Which of the following should be disclosed in a summary of significant accounting policies?
Answer(s): A
Choice "a" is correct. The summary of significant accounting policies should disclose policies. The only policy in this question is the "basis" of profit recognition on long-term construction contracts. The other disclosures are accounting details and would be disclosed in other footnotes, but not in the summary of significant accounting policies.Choice "b" is incorrect. The future minimum lease payments should be disclosed, but not in the summary of significant accounting policies.Choice "c" is incorrect. Depreciation expense should certainly be disclosed, but not in the summary of significant accounting policies.Choice "d" is incorrect. The composition of sales by segment should be disclosed, but not in the summary of significant accounting policies.
Which of the following must be included in a company's summary of significant accounting policies in the notes to the financial statements?
Answer(s): D
Choice "d" is correct. The summary of significant accounting policies should include "policies." The only policy in the choices listed is the revenue recognition policies. Choice "a" is incorrect. A description of current year equity transactions is not a policy. It should be disclosed somewhere in the footnotes but not in the summary of significant accounting policies. Choice "b" is incorrect. A summary of long-term debt outstanding is not a policy. It should be disclosed somewhere in the footnotes but not in the summary of significant accounting policies. Choice "c" is incorrect. A schedule of fixed assets is not a policy. It should be disclosed somewhere in the footnotes but not in the summary of significant accounting policies.
Which of the following is correct concerning financial statement disclosure of accounting policies?
Answer(s): B
Choice "b" is correct. Disclosure of accounting policies (and all other disclosure also) is an integral part of the financial statements.Choice "a" is incorrect. For disclosure of accounting policies, disclosure should not be limited to principles and methods peculiar to the industry in which the company operates. All material accounting policies should be disclosed.Choice "c" is incorrect. For disclosure of accounting policies, the format and location of accounting policies are not fixed by GAAP. Accounting policy disclosures are normally Note 1, but that is a (reasonable and very general) practice and not a "rule." It does make sense to disclose the "why" before the "what."Choice "d" is incorrect. Disclosure of accounting policies should not duplicate details disclosed elsewhere in the financial statements.Interim Financial Reporting
Conceptually, interim financial statements can be described as emphasizing:
Choice "a" is correct. Interim financial statements emphasize timeliness (an element of relevance) by providing financial information based on actual performance to date and estimates prior to year end. Information must be available when it is needed to be useful. Reliability is impeded by the extensive use of estimates; however, the lag until verifiability is obtained detracts from usefulness. SFAC 2 para. 56Choice "b" is incorrect. Relevance (particularly timeliness) of information in interim financial statements is emphasized more than reliability. Reliability is impeded by the extensive use of estimates in interim data.Choice "c" is incorrect. Since comparability is a secondary quality of information, there should be no need to trade off comparability for relevance (a primary quality). Choice "d" is incorrect. Neutrality is an element of reliability (a primary quality of information. There should be NO need for a trade-off for comparability over neutrality.
APB Opinion No. 28, Interim Financial Reporting, concluded that interim financial reporting should be viewed primarily in which of the following ways?
Answer(s): C
Choice "c" is correct. Interim financial reporting should be viewed as reporting for an integral part of an annual period.Choices "a", "b", and "d" are incorrect, per the above rule.
Post your Comments and Discuss AICPA CPA-Financial exam prep with other Community members:
Our website is free, but we have to fight against AI bots and content theft. We're sorry for the inconvenience caused by these security measures. You can access the rest of the CPA-Financial content, but please register or login to continue.