More than 100 countries around the world, including all major U.S. trading partners, now use or have committed to adopting IFRS. Nearly as many use international auditing and assurance standards and international ethics standards developed by independent standard-setting boards under the International Federation of Accountants. To ensure that CPAs have a basic competence in these standards, the AICPA Board of Examiners has decided to test them in three of the four sections of the exam beginning in 2011.
Although the board does not disclose specific weightings at the topic level, it has made clear that it expects exam takers to exhibit adequate competence in international standards in much the same way that they should exhibit competence in U.S. GAAP and GAAS.
The board’s decision to include international standards is not contingent on action by the SEC to require or allow U.S. public companies to report under IFRS, according to senior AICPA exam staff. Rather, it reflects the reality of the interconnectedness of world economies and its impact on organizations operating in the U.S.
Below are sample IFRS questions disclosed by the board in February.
1. Under IFRS, changes in accounting policies are
A. Permitted if the change will result in a more reliable and more relevant presentation of the financial statements.
B. Permitted if the entity encounters new transactions, events, or conditions that are substantively different from existing or previous transactions.
C. Required on material transactions, if the entity had previously accounted for similar, though immaterial, transactions under an unacceptable accounting method.
D. Required if an alternate accounting policy gives rise to a material change in assets, liabilities, or the current-year net income.
2. Under IFRS, an entity that acquires an intangible asset may use the revaluation model for subsequent measurement only if
A. The useful life of the intangible asset can be reliably determined.
B. An active market exists for the intangible asset.
C. The cost of the intangible asset can be measured reliably.
D. The intangible asset is a monetary asset.
3. Under IFRS, which of the following is a criterion that must be met in order for an item to be recognized as an intangible asset other than goodwill?
A. The item’s fair value can be measured reliably.
B. The item is part of the entity’s activities aimed at gaining new scientific or technical knowledge.
C. The item is expected to be used in the production or supply of goods or services.
D. The item is identifiable and lacks physical substance.
4. An entity purchases a trademark and incurs the following costs in connection with the trademark:
|One-time trademark purchase price
|Nonrefundable VAT taxes
|Training sales personnel on the use of the new trademark
|Research expenditures associated with the purchase of the new trademark
|Legal costs incurred to register the trademark
|Salaries of the administrative personnel
Applying IFRS and assuming that the trademark meets all of the applicable initial asset recognition criteria, the entity should recognize an asset in the amount of
5. Under IFRS, when an entity chooses the revaluation model as its accounting policy for measuring property, plant and equipment, which of the following statements is correct?
A. When an asset is revalued, the entire class of property, plant and equipment to which that asset belongs must be revalued.
B. When an asset is revalued, individual assets within a class of property, plant and equipment to which that asset belongs can be revalued.
C. Revaluations of property, plant and equipment must be made at least every three years.
D. Increases in an asset’s carrying value as a result of the first revaluation must be recognized as a component of profit or loss.
6. Upon first-time adoption of IFRS, an entity may elect to use fair value as deemed cost for
A. Biological assets related to agricultural activity for which there is no active market.
B. Intangible assets for which there is no active market.
C. Any individual item of property, plant and equipment.
D. Financial liabilities that are not held for trading.
7. Under IFRS, which of the following is the first step within the hierarchy of guidance to which management refers, and whose applicability it considers, when selecting accounting policies?
A. Consider the most recent pronouncements of other standard- setting bodies to the extent they do not conflict with the IFRS or the IASB Framework.
B. Apply a standard from IFRS if it specifically relates to the transaction, other event, or condition.
C. Consider the applicability of the definitions, recognition criteria, and measurement concepts in the IASB Framework.
D. Apply the requirements in IFRS dealing with similar and related issues.
8. On January 1, year 1, an entity acquires for $100,000 a new piece of machinery with an estimated useful life of 10 years. The machine has a drum that must be replaced every five years and costs $20,000 to replace. Continued operation of the machine requires an inspection every four years after purchase; the inspection cost is $8,000. The company uses the straight-line method of depreciation. Under IFRS, what is the depreciation expense for year 1?
9. On July 1, year 2, a company decided to adopt IFRS. The company’s first IFRS reporting period is as of and for the year ended December 31, year 2. The company will present one year of comparative information. What is the company’s date of transition to IFRS?
A. January 1, year 1.
B. January 1, year 2.
C. July 1, year 2.
D. December 31, year 2.
10. A company determined the following values for its inventory as of the end of its fiscal year:
|Current replacement cost
|Net realizable value
|Net realizable value less a normal profit margin
Under IFRS, what amount should the company report as inventory on its balance sheet?