A compliance audit is a historically oriented, independent evaluation performed for the purpose of

attesting to the fairness, accuracy, and reliability of financial data.

- False

Compliance audits are done because of a policy or statutory requirement.

- True

The internal audit helps an organization accomplish its objectives by bringing a systematic, disciplined
approach to evaluate and improve the effectiveness of risk management, control, and governance
processes.

- True

A compliance audit evaluates an area’s adherence to established laws, standards, regulations, policies,
and/or procedures.

- True

Audits are only requested by management to help improve processes or identify internal
control weaknesses.

- False

Internal auditing is an independent, objective assurance and consulting activity designed to add value
and improve an organization’s operations.

- True

The external audit activity provides assurance that internal controls in place are adequate to mitigate the
risks, governance processes are effective and efficient, and organizational goals and objectives are met.

- False

External auditing is an independent, objective assurance and consulting activity designed to add value
and improve an organization's operations.

- False

Internal audits are conducted for different reasons and with varying objectives and with each type of risk
exposure. 
- True

Financial data may be used, but the secondary sources of evidence are the operational policies and
achievements related to organizational objectives.

- False

This is an audit that takes place as a result of a report of unusual or suspicious activity on the part of an
individual or a department.

- investigative audit 

The purpose of a ____________ is to revisit a past audit’s recommendations and management’s action
plans to determine if corrective actions were taken and are working, or if situations have changed to
warrant different actions.

- follow up audit 

The IT audit develops__________to assess, evaluate, and make recommendations to management

regarding the adequacy of internal controls and security inherent in an organization’s information
systems, and the effectiveness of the associated risk management.

- audit programs

The central objective is to ensure that the _______________of the department, unit or area is completely
and accurately reflected in the appropriate financial reports.

- financial activity 

This audit function develops audit programs to assess, evaluate, and make recommendations to
management regarding the adequacy of internal controls and security inherent in an organization’s
information systems, and the effectiveness of the associated risk management.

- IT audit 

This is a combination of the IT Audit and the Operational Audit.

- integrated audit 

These are conducted to determine the extent of loss, assess weaknesses in controls, and make
recommendations for corrective actions.
- investigations 

They can request internal auditors to review a business process, organization, or strategy. 

- management 

This is also known as management audit.

- performance audit 

A common _______________ is a review of organizational structure, such as having internal audit look at
how administrative work is divided among divisions and if there are opportunities to be more efficient. 

- management audit 

Goodwill is measured as the difference between the:

- fair value of the consideration transferred, and the fair value of the assets and liabilities acquired.

The net amount of employee benefit liabilities acquired in a business combination are measured by
using the:

- present value method.

Elsa Limited acquired the identifiable assets and liabilities of Anna Limited for $265 000.The items
acquired, stated at fair value, are: equipment $148 000; inventories $80 000; accounts receivable $52 000;
patents $30 000; accounts payable $40 000. The difference on acquisition is:

- gain on bargain purchase $5

A business combination is defined as:

- a transaction or other event in which an acquirer obtains control of one or more businesses.

In a business combination, the acquiree is the party that:

- gives up control over the net assets acquired.

Jasmine Limited estimated the net present value of future cash flows from specialised equipment
acquired under a business combination to be $60 000. A replacement cost for the equipment is
estimated to be $66 000. The equipment has been independently appraised at a value of $61 000. A
similar item of equipment cost the acquirer $59 000 last year. What is the value for recognition of the
equipment under a business combination?

- $59 000.
Appendix B of AASB 3/IFRS 3 requires disclosure of which of the following? (I.) A qualitative description
of the factors that make up goodwill. (II.) Details of contingent consideration. (III.) The date of exchange.
(IV.) Carrying amounts of assets and liabilities in business combinations where shares are acquired.

- I, II and IV only.

For a tangible asset to be recognised by an acquirer under a business combination it must be probable
that future economic benefits will flow to the acquirer and:

- its fair value can be reliably measured.

The information contained within Appendix B of AASB 3/IFRS 3 in relation to disclosure:

- is an integral part of AASB 3/IFRS 3.

Goodwill arising in a business combination is classified as a :

- asset.

Under AASB 3/IFRS 3 Business Combinations, a gain on bargain purchase arises when the acquirer’s
interest in the fair value of the acquiree’s identifiable assets and liabilities is:

- greater than the consideration transferred.

Majestic Limited estimated that the net present value of future cash flows from machineryacquired in a
business combination is $35 000. The cost of replacing the machinery is estimated to be $38 000. The
machinery has been independently appraised at a value of $34 000. A similar item of machinery cost the
acquirer $39 000 last year. The value at which the machinery will be recognised when recording the
business combination is:

- $39 000..

Where the acquirer purchases assets and assumes liabilities of another entity it does not need to
consider measurement of:

- carrying amounts of identifiable net assets.

Under AASB 3/IFRS 3, the method of accounting for a business combination is the:

- acquisition method.

AASB 3/IFRS 3 is relevant when accounting for a business combination that:

- results in an entity acquiring the net assets of another entity.

Which of the following items would not be recognised as an intangible asset in a businesscombination?
- experienced marketing team.

When accounting for a business combination a contingent liability is recognised if:

- its fair value can be measured reliably.

The recognition and measurement of an _______________ depends on whether the acquirer recognizes the
indemnified item as part of the accounting for the business combination and how the acquirer measures
the indemnified item.

- Indemnification Asset

An identifiable intangible asset may be associated with a lease, which may be evidenced by market
participants’ willingness to pay a price for the lease even if it is at market terms.

- True

An acquirer is required to measure the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree at their acquisition-date fair values.

- True

For indemnification assets recognized at fair value, no separate valuation allowance is recognized for
concerns about collectibility.

- True

The terms of a lease are presumed to be at market even if the lease includes ____________ that are based
on the use or performance of the underlying asset

- Variable Lease Payments

As of the acquisition date, the acquirer shall recognize, separately from goodwill, the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the acquiree.

- True

The seller in a business combination may contractually indemnify the acquirer for uncertainties related
to specific assets or liabilities, such as those associated with lawsuits and uncertain tax positions.\

- Indemnification Assets

The acquirer shall measure the acquisition-date fair value of an asset.

- True

The acquirer shall measure the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree at their acquisition-date fair values.

- True

____________ may elect an accounting policy (by class of underlying asset to which the right of use relates)
to not recognize on the balance sheet lease liabilities or ROU assets of short-term leases.

- Lessees

Assets or liabilities for ______________ are not recognized under ASC 805 regardless of whether the
acquiree is the lessee or the lessor in a lease.

- Prepaid or Accrued Rent

Leases (including contracts that contain a lease) acquired in a business combination may result in the
recognition of various assets or liabilities, depending on the classification of the lease and whether the
acquiree is the lessee or the lessor under the lease contract.

- True

The acquirer’s application of the recognition principle and conditions may result in recognizing some
assets and liabilities that the acquiree had not previously recognized as assets and liabilities in its
financial statements.

- True

Acquirer agreements often include indemnification arrangements, but the parties to the business
combination may instead establish such arrangements separately.

- False

A __________________ is a common financing method that involves the transfer of an asset from the owner
to a buyer and a lease-back of that asset to the seller.

- Sale-and-Leaseback Transaction

An entity may acquire a business with the intention of selling some of its long-lived assets shortly after
the acquisition date.
- Assets Held for Sale

______________is a lease that, at the commencement date, has a lease term of 12 months or less and does
not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise.

- Short-term Lease

A ________ is a lessor’s right to receive lease payments arising from a sales-type lease or a direct financing
lease plus any amount that a lessor expects to derive from the underlying asset following the end of the
lease term to the extent that it is guaranteed by the lessee or any other third party unrelated to the
lessor, measured on a discounted basis.

- Lease Receivable

An acquirer shall develop a systematic and rational basis for subsequently measuring and accounting for
assets and liabilities arising from contingencies depending on their nature.

- True

In the measurement of a _________, it is assumed that the acquirer entered into the lease on the
acquisition date under the terms in effect on that date.

- Lease Receivable

Before recognizing a gain on a bargain purchase, the acquirer shall reassess whether it has correctly
identified all of the assets acquired and all of the liabilities assumed and shall recognize any additional
assets or liabilities that are identified in that review.

- True

The _____________ means that an acquired intangible asset is capable of being separated or divided from
the acquiree and sold, transferred, licensed, rented, or exchanged, either individually or together with a
related contract, identifiable asset, or liability.

- Separability Criterion
___________________ include, but are not limited to, customer contracts and related customer relationships,
noncontractual customer relationships, customer lists, order and production backlogs, and customer
loyalty programs.

- Customer-Related Intangible Assets

An intangible asset is identifiable if it meets either the separability criterion or the contractual-legal
criterion described in the definition of identifiable.
- True

________________ are legal agreements that prohibit or restrict one party from competing against another
party, typically in a defined market for a specified period.

- Noncompetition Agreements

The existence of a contract liability depends “on the relationship between the entity’s performance and
the customer’s payment”.

- True

An acquiree’s contract assets and receivables are both recognized at fair value in a business
combination and are similar in that they both represent an entity’s right to consideration for the transfer
of goods or services, but there are different risks associated with each.

- True

Acquisition agreements may include provisions that adjust the consideration transferred for excesses or
shortfalls in the stipulated amount of working capital as of the acquisition date as defined by the parties
to the combination.

- Working Capital Adjustments

Any debt issuance costs allocated to bridge financing should be amortized over the estimated term of
the bridge financing.

- True

Some acquisition agreements include a provision stipulating that the amount paid by the acquirer is
increased if the transaction closes after a specified date.

- Ticking Fees

_________________ acquired in a business combination are identifiable if they arise from contractual or

legal rights such as those provided by copyright.

- Defensive Intangible Assets Contract-Based Intangible Assets Artistic-Related Intangible Assets

In other business combinations, an acquirer obtains a controlling financial interest in an acquiree in

which it held a noncontrolling equity interest immediately before the acquisition date.

- True
________________ generally allow customers to earn current or future discounts, free products or services,
or other benefits on the basis of cumulative purchases from the operator of the program.

- Customer Loyalty Programs

An ________________- is a unique alphanumeric name that is used to identify a particular numeric Internet
address.

- Internet Domain Names

A _____________ consists of information about customers, such as their names and contact information.

- Customer Lists
In some business combinations, the acquirer obtains a controlling financial interest but less than 100
percent of the equity interests in the acquiree.

- True

_____________ are common in the service, construction, and aerospace and defense industries, and they
arise in other industries as well.

- Contract Assets None of the choices Long-Term Revenue Contracts

An intangible asset that meets the _____________ is identifiable even if the asset is not transferable or
separable from the acquiree or from other rights and obligations.

- Contractual-Legal Criterion

_______________ are “primarily used in the marketing or promotion of products or services.”

- Marketing-Related Intangible Assets

An acquirer may sometimes pay the liabilities of the acquiree on, or in close proximity to, the acquisition
date.

- True

___________________generally represent innovations on products or services but can also include

collections of information held electronically.

- Contract-Based Intangible Assets Defensive Intangible Assets

The acquirer shall recognize a liability (or asset, if any) related to the acquiree’s employee benefit
arrangements in accordance with other GAAP.
- True

_______________ are “primarily used in the marketing or promotion of products or services.”

- Initial Measurement of Intangible Assets

If the equity securities do not have a readily determinable fair value (i.e., are not exchange traded), an
acquirer must use other valuation techniques to measure the fair value as of the acquisition date.

- True

Contract-based intangible assets represent the value of rights that arise from contractual arrangements.

- True

For contingencies initially recognized at fair value, the acquirer must develop a _____________________
subsequent measurement approach that is consistent with the nature of the asset or liability.

- Applicable and Systematic None of the choices 

An ________________- is a unique alphanumeric name that is used to identify a particular numeric Internet
address.

- Trade dress Newspaper mastheads

As part of a business combination, an acquirer may reacquire a right that it had previously granted to
the acquiree to use one or more of the acquirer’s recognized or unrecognized assets.

- None of the choices Initial Measurement of Reacquired Rights

The recognition and measurement of an _______________ depends on whether the acquirer recognizes the
indemnified item as part of the accounting for the business combination and how the acquirer measures
the indemnified item.

- Indemnification Asset

If the debt contains a preexisting prepayment penalty, the terms of that provision would be factored into
the fair value measurement of the debt.

- True
Leases (including contracts that contain a lease) acquired in a business combination may result in the
recognition of various assets or liabilities, depending on the classification of the lease and whether the
acquiree is the lessee or the lessor under the lease contract.

- True

The acquirer shall not recognize a separate valuation allowance as of the acquisition date for assets
acquired in a business combination that are measured at their acquisition-date fair values because the
effects of uncertainty about future cash flows are included in the fair value measure.

- True

_________________ acquired in a business combination are identifiable if they arise from contractual or
legal rights such as those provided by copyright.

- Contract-Based Intangible Assets Artistic-Related Intangible Assets

An acquiree’s contract assets and receivables are both recognized at fair value in a business combination
and are similar in that they both represent an entity’s right to consideration for the transfer of goods or
services, but there are different risks associated with each.

- True

Acquirer agreements often include indemnification arrangements, but the parties to the business
combination may instead establish such arrangements separately.

- False

A reacquired right is an identifiable intangible asset that an acquirer recognizes separately from goodwill
because it arises from contractual rights.

- True

Income taxes are an exception to the recognition and measurement principles in ASC 805.

- True

The seller in a business combination may contractually indemnify the acquirer for uncertainties related
to specific assets or liabilities, such as those associated with lawsuits and uncertain tax positions.

- Indemnification Assets
ASC 805-10-50-1 states, in part, that the “acquirer shall disclose information that enables users of its
financial statements to evaluate the nature and financial effect of a business combination that occurs
[during] the current [financial] reporting period.”

- True

During the measurement period, the acquirer has time to obtain the information needed to identify and
measure the consideration transferred, the assets acquired, the liabilities assumed, and any previously
held or noncontrolling interests.

- True

Adjustments related to obtaining financing, such as new debt and additional interest expense, are
presented as if the new debt had been obtained as of the beginning of either the current year or the
previous year if comparative financial statements are presented.

- Financing

According to ASC 805-10-50-2 (1), states that the acquirer shall account for acquisition-related costs
as expenses in the periods in which the costs are incurred and the services are received, with one
exception.

- False

ASC 805-10-25-23 states that “[t]he acquirer shall account for acquisition-related costs as expenses in
the periods in which the costs are incurred and the services are received, with one exception. The costs
to issue debt or equity securities shall be recognized in accordance with other applicable GAAP”.

- True

ASC 805-10-25-23 states that the acquirer shall account for acquisition-related costs as expenses in the
periods in which the costs are incurred and the services are received, with one exception.

- True

Income statement effects of fair value adjustments (e.g., depreciation or amortization) are shown as if
those adjustments were recognized at the beginning of either the current year or the previous year if
comparative financial statements are presented.

- Accounting policies Financing Fair value adjustments

The fair value measurement disclosures in ASC 820-10-50 are applicable to the assets and liabilities
acquired in a business combination that are measured at fair value.

- True
Entities must provide separate disclosures for each material business combination that occurs during the
reporting period.

- True

ASC 805-10-50-2  requires public entities to disclose “supplemental pro forma information.”

- True

The following information shall be disclosed in the financial statements or the notes to financial
statements for each period for which a statement of financial position is presented: EXCEPT

- A description of the facts and circumstances leading to the impairment

A business combination often results in a significant change in an acquirer’s assets, liabilities, and

operations.

- True

ASC 805-30-50-1 requires acquirers to disclose “the acquisition-date fair value of the total consideration
transferred and the acquisition-date fair value of each major class of consideration.”

- True

Tax effects of the business combination are shown as if the acquiree had been part of the entity since
the beginning of either the current year or the previous year if comparative financial statements are
presented.

- Income taxes

An acquiree’s pro forma revenues and earnings are adjusted to reflect the accounting policies that will
be applied by the acquiree after the business combination.

- Accounting policies

An entity may also need to consider other financial reporting implications of a business combination,
depending on the nature and terms of the transaction.

- True

As indicated in ASC 805-10-50-4, entities are required to disclose the information included in ASC 805-
10-50-2, ASC 805-20-50-1, and ASC 805-30-50-1 “if the acquisition date of a business combination is
after the reporting date but before the financial statements are issued or are available to be issued.”
- True

To meet the objective in the preceding paragraph [ASC 805-10-50-1], the acquirer shall disclose the
following information for each business combination that occurs during the reporting period: EXCEPT

- The fair value of the receivables

ASC 805-10-50-2 (4), acquirers must disclose “the nature and amount of any material, nonrecurring
pro forma adjustments directly attributable to the business combination(s) included in the reported pro
forma revenue and earnings.”

- True

Paragraph 805-10-50-5 identifies the second objective of disclosures about the effects of business
combinations that occurred in the current or previous reporting periods.

- True

In July 2019, the Board issued an Invitation to Comment to solicit input from stakeholders about the
following: EXCEPT

- Test goodwill for impairment at either the entity level or the reporting-unit level

An entity may revise the remaining useful life of goodwill upon the occurrence of events and changes in
circumstances that warrant a revision to the remaining period of amortization.

- True

Operating purposes other than to provide goods or services at a profit is one of the definitions of not-
for-profit entity.

- True

To achieve comparability, an entity should apply the accounting alternative to all eligible intangible
assets.

- True

An entity that elects the accounting alternative shall apply all of the related recognition requirements
upon election.

- True

Entities that elect the goodwill accounting alternative may: EXCEPT

- Customer-related intangible assets unless they are capable of being sold or licensed independently
from other assets of a business

After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill shall be its
new accounting basis, which shall be amortized over the remaining useful life of goodwill.

- True

A ______________ as “an entity other than a public business entity, a not-for-profit entity, or an employee
benefit plan within the scope of Topics 960 through 965 on plan accounting.”

- Private Company

A _______________ should apply the goodwill accounting alternative, if elected, prospectively for all
existing goodwill and for all new goodwill generated in acquisitions.

- Not-for-Profit Entity

Absence of ownership interests like those of business entities is not one of the definitions of not-for-
profit entity.

- False

_______________ represent another category of intangible assets that are not separately recognized under
this accounting alternative.

- Noncompetition Agreements

In 2012, the Financial Accounting Foundation, which oversees the FASB, established the Private
Company Council (PCC) to improve the process of setting accounting standards for private companies.

- True

A _________ is not considered to be a customer-related intangible asset for purposes of applying this
accounting alternative.

- Lease

When the Board issued ASUs 2014-02 and 2014-18, it was aware that the issues addressed in them were
not limited to private companies but decided not to extend the alternatives to PBEs or not-for-profit
entities at that time.
- True

In 2014, the FASB issued ASUs 2014-02 and 2014-18, which offered entities other than PBEs and not-for-
profit entities simplified accounting alternatives for certain identifiable intangible assets acquired in
a business combination and the subsequent accounting for goodwill.

- True

All investor-owned entities is one of the definitions of not-for-profit entity.

- False

An entity’s right to consideration in exchange for goods or services that the entity has transferred to a
customer when that right is conditioned on something other than the passage of time.

- Contract Assets

An intangible asset is identifiable if it meets either the separability criterion or the contractual-legal
criterion described in the definition of identifiable.

- True

An entity may meet the definition of a public business entity solely because its financial statements or
financial information is included in another entity’s filing with the SEC.

- True

A profit entity should apply the goodwill accounting alternative, if elected, prospectively for all existing
goodwill and for all new goodwill generated in acquisitions.

- False

In 2014, the FASB issued ASUs 2014-02 and 2014-18, which offered entities other than PBEs and not-for-
profit entities simplified accounting alternatives for certain identifiable intangible assets acquired in a
business combination and the subsequent accounting for goodwill.

- True

In a common-control transaction, the net assets are derecognized by the transferring entity and
recognized by the receiving entity at the historical cost of the parent of the entities under common
control.

- True
The terms of ______________ by the selling shareholders who become key employees may be an indicator
of the substance of a contingent consideration arrangement.

- Continuing Employment

It is the period after the acquisition date during which the acquirer may adjust the provisional amounts
recognized for a business combination.

- Measurement Period

A _______________ is a business combination in which an entity acquires a controlling interest, but less
than 100 percent of the voting interests, in an entity.

- Partial Acquisition

If selling shareholders who do not become employees receive lower contingent payments on a per-
share basis than the selling shareholders who become employees of the combined entity, that fact may
indicate that the incremental amount of contingent payments to the selling shareholders who become
employees is compensation.

- Level of Compensation Incremental Payments to Employees

Usually an obligation of the acquirer to transfer additional assets or equity interests to the former
owners of an acquiree as part of the exchange for control of the acquiree if specified future events occur
or conditions are met.

- Contingent Consideration

An acquiree’s pro forma revenues and earnings are adjusted to reflect the accounting policies that will
be applied by the acquiree after the business combination.

- Accounting policies

Situations in which employee compensation other than the contingent payments is at a reasonable level
in comparison to that of other key employees in the combined entity may indicate that the contingent
payments are additional consideration rather than compensation.

- Level of Compensation
What is the objective of the measurement period?

- None of the choices Recognize additional assets or liabilities

Tax effects of the business combination are shown as if the acquiree had been part of the entity since
the beginning of either the current year or the previous year if comparative financial statements are
presented.

- Income taxes

The accounting acquirer usually issues no consideration for the acquiree. Instead, the accounting
acquiree usually issues its equity shares to the owners of the accounting acquirer.

- Reverse Acquisitions

For an entity to apply the acquisition method, the transaction must meet the definition of a business
combination and the net assets acquired must meet the definition of a business in ASC 805.

- True

A ____________ occurs when the entity that issues its shares or gives other consideration to effect the
transaction is determined for accounting purposes to be the acquiree, while the entity whose shares are
acquired is for accounting purposes the acquirer.

- Recapitalization Transactions Reverse Acquisitions

An acquirer obtains control of an acquiree in which it held an equity interest immediately before the
acquisition date.

- Business Combinations Achieved in Stages

The acquisition method of accounting for a business combination applies to those combinations. Such
circumstances include any of the following: ECXEPT

- Minority veto rights lapse that previously kept the acquirer from controlling an acquiree in which the
acquirer held the majority voting interest. The fair value of any noncontrolling interest in the acquiree.

Statement 141 required that a single method — the purchase method — be used to account for all
acquisitions of businesses and eliminated the pooling-of-interest method of accounting for business
combinations.

- True
On the acquisition date of a ______________, the acquirer only transfers consideration for the portion of
the equity interests acquired in that transaction.

- Recapitalization Transactions Business Combinations Achieved in Stages

In a business combination, an acquirer might obtain control of an acquiree in a variety of ways, including
by transferring cash, cash equivalents, or other assets (including net assets that constitute a business).

- True

The following are transactions that must be accounted for separately from the business combination:
EXCEPT

- A transaction that compensates employees or former owners of the acquiree for future services A
business combination may result in the effective settlement of debt between an acquirer and an
acquiree.

If the period of required employment coincides with or is longer than the contingent payment period,
that fact may indicate that the contingent payments are, in substance, compensation.

- Refundable Payments or Forgiveness of Loans to Selling Shareholders Who Become Employees of the
Combined Entity Duration of Continuing Employment

In a business combination, an acquirer might obtain control of an acquiree in a variety of ways, including
a group of former owners of one of the combining entities obtains control of the combined entity.

- False

Entities must provide separate disclosures for each material business combination that occurs during the
reporting period.

- True

The ___________________ proportionate share of the accounting acquirer’s/legal acquiree’s pre-

combination retained earnings, issued equity, and other equity balances.

- Issued equity Prior-period presentation

A business combination often results in a significant change in an acquirer’s assets, liabilities, and
operations.

- True

A recapitalization is a type of reorganization designed to change an entity’s capital structure.

- Recapitalization Transactions
The acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair
value and recognize the resulting gain or loss, if any, in earnings.

- Partial Acquisition Reverse Acquisitions