Topic: Regulatory Environment of Accounting

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  • 1 Marks

FA – May 2016 – L1 – SA – Q20 – Regulatory Environment of Accounting

Identifying which activity is not an investing activity under IAS 7.

Which of the following will NOT be regarded as an investing activity in relation to IAS 7 statement of cash flows?
A. Dividend received
B. Cash paid to acquire property, plant and equipment
C. Cash paid to acquire equities in other entities
D. Cash payment to supplier of goods and services
E. Proceeds from sale of property, plant and equipment

Answer: D. Cash payment to supplier of goods and services

Explanation:
The correct answer is D because under IAS 7, investing activities generally involve transactions related to the acquisition or disposal of long-term assets and investments. Payments to suppliers of goods and services, however, are classified as operating activities, not investing activities. This distinction is key for proper classification in the statement of cash flows.

Run down:
The selected answer is D because payments to suppliers of goods and services pertain to operating activities, and investing activities typically relate to long-term assets or investments.

  • 1 Marks

FA – May 2024 – L1 – SA – Q9 – Regulatory Environment of Accounting

Identifies the importance of recording transactions based on substance rather than legal form.

Why is it important to record the substance of transactions rather than just their legal form in financial statements?

A. Legal principles are often complex and difficult to apply in accounting.
B. Financial statements must comply with tax regulations, not legal principles.
C. The legal form of transactions does not accurately represent their financial impact.
D. Recording transactions based on their legal form is easier and more straightforward.
E. Accountants prefer to use financial substance rather than legal form for simplicity.

 

Answer: C

Explanation: The correct answer is C. Recording transactions based on their substance rather than their legal form ensures that the financial statements accurately reflect the financial reality and impact of those transactions. This approach helps present a more truthful picture of a company’s financial position and performance.

  • 1 Marks

FA – Mar/July 2020 – L1 – SA – Q14 – Regulatory Environment of Accounting

Identifying non-objective of IASB

Which of the following is NOT an objective of the International Accounting Standards Board (IASB)?
A. Review of accounting standards
B. Promotion of the use of accounting standards
C. Promoting application of the accounting standards
D. Convergence of international accounting standards
E. Preparation of the financial statements in line with the requirement of IASB framework

E. Preparation of the financial statements in line with the requirement of IASB framework

Explanation:
The IASB does not prepare financial statements; instead, it focuses on setting standards, promoting their use, and converging international standards.

  • 1 Marks

FA – Mar/July 2020 – L1 – SA – Q8 – Regulatory Environment of Accounting

Differences between financial accounts and management accounts

Which of the following sentences does NOT explain the distinction between financial accounts and management accounts?
A. Financial accounts are primarily for external users and management accounts are primarily for internal users
B. Financial accounts are normally prepared annually while management accounts are prepared monthly
C. Financial accounts are more accurate than management accounts
D. Financial accounts are audited by external auditors whereas management accounts are audited by internal auditors
E. Unlike financial accounts, management accounts are used for rendering returns to tax authorities

E. Unlike financial accounts, management accounts are used for rendering returns to tax authorities

Explanation:
Management accounts are not used for rendering returns to tax authorities; this is the role of financial accounts, which are externally audited and submitted to regulatory authorities. Management accounts are for internal use to assist in decision-making.

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