability to generate net cash inflows and
management’s ability to protect and enhance the capital providers’ investments. Financial
reporting should help investors assess the amounts, timing and uncertainty of prospective cash
inflows.¶
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication¶
¶
11. The two organizations involved in international standard-setting are IOSCO (International
Organization of Securities Commissions) and the IASB (International Accounting Standards
Board.). The IOSCO does not set accounting standards, but ensures that the global markets can
operate in an efficient and effective manner. Conversely, the IASB’s mission is to develop a single
set of high- quality, enforceable and global financial reporting standards (IFRSs) for general-
purpose financial statements.
LO: 31, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
127. IOSCO (International Organization of Securities Commissions) is an association of organizations
that regulate the world’s securities markets. Members are generally the main financial regulators
for a given country. IOSCO does not set accounting standards.
LO: 31, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
138. The mission of the IASB (International Accounting Standards Board) is to develop, in the public
interest, a single set of high- quality, enforceable global international financial reporting standards
(IFRSs) for general-purpose financial statements.
LO: 31, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
149. The purpose of the Monitoring Board is to establish a link between accounting standard-setters
and those public authorities (such as IOSCO) that generally oversee accounting standard-setters.
This board also provides political legitimacy to the overall organization.
LO: 31, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
1510. The IASB preliminary views are based on research and analysis conducted by the IASB staff.
IASB exposure drafts are issued after the Board evaluates research and public response to
preliminary views. IASB standards are issued after the Board evaluates responses to the exposure
draft.
LO: 31, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
111. A conceptual framework is a coherent system of concepts that flow from an objective. The
objective identifies the purpose of financial reporting. The other concepts provide guidance on
(1) identifying the boundaries of financial reporting, (2) selecting the transactions, other events,
and circumstances to be represented, (3) how they should be recognized and measured, and (4)
how they should be summarized and reported. A conceptual framework is necessary in financial
accounting for the following reasons:
(1) It will enable the IASB to issue more useful and consistent standards in the future.
(2) New issues will be more quickly solvable by reference to an existing framework of basic
theory.
(3) It will increase financial statement users’ understanding of and confidence in financial
reporting.
(4) It will enhance comparability among companies’ financial statements.
LO: 12, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
212. The primary objective of financial reporting is as follows:
The objective of general- purpose financial reporting is to provide financial information about the
reporting entity that is useful to present and potential equity investors, lenders, and other
Copyright © 2020 2024 Wiley Kieso, IFRS, 45/e, Solutions Manual (For Instructor Use Only) 1-5
, creditors in making decisions about providing resources to the entity. Information that is
decision useful to capital providers may also be useful to other users of financial reporting who are
not capital providers.
LO: 12, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
313. Yes. Management stewardship is how well management uses entity resources to create and
sustain value. To evaluate stewardship, companies should provide information about their financial
position, changes in financial position, and performance. They should also show how efficiently
and effectively management and the board of directors have discharged their responsibilities to
use the entity’s resources wisely. Therefore, information that is useful in assessing stewardship
can also be useful for assessing a company’s prospects for future net cash inflows.
LO: 12, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
414. The IASB identified the qualitative characteristics of accounting information that distinguish better
(more useful) information from inferior (less useful) information for decision-making purposes.
The characteristics involve determining which alternative provides the most useful information for
decision-making purposes (decision-usefulness). The fundamental qualitative characteristics are
relevance and faithful representation.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
515. Relevance and faithful representation are the two fundamental qualities that make accounting
information useful for decision-making. To be relevant, accounting information must be capable of
making a difference in a decision. Information with no bearing on a decision is irrelevant. Financial
information is capable of making a difference when it has predictive value, confirmatory value, or
both. Faithful representation means that the item is representative of the real-world phenomenon
that it purports to represent. Faithful representation is a necessity because most users have
neither the time nor the expertise to evaluate the factual content of the information. In other words,
faithful representation means that the numbers and descriptions match what really existed or
happened. To be a faithful representation, information must be complete, neutral, and free of
material error.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
¶
Questions Chapter 2 (Continued)¶
616. Materiality refers to the relative significance of an amount, activity, or item to informative
disclosure and a proper presentation of financial position and the results of operations. Materiality
has qualitative and quantitative aspects; both the nature of the item and its relative size enter into
its evaluation.
Materiality is a company-specific aspect of relevance. Information is material if omitting it or
misstating it could influence decisions that users make on the basis of the reported financial
information. An individual company determines whether information is material because both the
nature and/or magnitude of the item(s) to which the information relates must be considered in the
context of an individual company’s financial report. Information is immaterial, and therefore
irrelevant, if it would have no impact on a decision-maker. In short, it must make a difference or a
company need not disclose it. Assessing materiality is one of the more challenging aspects of
accounting because it requires evaluating both the relative size and importance of an item.
However, it is difficult to provide firm guidelines in judging when a given item is or is not material.
Materiality varies both with relative amount and with relative importance.
One should consider the importance of the relative size of an item in determining its materiality. It
is generally not feasible to specify uniform quantitative thresholds at which an item becomes
material. Rather, materiality judgments should be made in the context of the nature and the
amount of an item. Materiality factors into a great many internal accounting decisions. Only by the
1-6 Copyright © 2020 2024 Wiley Kieso, IFRS, 45/e, Solutions Manual (For Instructor Use Only)
, exercise of good judgment and professional expertise can reasonable and appropriate answers be
found, which is the materiality concept sensibly applied.
LO: 2, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
717. Disagree. The IASB indicates that neutrality is supported by the exercise of prudence. Prudence
is the exercise of caution when making judgements under conditions of uncertainty. That is, the
exercise of prudence means that assets and income are not overstated and liabilities and
expenses are not understated. Furthermore, exercising prudence does not mean primacy to the
understatement of assets or income or the overstatement of liabilities or expenses. Such
misstatements can lead to the overstatement or understatement of income or expenses in future
periods. Similarly, exercising prudence need not be biased against recognition of assets or income
relative to recognition of liabilities or expenses. Such bias is inconsistent with neutrality – the
attribute that supports faithful representation and useful information.
LO: 2, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
818. The enhancing qualitative characteristics are comparability, verifiability, timeliness, and
understandability. These characteristics enhance the decision usefulness of financial reporting
information that is relevant and faithfully represented. Enhancing qualitative characteristics are
complementary to the fundamental qualitative characteristics. Enhancing qualitative characteristics
distinguish more-useful information from less-useful information.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
919. Decision-makers vary widely in the types of decisions they make, how they make decisions, the
information they already possess or can obtain from other sources, and their ability to process the
information. For information to be useful, there must be a connection (linkage) between these
users and the decisions they make. This link, understandability, is the quality of information that
lets reasonably informed users see its significance. Understandability is enhanced when
information is classified, characterized, and presented clearly and concisely.
Users of financial reports are assumed to have a reasonable knowledge of business and economic
activities. In making decisions, users also should review and analyze the information with
reasonable diligence. Information that is relevant and faithfully represented should not be excluded
from financial reports solely because it is too complex or difficult for some users to understand
without assistance.
LO: 12, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
Questions Chapter 2 (Continued)
1020. Information that is measured and reported in a similar manner for different companies is
considered comparable. Comparability enables users to identify the real similarities and
differences in economic events between companies. Another type of comparability, consistency,
is present when a company applies the same accounting treatment to similar events, from period
to period. Through such application, the company shows consistent use of accounting standards.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
1121. An important aspect of developing any theoretical structure is the body of basic elements or
definitions to be included in it. Accounting uses many terms with distinctive and specific meanings.
These terms constitute the language of business or the jargon of accounting. One such term is
asset. Is it merely something we own? Or is an asset something we have the right to use, as in the
case of leased equipment? Or is it anything of value used by a company to generate revenues—in
which case, should we also consider the managers of a company as an asset?
LO: 2, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
1222. The IASB classifies the elements into two distinct groups. The first group of three elements—
assets, liabilities, and equity—describes amounts of resources and claims to resources at a
Copyright © 2020 2024 Wiley Kieso, IFRS, 45/e, Solutions Manual (For Instructor Use Only) 1-7
, moment in time. The second group of two elements describes transactions, events, and
circumstances that affect a company during a period of time. The first group, affected by elements
of the second group, provides at any time the cumulative result of all changes. This interaction is
referred to as “articulation.” That is, key figures in one financial statement correspond to balances
in another.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
1323. The five basic assumptions that underlie the financial accounting structure are:
(1) An economic entity assumption.
(2) A going concern assumption.
(3) A monetary unit assumption.
(4) A periodicity assumption.
(5) Accrual-basis assumption.
LO: 3, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
1424. a) Users need to know a company’s performance and economic status on a timely basis so
that they can evaluate and compare companies, and take appropriate actions. Therefore,
companies must report information periodically. The periodicity (or time period) assumption
implies that a company can divide its economic activities into artificial time periods. These
time periods vary, but the most common are monthly, quarterly, and yearly. The shorter the
time period, the more difficult it is to determine the proper net income for the period. A
month’s results usually prove less reliable than a quarter’s results, and a quarter’s results are
likely to be less reliable than a year’s results. Investors desire and demand that a company
quickly process and disseminate information. Yet the quicker a company releases the
information, the more likely the information will include errors. This phenomenon provides an
interesting example of the trade-off between relevance and faithful representation in preparing
financial data. The problem of defining the time period becomes more serious as product
cycles shorten and products become obsolete more quickly. Many believe that, given
technology advances, companies need to provide more online, real-time financial information
to ensure the availability of relevant information.
Questions Chapter 2 (Continued)
b) Companies prepare financial statements using the accrual basis of accounting. Accrual-basis
accounting means that transactions that change a company’s financial statements are
recorded in the periods in which the events occur. For example, using the accrual basis
means that companies recognize revenues when it satisfies a performance obligation (the
revenue recognition principle). This is in contrast to recognition based on receipt of cash.
Likewise, under the accrual basis, companies recognize expenses when incurred (the
expense recognition principle) rather than when paid. Financial statements prepared on the
accrual basis inform users not only of past transactions involving the payment and receipt of
cash but also of obligations to pay cash in the future and of resources that represent cash to
be received in the future. Hence, they provide the type of information about past transactions
and other events that is most useful in making economic decisions.
LO: 3, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
1525. The monetary unit assumption assumes that the unit of measure remains reasonably stable so
that Euros, Yen, or dollars of different years can be added without any adjustment. When the value
of the currency fluctuates greatly over time, the monetary unit assumption loses its validity.
The IASB indicated that it expects the currency unadjusted for inflation or deflation to be used to
measure items recognized in financial statements. Only if circumstances change dramatically will
the Board consider a more stable measurement unit.
LO: 3, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
1-8 Copyright © 2020 2024 Wiley Kieso, IFRS, 45/e, Solutions Manual (For Instructor Use Only)
IFRS 5e Kieso
Notes
1- The file is chapter after chapter.
2- We have shown you few pages sample.
3- The file contains all Appendix and Excel sheet
if it exists.
4- We have all what you need, we make update
at every time. There are many new editions
waiting you.
5- If you think you purchased the wrong file You
can contact us at every time, we can replace it
with true one.
Our email:
, CHAPTER 1
The Environment and Conceptual Framework of
Financial Reporting
Financial Reporting and Accounting Standards
ASSIGNMENT CLASSIFICATION TABLE
Topics Questions Exercises Concepts f
Analysis
1. Global financial markets, 1, 2, 3, 4, 5, 6, 7, E1.11 CA1.1, CA1
8, 9, 10
and financial reportingmajor standard-
setting bodies,
and the meaning of IFRS.
2. Objective of financial 11, 12, 13, 14, E1.1, E1.2, E1.3, CA1.32, 3
reportingConceptual framework, 15, 16, 17, 18, E.14, E1.5, E1.11
qualitative characteristics, basic 19, 20, 21, 22, 37
5, 6, 7, 8, 9, 10
elements of financial statements.
3. Standard-setting 23, 24, 25, 26, E1.3, E1.6, E1.7, CA1.4, CA1
organizationsAssumptions and principles 27, 28, 29, 30, E1.8, E1.9, CA1.7, CA1
of accounting. 31, 32, 33, 34, E1.10, E1.11 2, 3, 5, 6, 8
35, 36, 37, 38,
39, 40, 41, 4211,
12, 13, 14,
15, 16, 17, 18
4. Financial reporting challenges. 43, 4419, 20, 21, E1.11 3, 7, 8, 10,
22, 12CA1.6
23, 24, 25
Copyright © 2020 2024 Wiley Kieso, IFRS, 45/e, Solutions Manual (For Instructor Use Only) 1-1
,ASSIGNMENT CHARACTERISTICS TABLE
Level of Time
Item Description Difficulty (minutes)
CA1.1 IFRS and standard-setting. Simple 5–10
CA1.2 IFRS and standard-setting. Simple 5–10
CA2.41. Qualitative characteristics Moderate 30–35
3
CA2.51. Revenue recognition principle Complex 25–30
4
CA2.61. Expense recognition principle Complex 20–25
5
CA1.1.8 Politicalization of IFRS. Complex 15–20
6
CA2.91. Expense recognition principle Moderate 20–25
7
CA2.10 Cost-constraint Moderate 30–35
1.8
E2E1.1 Usefulness, objective of financial reporting Moderate 10–15
E2E1.2 Usefulness, objective of financial reporting, qualitative Moderate 10–15
characteristics
E2E1.3 Qualitative characteristics Moderate 15–20
E2E1.4 Qualitative characteristics Simple 15–20
E2E1.5 Elements of financial statements Simple 10–15
E2E1.6 Assumptions, principles, and constraint Simple 15–20
E21.7 Assumptions, principles, and constraint Moderate 20–25
E2E1.8 Full disclosure principle Complex 20–25
E2E1.9 Accounting principles–comprehensive Moderate 20–25
E2E1.1 Accounting principles–comprehensive Moderate 20–25
0
CA1.3E Financial reporting and accounting standards. Simple 15–20
1.11
1-2 Copyright © 2020 2024 Wiley Kieso, IFRS, 45/e, Solutions Manual (For Instructor Use Only)
, ANSWERS TO QUESTIONS
1. World markets are becoming increasingly intertwined. The tremendous variety and volume of both
exported and imported goods indicates the extensive involvement in international trade. As a
result, the move towards adoption of international financial reporting standards has and will
continue in the future.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
2. Financial accounting measures, classifies, and summarizes in report form those activities and that
information which relate to the enterprise as a whole for use by parties both internal and external
to a business enterprise. Managerial accounting also measures, classifies, and summarizes in
report form enterprise activities, but the communication is for the use of internal, managerial
parties, and relates more to subsystems of the entity. Managerial accounting is management
decision-oriented and directed more toward product line, division, and profit center reporting.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
3. Financial statements generally refer to the four basic financial statements: statement of financial
position, statement of comprehensive income (or income statement), statement of cash flows, and
statement of changes in equity. Financial reporting is a broader concept; it includes the basic
financial statements and any other means of communicating financial and economic data to
interested external parties.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
4. If a company’s financial performance is measured accurately, fairly, and on a timely basis, the right
managers and companies are able to attract investment capital. To provide unreliable and
irrelevant information leads to poor capital allocation which adversely affects the securities market.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
5. A single set of high- quality accounting standards ensures adequate comparability. Investors are
able to make better investment decisions if they receive financial information from a U.S. company
that is comparable to an international competitor.
LO: 12, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
6. The objective of general-purpose financial reporting is to provide financial information about the
reporting entity that is useful to present and potential equity investors, lenders, and other creditors
in making decisions about providing resources to the entity.¶
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication¶
¶
7. General-purpose financial statements provide financial reporting information to a wide variety of
users. To be cost effective in providing this information, general-purpose financial statements
provide at the least cost the most useful information possible.¶
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication¶
¶
8. Shareholders, creditors, suppliers, employees, and regulators all use general-purpose financial
statements. The primary user group is capital providers (shareholders and creditors).¶
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication¶
¶
9. The proprietary perspective is not considered appropriate because this perspective generally does
not reflect a realistic view of the financial reporting environment. Instead, the entity perspective
is adopted which is consistent with the present business environment where most companies
engaged in financial reporting have substance separate and distinct from their owners.¶
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication¶
Copyright © 2020 2024 Wiley Kieso, IFRS, 45/e, Solutions Manual (For Instructor Use Only) 1-3
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1-4 Copyright © 2020 2024 Wiley Kieso, IFRS, 45/e, Solutions Manual (For Instructor Use Only)
,Questions Chapter 1 (Continued)¶
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10. This statement is not correct. The objective of financial reporting is primarily to provide information
to investors interested in assessing the company’s ability to generate net cash inflows and
management’s ability to protect and enhance the capital providers’ investments. Financial
reporting should help investors assess the amounts, timing and uncertainty of prospective cash
inflows.¶
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication¶
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11. The two organizations involved in international standard-setting are IOSCO (International
Organization of Securities Commissions) and the IASB (International Accounting Standards
Board.). The IOSCO does not set accounting standards, but ensures that the global markets can
operate in an efficient and effective manner. Conversely, the IASB’s mission is to develop a single
set of high- quality, enforceable and global financial reporting standards (IFRSs) for general-
purpose financial statements.
LO: 31, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
127. IOSCO (International Organization of Securities Commissions) is an association of organizations
that regulate the world’s securities markets. Members are generally the main financial regulators
for a given country. IOSCO does not set accounting standards.
LO: 31, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
138. The mission of the IASB (International Accounting Standards Board) is to develop, in the public
interest, a single set of high- quality, enforceable global international financial reporting standards
(IFRSs) for general-purpose financial statements.
LO: 31, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
149. The purpose of the Monitoring Board is to establish a link between accounting standard-setters
and those public authorities (such as IOSCO) that generally oversee accounting standard-setters.
This board also provides political legitimacy to the overall organization.
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1510. The IASB preliminary views are based on research and analysis conducted by the IASB staff.
IASB exposure drafts are issued after the Board evaluates research and public response to
preliminary views. IASB standards are issued after the Board evaluates responses to the exposure
draft.
LO: 31, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
111. A conceptual framework is a coherent system of concepts that flow from an objective. The
objective identifies the purpose of financial reporting. The other concepts provide guidance on
(1) identifying the boundaries of financial reporting, (2) selecting the transactions, other events,
and circumstances to be represented, (3) how they should be recognized and measured, and (4)
how they should be summarized and reported. A conceptual framework is necessary in financial
accounting for the following reasons:
(1) It will enable the IASB to issue more useful and consistent standards in the future.
(2) New issues will be more quickly solvable by reference to an existing framework of basic
theory.
(3) It will increase financial statement users’ understanding of and confidence in financial
reporting.
(4) It will enhance comparability among companies’ financial statements.
LO: 12, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
212. The primary objective of financial reporting is as follows:
The objective of general- purpose financial reporting is to provide financial information about the
reporting entity that is useful to present and potential equity investors, lenders, and other
Copyright © 2020 2024 Wiley Kieso, IFRS, 45/e, Solutions Manual (For Instructor Use Only) 1-5
, creditors in making decisions about providing resources to the entity. Information that is
decision useful to capital providers may also be useful to other users of financial reporting who are
not capital providers.
LO: 12, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
313. Yes. Management stewardship is how well management uses entity resources to create and
sustain value. To evaluate stewardship, companies should provide information about their financial
position, changes in financial position, and performance. They should also show how efficiently
and effectively management and the board of directors have discharged their responsibilities to
use the entity’s resources wisely. Therefore, information that is useful in assessing stewardship
can also be useful for assessing a company’s prospects for future net cash inflows.
LO: 12, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
414. The IASB identified the qualitative characteristics of accounting information that distinguish better
(more useful) information from inferior (less useful) information for decision-making purposes.
The characteristics involve determining which alternative provides the most useful information for
decision-making purposes (decision-usefulness). The fundamental qualitative characteristics are
relevance and faithful representation.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
515. Relevance and faithful representation are the two fundamental qualities that make accounting
information useful for decision-making. To be relevant, accounting information must be capable of
making a difference in a decision. Information with no bearing on a decision is irrelevant. Financial
information is capable of making a difference when it has predictive value, confirmatory value, or
both. Faithful representation means that the item is representative of the real-world phenomenon
that it purports to represent. Faithful representation is a necessity because most users have
neither the time nor the expertise to evaluate the factual content of the information. In other words,
faithful representation means that the numbers and descriptions match what really existed or
happened. To be a faithful representation, information must be complete, neutral, and free of
material error.
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¶
Questions Chapter 2 (Continued)¶
616. Materiality refers to the relative significance of an amount, activity, or item to informative
disclosure and a proper presentation of financial position and the results of operations. Materiality
has qualitative and quantitative aspects; both the nature of the item and its relative size enter into
its evaluation.
Materiality is a company-specific aspect of relevance. Information is material if omitting it or
misstating it could influence decisions that users make on the basis of the reported financial
information. An individual company determines whether information is material because both the
nature and/or magnitude of the item(s) to which the information relates must be considered in the
context of an individual company’s financial report. Information is immaterial, and therefore
irrelevant, if it would have no impact on a decision-maker. In short, it must make a difference or a
company need not disclose it. Assessing materiality is one of the more challenging aspects of
accounting because it requires evaluating both the relative size and importance of an item.
However, it is difficult to provide firm guidelines in judging when a given item is or is not material.
Materiality varies both with relative amount and with relative importance.
One should consider the importance of the relative size of an item in determining its materiality. It
is generally not feasible to specify uniform quantitative thresholds at which an item becomes
material. Rather, materiality judgments should be made in the context of the nature and the
amount of an item. Materiality factors into a great many internal accounting decisions. Only by the
1-6 Copyright © 2020 2024 Wiley Kieso, IFRS, 45/e, Solutions Manual (For Instructor Use Only)
, exercise of good judgment and professional expertise can reasonable and appropriate answers be
found, which is the materiality concept sensibly applied.
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717. Disagree. The IASB indicates that neutrality is supported by the exercise of prudence. Prudence
is the exercise of caution when making judgements under conditions of uncertainty. That is, the
exercise of prudence means that assets and income are not overstated and liabilities and
expenses are not understated. Furthermore, exercising prudence does not mean primacy to the
understatement of assets or income or the overstatement of liabilities or expenses. Such
misstatements can lead to the overstatement or understatement of income or expenses in future
periods. Similarly, exercising prudence need not be biased against recognition of assets or income
relative to recognition of liabilities or expenses. Such bias is inconsistent with neutrality – the
attribute that supports faithful representation and useful information.
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818. The enhancing qualitative characteristics are comparability, verifiability, timeliness, and
understandability. These characteristics enhance the decision usefulness of financial reporting
information that is relevant and faithfully represented. Enhancing qualitative characteristics are
complementary to the fundamental qualitative characteristics. Enhancing qualitative characteristics
distinguish more-useful information from less-useful information.
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919. Decision-makers vary widely in the types of decisions they make, how they make decisions, the
information they already possess or can obtain from other sources, and their ability to process the
information. For information to be useful, there must be a connection (linkage) between these
users and the decisions they make. This link, understandability, is the quality of information that
lets reasonably informed users see its significance. Understandability is enhanced when
information is classified, characterized, and presented clearly and concisely.
Users of financial reports are assumed to have a reasonable knowledge of business and economic
activities. In making decisions, users also should review and analyze the information with
reasonable diligence. Information that is relevant and faithfully represented should not be excluded
from financial reports solely because it is too complex or difficult for some users to understand
without assistance.
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Questions Chapter 2 (Continued)
1020. Information that is measured and reported in a similar manner for different companies is
considered comparable. Comparability enables users to identify the real similarities and
differences in economic events between companies. Another type of comparability, consistency,
is present when a company applies the same accounting treatment to similar events, from period
to period. Through such application, the company shows consistent use of accounting standards.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
1121. An important aspect of developing any theoretical structure is the body of basic elements or
definitions to be included in it. Accounting uses many terms with distinctive and specific meanings.
These terms constitute the language of business or the jargon of accounting. One such term is
asset. Is it merely something we own? Or is an asset something we have the right to use, as in the
case of leased equipment? Or is it anything of value used by a company to generate revenues—in
which case, should we also consider the managers of a company as an asset?
LO: 2, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
1222. The IASB classifies the elements into two distinct groups. The first group of three elements—
assets, liabilities, and equity—describes amounts of resources and claims to resources at a
Copyright © 2020 2024 Wiley Kieso, IFRS, 45/e, Solutions Manual (For Instructor Use Only) 1-7
, moment in time. The second group of two elements describes transactions, events, and
circumstances that affect a company during a period of time. The first group, affected by elements
of the second group, provides at any time the cumulative result of all changes. This interaction is
referred to as “articulation.” That is, key figures in one financial statement correspond to balances
in another.
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1323. The five basic assumptions that underlie the financial accounting structure are:
(1) An economic entity assumption.
(2) A going concern assumption.
(3) A monetary unit assumption.
(4) A periodicity assumption.
(5) Accrual-basis assumption.
LO: 3, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
1424. a) Users need to know a company’s performance and economic status on a timely basis so
that they can evaluate and compare companies, and take appropriate actions. Therefore,
companies must report information periodically. The periodicity (or time period) assumption
implies that a company can divide its economic activities into artificial time periods. These
time periods vary, but the most common are monthly, quarterly, and yearly. The shorter the
time period, the more difficult it is to determine the proper net income for the period. A
month’s results usually prove less reliable than a quarter’s results, and a quarter’s results are
likely to be less reliable than a year’s results. Investors desire and demand that a company
quickly process and disseminate information. Yet the quicker a company releases the
information, the more likely the information will include errors. This phenomenon provides an
interesting example of the trade-off between relevance and faithful representation in preparing
financial data. The problem of defining the time period becomes more serious as product
cycles shorten and products become obsolete more quickly. Many believe that, given
technology advances, companies need to provide more online, real-time financial information
to ensure the availability of relevant information.
Questions Chapter 2 (Continued)
b) Companies prepare financial statements using the accrual basis of accounting. Accrual-basis
accounting means that transactions that change a company’s financial statements are
recorded in the periods in which the events occur. For example, using the accrual basis
means that companies recognize revenues when it satisfies a performance obligation (the
revenue recognition principle). This is in contrast to recognition based on receipt of cash.
Likewise, under the accrual basis, companies recognize expenses when incurred (the
expense recognition principle) rather than when paid. Financial statements prepared on the
accrual basis inform users not only of past transactions involving the payment and receipt of
cash but also of obligations to pay cash in the future and of resources that represent cash to
be received in the future. Hence, they provide the type of information about past transactions
and other events that is most useful in making economic decisions.
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1525. The monetary unit assumption assumes that the unit of measure remains reasonably stable so
that Euros, Yen, or dollars of different years can be added without any adjustment. When the value
of the currency fluctuates greatly over time, the monetary unit assumption loses its validity.
The IASB indicated that it expects the currency unadjusted for inflation or deflation to be used to
measure items recognized in financial statements. Only if circumstances change dramatically will
the Board consider a more stable measurement unit.
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