Question 1ISTQ - Intermediate Accounting (Kieso)

Question

1. Which of the following statements about IFRS and GAAP accounting and reporting requirements for the balance sheet is not correct? 

(a) Both IFRS and GAAP distinguish between current and non-current assets and liabilities. 

(b) The presentation formats required by IFRS and GAAP for the balance sheet are similar. 

(c) Both IFRS and GAAP require that comparative information be reported. 

(d) One difference between the reporting requirements under IFRS and those of the GAAP balance sheet is that an IFRS balance sheet may list long-term assets first.

Step-by-Step Solution

Answer

The correct option is (b) The presentation format required by IFRS and GAAP for balance sheet are similar.

Definition of GAAP

GAAP defines the principles and rules that must be followed in reporting financial information of the business entity in financial statements. It fully expanded as a generally accepted accounting principle.

The explanation for the correct options

The balance sheet format is different under IFRS and GAAP because GAAP requires current assets to be reported first while business entity using IFRS reports non-current assets first.

The explanation for incorrect options

(a) Yes, balance sheet prepared either under GAAP or IFRS, the assets and liabilities are classified as current and non-current.

(c) The business entity is required to prepare a comparative financial statement under both GAAP and IFRS.

(d) Yes, under IFRS, the sequence of reporting items is reversed. Under IFRS, long-term assets are reported first, and under GAAP, current assets are reported first.