Question Tag: Qualitative Characteristics

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  • 40 Marks

PSAF – May 2021 – L2 – Q1 – Public Sector Financial Statements

Apply IPSAS standards to adjust and analyze financial information for Okuku State University.

Okuku State University is a parastatal under Okuku State, not classified as a Government Business Enterprise (GBE). The following is the statement of financial position for the University as of December 31, 2018:

Statement of Financial Position (as at Dec 31, 2018)

Item Cost (₦’million) Accumulated Depreciation (₦’million) Carrying Amount (₦’million)
Land and Buildings 15,000 250 14,750
Equipment 1,000 100 900
Furniture 800 80 720
Plant & Machinery 550 50 500
Motor Vehicles 450 45 405
Total Non-Current Assets 17,800 525 17,275
Inventories 11,000 – –
Receivables 15,000 – –
Bank 3,000 – –
Total Current Assets – – 29,000
Total Assets – – 46,275
Non-Current Liabilities – – 30,000
Current Liabilities – – 8,000
Total Liabilities – – 38,000
Net Assets – – 8,275
Reserves – – 8,275

Additional Information:

  1. Office equipment was purchased for ₦150,000,000 from Joko Nigeria Limited, with installation and transportation costing ₦3,000,000. Half was paid during the year, with the remainder in January 2019. The University also acquired a building valued at ₦500,000,000 from a defunct State College.
  2. The University Teaching Hospital received motor vehicles and laboratory equipment donations worth ₦20,000,000 and ₦50,000,000, respectively, from a UK-based research institute.
  3. A motor vehicle bought on January 1, 2017, for ₦8,000,000 with a five-year life was sold for ₦4,000,000 at year-end.
  4. Computers bought in 2017 for ₦1,000,000, with an expected five-year lifespan, were damaged in a fire and written off.
  5. Land was bought for ₦50,000,000 for constructing a plaza valued at ₦250,000,000, with an estimated 25-year life.
  6. One building, valued at ₦160,000,000, was damaged by fire, with a post-fire valuation of ₦130,000,000.
  7. A motor vehicle was acquired on January 1, 2018, for ₦150,000,000.
  8. The University’s depreciation policy includes full-year depreciation with rates: Motor Vehicle 20%, Building 4%, Furniture 10%, Equipment (including Lab and Computers) 20%, and Plant and Machinery 15%.

Required:
a. Identify FOUR characteristics of Government Business Enterprises (GBEs) as
stated in IPSAS 1 on presentation of financial statements. (2 Marks)
b. Prepare the necessary journal entries to record the above transactions for
the year ended December 31, 2018. (10 Marks)
c. Prepare the adjusted statement of financial position as at December 31,
2018. (20 Marks)
d. Identify and explain FOUR qualitative characteristics of financial reporting as
required by appendix 2 of IPSAS 1 on presentation of financial statements.
(8 Marks)

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  • 14 Marks

FR – May 2021 – L2 – Q6b – Conceptual Framework for Financial Reporting

Analysis of qualitative characteristics application in specific financial reporting scenarios.

The following transactions and events took place in Jaye Investment Nigeria Limited during the year ended March 31, 2019.

(i) The company entered into a lease to rent an asset paying N150,000 a year for 5 years out of its useful economic life of 15 years. Assume a rate of interest implicit in the lease to be 10%. (6 Marks)

(ii) The company’s statement of profit or loss prepared using the historical cost method showed a loss from operating its hotels, but the company is aware that the increase in value of its properties during the year far outweigh the operating loss. (4 Marks)

(iii) A decision was made by Jaye Investment Nigeria Limited’s board of directors to change the company’s accounting policy from one of expensing the finance cost on building new retail outlets to one of capitalising such costs. (4 Marks)

Required:
Explain how you would treat the items in (i) to (iii) above in Jaye Investment Nigeria Limited’s financial statements and indicate on which of the qualitative characteristic framework your treatment is based.

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  • 6 Marks

FR – May 2021 – L2 – Q6a – Conceptual Framework for Financial Reporting

Explanation of relevance, faithful representation, and comparability in financial reporting per IASB.

Explain what is meant by:
i. Relevance
ii. Faithful representation
iii. Comparability and how they make financial information useful.

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  • 15 Marks

FR – May 2022 – L2 – SB – Q6 – Conceptual Framework for Financial Reporting

Discuss the qualitative characteristics that make financial information useful and explain the capital maintenance concepts under the IASB framework.

a. The IASB Conceptual Framework for Financial Reporting gives much detail about the qualitative characteristics of financial information that make it useful.

Required:
Discuss the qualitative characteristics that make information useful to users of financial statements. (10 Marks)

b. The Financial Reporting Council of Nigeria (FRCN) is a Federal Government parastatal under the supervision of the Federal Ministry of Industry, Trade, and Investment.

Required:
Identify FOUR main objectives of FRCN as defined in the Act establishing the Institution. (2 Marks)

c. The IASB Conceptual Framework states that there are two concepts of capital maintenance.

Required:
Explain the term financial capital maintenance and physical capital maintenance concepts. (3 Marks)

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  • 10 Marks

FR – Nov 2021 – L2 – Q7a – Conceptual Framework for Financial Reporting

Identify and explain five qualitative characteristics of General Purpose Financial Statements (GPFS).

The Conceptual Framework states the qualitative characteristics of financial information.

Required:
Identify and explain FIVE qualitative characteristics of General Purpose Financial Statements (GPFS).

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  • 4 Marks

FR – MAY 2021 – L2 – Q5b – Qualitative Characteristics

Distinguish between fundamental and enhancing qualitative characteristics in financial reporting.

The Conceptual Framework for Financial Reporting identifies faithful representation as a fundamental qualitative characteristic of useful financial information.

Required:
Distinguish between fundamental and enhancing qualitative characteristics.
(4 marks)

 

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  • 6 Marks

FR – May 2018 – L2 – Q5a – Conceptual Framework for Financial Reporting

Explain the qualitative characteristics of financial statements under IFRS and assess how they make financial information useful

Explain the following qualitative characteristics of financial statements reported under IFRS and assess how they make the information very useful:

i. Relevance
ii. Comparability
iii. Understandability
iv. Faithful Representation

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  • 1 Marks

FA – May 2018 – L1 – SA – Q9 – Qualitative Characteristics of Useful Financial Information

Identifies the characteristic that is not considered an enhancing qualitative characteristic of useful financial information.

Which of the following is NOT an enhancing qualitative characteristic of useful financial information?
A. Understandability
B. Relevance
C. Timeliness
D. Comparability
E. Verifiability

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  • 1 Marks

FA – Nov 2014 – L1 – SA – Qualitative Characteristics of Useful Financial Information

Identifying which option is not an attribute of good accounting information.

The following are attributes of good accounting information EXCEPT:

A. Reliability
B. Consistency
C. Stability
D. Verifiability
E. Faithful representation

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  • 5 Marks

FR – March 2023 – L2 – Q5a – Conceptual Framework for Financial Reporting

This question asks for an explanation of why faithful representation is important in financial reporting.

The Conceptual Framework for Financial Reporting identifies faithful representation as a fundamental qualitative characteristic of useful financial information.

Required:
Explain why faithful representation is important. (5 marks)

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  • 10 Marks

FR – April 2022 – L2 – Q5a – Conceptual Framework for Financial Reporting

Justify how qualitative characteristics of financial information apply to tangible non-current assets using examples.

The IASB’s Conceptual Framework identifies, among others, the qualitative characteristics of relevance, faithful representation, comparability, and understandability.

Required:
Justify with an example each how the qualitative characteristics will apply to the treatment of tangible non-current assets. (10 marks)

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  • 5 Marks

FR – Nov 2021 – L2 – Q5a – Conceptual Framework for Financial Reporting

Explanation of how the fundamental qualitative characteristics of financial statements apply to intangible assets.

The IASB’s Conceptual Framework identifies the fundamental qualitative characteristics of Financial Statements.

Required:

Explain how these fundamental qualitative characteristics apply to the treatment of intangible assets. (5 marks)

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  • 6 Marks

FR – Nov 2015 – L2 – Q4a – Conceptual Framework for Financial Reporting

This question asks for an explanation of the qualitative characteristics of understandability and comparability in financial reporting, along with the role of consistency in comparability.

(a) Two of the enhancing qualitative characteristics of useful financial information contained in the IASB’s Conceptual Framework for Financial Reporting are understandability and comparability.

Required:
Explain the meaning and purpose of the above characteristics in the context of financial reporting and discuss the role of consistency within the characteristic of comparability in relation to changes in accounting policy. (6 marks)

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  • 5 Marks

CR – May 2016 – L3 – Q4b – Accounting and reporting concepts

Discuss the concepts of relevance, faithful representation, and comparability, and how they make financial information useful to users of financial statements.

The qualitative characteristics of relevance, faithful representation and comparability identified in the IASB’s Framework for the preparation and presentation of financial statements (Framework) are some of the attributes that make financial information useful to the various users of financial statements.

Required: Discuss the concept of relevance, faithful representation and comparability and how they make financial information useful.

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  • 10 Marks

PSAF – July 2023 – L2 – Q1b – General purpose financial reporting framework

Provide briefing notes on qualitative characteristics, measurement bases, and the statutory role of internal auditors in public sector financial reporting.

You are the Head of Finance of Public Sector Reform Secretariat, Office of the President. You have received the following e-mail from the Chief Executive Officer.

Email:

“Dear Head of Finance,

I have been invited by the Office of Head of Civil Service to attend a seminar on the theme ‘Fundamentals of Public Financial Reporting’. Among the topics listed for discussion are the following:

  1. Qualitative Characteristics of Financial Information.
  2. The Bases of Measurement of Public Sector Assets.
  3. The Statutory Roles of Internal Auditors of Public Sector Entities.

I am aware of your expertise in public financial management and will greatly appreciate it if you could prepare some briefing notes for me to bridge my knowledge gap prior to the conference.”

Required:
As Head of Finance and a recipient of the e-mail, provide your response in a memo to the Chief Executive Officer.

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  • 4 Marks

PSAF – May 2017 – L2 – Q4b – General purpose financial reporting framework

This question explains the qualitative characteristics that the financial statement may lack.

Given the information available, explain TWO qualitative characteristics of a general purpose financial report that the financial statement you have prepared in question (a) lacked. (4 marks)

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  • 10 Marks

PSAF – Nov 2023 – L2 – Q1b -General purpose financial reporting framework

Analyze the impact of specific financial reporting scenarios on qualitative characteristics of financial statements.

The following revelations were made about the financial reporting process of a covered entity:

i) The users of the financial statements of the entity is less interested in the financial information because it does not provide information that enables the users to either confirm their expectation or make predictions.

ii) Equipment purchased during the year was recognized as an expense in the statement of financial performance, even though the entity applies the accrual principles.

iii) A revenue transaction of a significant value was completely omitted from the financial statement of the entity unintentionally.

iv) The financial statements showed the budget amounts alongside the actual amounts of the year in the Statement of Financial Performance.

v) The Accountant confirmed that some records relating to expenses were done based on WhatsApp messages (online texting app) from the Principal Spending Officer.

Required: Explain how each of the transactions (i) to (v) would affect a specific qualitative characteristic of the financial statements of the entity. (10 marks)

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  • 4 Marks

PSAF – Nov 2017 – L2 – Q1b – General Purpose Financial Reporting Framework

Discuss the qualitative characteristics of financial statements that MMDAs fall short of according to IPSAS 1.

The Public Accounts Committee of Parliament has bemoaned the state of financial reporting in the Metropolitan, Municipal and District Assemblies (MMDAs). According to the Chairman, the financial statements fall short of confirmatory and predictive value. In fact, the financial statements are characterized by errors, omissions, and misstatements, and as if this is not enough, the final reports are approved at a later year. The citizens also complain seriously about their inability to appreciate the information reported, robbing them of their right to assess the accountability of the government.

Required:
Explain FOUR qualitative characteristics that the final reports of MMDAs fall short of in accordance with IPSAS 1: Presentation of Financial Statements. (4 marks)

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  • 10 Marks

PSAF – Dec 2023 – L2 – Q1b – General purpose financial reporting framework

Explain five qualitative characteristics that financial statements should satisfy according to IPSAS.

The Financial Statements and budget information presented below were submitted to the Finance and Administration Committee of Ghana Library Authority (GLA) on 30 April 2022 for consideration. The Committee was concerned about the delay in submitting the financial information. They reasoned that it might not be useful for decision-making.

GLA
Statement of Financial Performance for the year ended 31 December 2020

Item Actual (GH¢’000) Budget (GH¢’000)
Revenues
GoG Subvention 170,500 152,050
Internally Generated Fund 58,500 93,650
Donations and grants 17,000 12,500
Total Revenues 246,000 258,200
Expenses
Compensation for employees 159,200 150,000
Use of goods and services 57,000 72,500
Consumption of fixed assets 6,500 –
Interest 4,500 4,700
Other expenses – 3,700
Total Expenses 227,200 230,900
Net operating result 18,800 27,300

GLA
Statement of Financial Position as at 31 December 2020

Item GH¢’000
Non-Current Assets
Property, plant and equipment 600,000
Investment 150,000
Total Non-Current Assets 750,000
Current Assets
Receivables 11,500
Cash and Bank 105,000
Total Current Assets 116,500
Total Assets 866,500
Liabilities and Funds
Loans 450,000
Payables 53,000
Accumulated fund 363,500
Total Liabilities and Funds 866,500

Required:
With reference to IPSAS Conceptual Framework, explain FIVE (5) Qualitative Characteristics that the above Financial Statements should have satisfied before it can be considered useful for decision-making and for exercising accountability. (10 marks)

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  • 5 Marks

PSAF – May 2020 – L1 – Q5c – General purpose financial reporting framework

Explain the qualitative characteristics of GPFR based on observations of a public sector entity’s financial report.

Below are some observations made after an assessment of the General-Purpose Financial Report (GPFR) prepared by a public sector entity in 2018:

i) Not only were transactions not treated in accordance with the IPSAS, some were omitted unknowingly.
ii) In presenting the financial performance, position, and cash flow for the current financial year, 2018, the accountant has also provided information on the current year’s budget.
iii) Investment amounting to GH¢1,000,000 in short-term security reported in the financial position lacks supporting documents even though the investment may exist.
iv) The financial report was dated 30 June 2019, which is an improvement over the previous years, which was signed in September 2018.

Required:
In line with the Conceptual Framework for GPFR by public sector entity:
Explain the qualitative characteristics of GPFR for each observation in (i) to (iv) above and explain how each of the observations affects the usefulness of the GPFRs to the users.
(5 marks)

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