7-6

1.) W/c of the ff would likely prepare the most accurate financial forecast for a corporate entity based
on empirical evidence? CORPORATE MANAGEMENT

2.) What is the most useful information in predicting future cash flows?

CURRENT EARNINGS BASED ON ACCRUAL ACCOUNTING

3.) The accrual basis of accounting is most useful for

PREDICTING THE LONG-TERM FINANCIAL PERFORMANCE

4.) The FS prepared under GAAP

Are not highly precise because estimate and judgment must be made

8-1

!.) PAS 1, paragraph 112, provides that the notes to the FS of an entity shall:

a.) Present information about the basis of preparation of the FS and the specific acctg policies used.
b.) Disclose the information required by PFRS that is not presented elsewhere in the FS.
c.) Provide additional information that is not presented on the face of the FS but that is necessary for a
fair presentation

2.) PAS 1, paragraph 114, provides that notes are normally presented in the ff order:

a.) Statement of compliance with PFRS

b.) Summary of significant accounting policies used
c.) Supporting information or computation for line items presented in the FS
d.) Other disclosures, such as contingent liabilities, unrecognized contractual commitments and
nonfinancial disclosures

3.) PAS 1, paragraph 138, provides that an entity shall disclose the ff:

a.) The domicile and legal form of the entity, the country of incorporation and the address of the
registered office or principal place of business.
b.) A description of the nature of the entity’s operations and the principal activities.
c.) The name of the parent entity and the ultimate parent of the group.

8-2

1.) The presentation of the notes to FS in a systematic manner

IS MANDATORY, AS FAR AS PRACTICABLE

2.) The cross-reference between each line item in the FS and any related information disclosed in the
notes to FS IS MANDATORY
3.) Disclosure of information about key sources of estimation uncertainty IS MANDATORY.

4.) Disclosure of information about judgments IS MANDATORY.

8-3

1.) What is the purpose of information presented in the notes to FS?

TO PROVIDE DISCLOSURES REQUIRED BY GAAP

2.) The notes to FS should be used to:

a.) Describe significant acctg policies
b.) Describe depreciation methods employed
c.) Describe the principles and methods peculiar to the industry in w/c the entity operates

3.) An entity shall disclose in the summary of significant acctg policies

* THE MEASUREMENT BASIS USED IN PREPARING THE FS
-such as historical cost, current cost, realizable value and present value
* THE ACCOOUNTING POLICIES USED that are relevant to an understanding of the FS

4.) W/c of the ff info should be disclosed in the summary of significant acctg policies?
CRITERIA FOR DETERMINING W/C INVESTMENTS ARE TREATED AS CASH EQUIVALENTS

5.) The summary if significant acctg policies should disclose

* BASIS OF PROFIT RECOGNITION ON LONG TERM CONSTRUCTION CONTRACTS
* THE DEPRECIATION METHOD USED ONLY
* PPE recorded at COST w/ the depreciation computed principally by straight line method

8-4

1.) Notes to financial statements

AMPLIFY OR EXPLAIN ITEMS PRESENTED IN THE BODY OF FS

2.) Statements regarding to notes to FS:

* IFRS requires specific note disclosures including disaggregation of inventories into classifications
such as merchandise, production supplies, goods in process, and finished goods.
* IFRS requires a maturity analysis for receivables.

3.) The disclosure of acctg policies is important to FS users in determining

WHETHER ACCTG POLICIES ARE CONSISTENTLY APPLIED FROM YEAR TO YEAR.

4.) Significant acctg policies may not be OMITTED FROM FS DISCLOSURE

5.) Required disclosure of acctg policies:
* The measurement basis used in the FS
* Disclosure required by IFRS
* The nature of operations and the policies that the users of the FS would expect to be disclosed

6.) The standard of adequate disclosure is best described by

Disclosure of any financial facts significant enough to influence the judgment of an informed user

7.) Application of full disclosure principle

Is demonstrated by the use of supplementary information presenting the effects of changing prices

CHAPTER 9-1
1.) Related parties include:
* Affiliates - parent, subsidiary and fellow subsidiaries
* Associates
* Venturer in a joint venture
* Key management personnel
* Close family members of an individual are those family members who may be expected to influence
or be influenced by that individual in their dealing with the entity
a. The individual’s spouse and children
b. Children of the individual’s spouse
c. Dependents of the individual or the individual’s spouse
* Individuals owning directly or indirectly an interest in the voting power of the reporting entity that
gives them significant influence over the entity, and close family members of such individuals
* Postemployment benefit plans for the benefit of employees

2.) Unrelated parties include:

* Two entities simply because they have a director or key management personnel in common
* Providers of finance, trade unions, public utilities and government agencies in the course of their
normal dealings with an entity by virtue only of those dealings
* A single customer, supplier, franchisor or general agent with whom an entity transacts a significant
volume of business merely by virtue of the resulting economic dependence
* Two venturers simply because they share joint control over a joint venture

9-2
1.) Mandated related party disclosure:
* Relationship between parent and subsidiaries
* Name of the entity’s parent and the ultimate controlling party
* If neither the entity’s parent nor the ultimate controlling entity produces FS available for public use,
then the name of the next most senior parent that does so
2.) Minimum related party disclosure:
* The amount of related party transaction
* The amount of the outstanding balance and the terms and conditions
* Allowance for doubtful accounts related to the outstanding balance
3.) PAS 24, paragraph 12, requires disclosure of related party relationship where control exists
irrespective of whether there have been transactions between the related parties.
Paragraph 17, provides that if there have been transactions between related parties, an entity shall
disclose the nature of the related party relationship as well as information about the transactions, such
as the ff:
a.) The amount of the transaction
b.) The amount of outstanding balance, the terms and conditions, whether secured or unsecured, and
nature of consideration to be provided in settlement
c.) Allowance for doubtful accounts related to the outstanding balance
d.) The doubtful accounts expense recognized during the period in respect of the amount due from
related parties

4.) PAS 24, paragraph 16, provides that an entity is required to disclose key management personnel
compensation in total and for each of the ff categories:
a.) Short-term employee benefits
b.) Postemployment benefits, for example, retirement pensions
c.) Other long-term benefits
d.) Termination benefits
e.) Share based payment transactions., share options

9-3
1.) All of the ff fall w/in the definition of an entity’s related party:
a.) Joint venture in w/c the entity is a venture
b.) A postemployment benefit plan for the benefit of the employees
c.) An executive director of the entity