5. Match the element to the correct definition according to the International Accounting Standards Board's Conceptual Framework for Financial Reporting:
| Element | Definition |
|---|---|
| Expense | Decreases in assets or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims |
| Liability | A present obligation of the entity to transfer an economic resource as a result of past events |
| Asset | A present economic resource controlled by the entity as a result of past events |
| Equity | The residual interest in the assets of the entity after deducting all its liabilities. |
6. Which of the following is an example of following the principle of faithful representation?
A) Showing lease payments as a rental expense
B) Being prudent by recording the entire amount of a convertible loan as a liability
C) Creating a provision for staff relocation costs as part of a planned restructuring
D) Recording a sale and repurchase transaction with a bank as a loan rather than a sale
7. A forum for consultation with parties affected by the work of the International Accounting Standards Board is provided by:
A) The International Financial Reporting Interpretations Committee
B) The IFRS Advisory Council
C) The IFRS Foundation
D) The IFRS Consulting Committee
Answer (2)
The answer matches financial elements to their definitions, highlighting their roles in financial reporting. Showing lease payments as rental expenses illustrates faithful representation, reflecting economic reality. The IFRS Advisory Council provides a consultation forum for affected parties in accounting standards.
;
Let's match each element to its correct definition according to the International Accounting Standards Board's Conceptual Framework for Financial Reporting:
Expense : This is defined as 'Decreases in assets or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims.' Expenses are typically incurred in the process of generating revenue and can arise from several activities such as paying wages or purchasing materials.
Liability : Defined as 'A present obligation of the entity to transfer an economic resource as a result of past events.' Liabilities represent debts or obligations that a company needs to settle in the future due to events or transactions that have occurred in the past, like loans or pending bills.
Asset : An asset is 'A present economic resource controlled by the entity as a result of past events.' Assets are resources such as cash, inventory, or property that a company controls and expects to bring future economic benefit.
Equity : This is the 'residual interest in the assets of the entity after deducting all its liabilities.' It represents the owners’ claim on the company after all obligations have been paid off and is equivalent to the net assets of the entity.
Faithful representation in financial reporting implies that information should be a complete, neutral, and free from error depiction of a phenomenon.
D) Recording a sale and repurchase transaction with a bank as a loan rather than a sale is an example of faithful representation. This option reflects that the economic substance of the transaction is being reported truthfully, as it indicates that the risks and rewards of ownership have not been transferred, and hence the transaction resembles a secured borrowing.
The forum for consultation with parties affected by the work of the International Accounting Standards Board is:
B) The IFRS Advisory Council. This council provides a platform for stakeholders to discuss various issues and offer advice to both the IASB and the IFRS Foundation Trustees. Its role is crucial in ensuring that the standard-setting process is inclusive and considers a wide range of views and opinions."}
