Topic 2 Tutorial Questions

ACC/ACF 1100
Introduction to Financial Accounting

Tutorial questions
TOPIC 2 – Financial Reporting
Please prepare answers to these questions before attending your tutorial in week 3.
Question 1
The objective of financial reporting according to the Conceptual Framework is:
“to provide financial information about the reporting entity that is useful to existing
and potential investors, lenders and other creditors in making decisions relating to
providing resources to the entity”
Analyse this sentence carefully and explain what it all means.
Question 2
According to the Conceptual Framework:
“a reporting entity is an entity that is required, or chooses, to prepare financial
statements”.
Explain the type of entities that would be required to report based on this.
Question 3
Why is an Annual Report so detailed, lengthy and broad? Explain.
It helps companies to communicate with existing or potential investors, employees and

customers. It provides insights into the company’s strategic direction and plans, helping to
build trust and engagement.
On the other hand, businesses need to comply with regulatory requirements. The law
requires public companies to disclose a wide range of information to ensure transparency
and protect investors.
Question 4
Explain how the four main financial statements link together.
Balance sheets.
Income statements.
Cash flow statements.
Statements of shareholders' equity.
Question 5
Differentiate between the roles of:
(i) Accounting assumptions, concepts and principles;
(ii) The Conceptual Framework; and
(iii) Accounting Standards.
In your answer, provide an example of the scope of each.
Please also have a think about these and make some notes before attending
class. These questions will be discussed more in groups during the tutorial.
Question 6
In the absence of a regulatory environment, would financial reporting exist? What might it
look like?
In this case, financial reporting will still exist because it is in the interests of the companies.
Due to the lack of supervision and transparency, companies are likely to overstate their
earnings and reduce their losses to attract more investors and shareholders to increase
their investments. Furthermore, these companies might be unsustainable and will run
away with the money after receiving investment.
Question 7
A range of accounting concepts, principles and assumptions that guide the preparation of
financial statements. Discuss the following situations related to a recently established
small business that sells homewares, and justify which concept, principle or assumption
has been breached. For any that you did not select, explain them and create an illustration
to support your explanation.
(a) The business purchases inventory from a range of suppliers. The most recent
purchase cost $52,000 and was recorded in the balance sheet at its estimated retail
value of $95,000.
(b) The business owner purchased a laptop specifically for personal use but recorded
the laptop in the business records.
(c) The business has been operating for three years, but is yet to prepare financial
statements.
(d) The owner is not experienced in accounting and has recorded assets at their
market value (representing what the assets might be sold for at short notice).
Question 8
The Conceptual Framework provides both fundamental and enhancing qualitative
characteristics to guide the preparation of financial statements. Discuss the following
independent situations, identify which enhancing qualitative characteristic has been
affected, and discuss how it might impact the two fundamental characteristics.
(a) The company generally applies the same measurement rules and principles to
prepare its financial statements, although every few years it has been known to
change its approach to recording certain items.
(b) The financial statements provide a fairly accurate summary of the transactions and
events affecting the company each year, though it common to find some errors and
omissions.
(c) The financial year of Alpha Company ends of 30 June, and it usually releases its
financial statements to shareholders around December that year.
(d) The layout and wording of Alpha Company’s Annual Report change each year
depending on who prepares it.

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ACC/ACF 1100

Introduction to Financial Accounting

TOPIC 2 – Financial Reporting

It helps companies to communicate with existing or potential investors, employees and

Cash flow statements.

Statements of shareholders' equity.

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