Where the Entity Uses the Direct Method a Note to the Accounts

question 56

Multiple Choice

Where the entity uses the direct method a note to the accounts reconciling cash flows from operating activities to net profit is required because:

• A)Complex calculations are required to convert cash-based revenues.
• B)Items such as depreciation are only recorded in a cash system and not an accrual system.
• C)There is likely to be a disparity between cash flows from operations under IAS 7 and the profits reported in the statement of comprehensive income.
• D)The direct method is required under IAS 7.

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Definitions:

Availability Bias

A cognitive bias that influences people to overestimate the importance of information available to them, impacting decision-making.

Similarity To Other Situations

The degree to which a current scenario or issue replicates the aspects or conditions of a different situation previously encountered.

Confirmation Error

A cognitive bias involving the tendency to search for, interpret, favor, and recall information in a way that confirms one’s preexisting beliefs or hypotheses.

Decision Already Made

Decision already made refers to situations where a conclusion or resolution has been reached before discussing or presenting it to others, often making subsequent deliberations or inputs appear redundant.