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MODERN ADVANCED ACCOUNTING IN CANADA, 10TH EDITION
EXAM GUIDE AND CORRECT ANSWERS LATEST EDITION 2026
Modern Advanced Accounting in Canada, 10th Edition
Chapter 1: Conceptual and Case Analysis Frameworks for Financial Reporting (Questions 1–30)
1. A private company in Canada that is closely held, has no debt, and wants to simplify the
accounting process is most likely to report under which part of the CPA Canada Handbook?
A) Part II—Accounting Standards for Private Enterprises (ASPE)
B) Part IV—Accounting Standards for Pensions
C) Part I—International Financial Reporting Standards (IFRS)
D) Part III—Accounting Standards for Not-for-Profit Organizations
Answer: A
Rationale: Private enterprises in Canada have the option to report under ASPE (Part II) or IFRS
(Part I). A closely held private company with no debt and a desire to simplify reporting would
most likely choose ASPE.
2. In Canada, a private company has the choice to report under International Financial
Reporting Standards (IFRS) or Accounting Standards for Private Enterprises (ASPE). Why does
the CPA Canada Handbook provide this option?
Answer: IFRS is meant to create consistency and comparability in international markets.
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However, the complexity of IFRS reporting for equity investments may not benefit closely held
private companies whose shareholders are often involved in the business and have direct access
to information. The cost of applying complex accounting policies can outweigh the benefits for
these entities. To address this, the Accounting Standards Board developed ASPE to meet the
needs of private enterprises. Private enterprises can choose IFRS or ASPE depending on the
needs of financial statement users.
3. What are the four parts of the CPA Canada Handbook—Accounting and which entities are
they applicable to?
Answer: The four parts are:
• Part I—International Financial Reporting Standards (IFRS)—applicable to publicly
accountable, private, or not-for-profit entities.
• Part II—Accounting Standards for Private Enterprises (ASPE)—applicable to private
entities.
• Part III—Accounting Standards for Not-for-Profit Organizations—applicable to not-for-
profit entities.
• Part IV—Accounting Standards for Pension Plans—applicable to pension plans.
4. In which of the following situations would professional judgment NOT be required in
decision making?
A) Recognition of revenue.
B) The making of accounting estimates.
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C) Disclosure of information in the notes to the financial statements.
D) Use of IFRS or ASPE for publicly traded companies in Canada.
Answer: D
Rationale: Publicly traded companies in Canada are required to use IFRS; they do not have a
choice between IFRS and ASPE. Therefore, professional judgment is not required for this
decision.
5. Which of the following statements pertaining to generally accepted accounting principles
(GAAP) is INCORRECT?
A) The process of developing GAAP is political.
B) If a proposal for new financial reporting is not accepted by users, it is unlikely to become part
of GAAP.
C) If an entity that follows GAAP encounters transactions that are not addressed by the CPA
Canada Handbook, it is permitted to adopt accounting practices that are consistent with
industry practice.
D) Publicly traded companies are required to submit financial statements that comply with
GAAP to the securities commissions under which they are registered.
Answer: C
Rationale: If an entity encounters transactions not addressed by the CPA Canada Handbook, it
must look to other sources of GAAP in a hierarchy, not simply adopt industry practice.
6. Which of the following examples does NOT demonstrate the interrelationships of financial
statement elements?
A) A sale on account will increase assets and equity.
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B) Depreciation of equipment will decrease assets and decrease equity.
C) The payment of a payable will decrease liabilities and increase assets.
D) The contribution of capital will increase an asset and increase equity.
Answer: C
Rationale: Payment of a payable decreases both liabilities and assets (cash). It does not increase
assets.
7. Which of the following statements pertaining to GAAP for publicly accountable enterprises
(PAEs) is correct?
A) PAEs include not-for-profit organizations.
B) Commencing in 2011, most Canadian PAEs are required to elect to report under either IFRS
or ASPE on a prospective basis.
C) PAEs include an entity that, as one of its primary businesses, holds assets in a fiduciary
capacity for a broad group of outsiders.
D) CPA Canada and the Financial Accounting Standards Board (FASB) harmonized the accounting
standards of the United States and Canada for PAEs beginning in 1998.
Answer: C
Rationale: A publicly accountable enterprise is one that has issued or is planning to issue
securities in a public market or holds assets in a fiduciary capacity for a broad group of
outsiders.
8. Which of the following statements pertaining to private enterprises (PEs) is INCORRECT?
A) PEs may adopt either ASPE or IFRS but once a set of standards is adopted, the PEs are not
permitted to apply some standards from ASPE and others from IFRS.
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MODERN ADVANCED ACCOUNTING IN CANADA, 10TH EDITION
EXAM GUIDE AND CORRECT ANSWERS LATEST EDITION 2026
Modern Advanced Accounting in Canada, 10th Edition
Chapter 1: Conceptual and Case Analysis Frameworks for Financial Reporting (Questions 1–30)
1. A private company in Canada that is closely held, has no debt, and wants to simplify the
accounting process is most likely to report under which part of the CPA Canada Handbook?
A) Part II—Accounting Standards for Private Enterprises (ASPE)
B) Part IV—Accounting Standards for Pensions
C) Part I—International Financial Reporting Standards (IFRS)
D) Part III—Accounting Standards for Not-for-Profit Organizations
Answer: A
Rationale: Private enterprises in Canada have the option to report under ASPE (Part II) or IFRS
(Part I). A closely held private company with no debt and a desire to simplify reporting would
most likely choose ASPE.
2. In Canada, a private company has the choice to report under International Financial
Reporting Standards (IFRS) or Accounting Standards for Private Enterprises (ASPE). Why does
the CPA Canada Handbook provide this option?
Answer: IFRS is meant to create consistency and comparability in international markets.
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However, the complexity of IFRS reporting for equity investments may not benefit closely held
private companies whose shareholders are often involved in the business and have direct access
to information. The cost of applying complex accounting policies can outweigh the benefits for
these entities. To address this, the Accounting Standards Board developed ASPE to meet the
needs of private enterprises. Private enterprises can choose IFRS or ASPE depending on the
needs of financial statement users.
3. What are the four parts of the CPA Canada Handbook—Accounting and which entities are
they applicable to?
Answer: The four parts are:
• Part I—International Financial Reporting Standards (IFRS)—applicable to publicly
accountable, private, or not-for-profit entities.
• Part II—Accounting Standards for Private Enterprises (ASPE)—applicable to private
entities.
• Part III—Accounting Standards for Not-for-Profit Organizations—applicable to not-for-
profit entities.
• Part IV—Accounting Standards for Pension Plans—applicable to pension plans.
4. In which of the following situations would professional judgment NOT be required in
decision making?
A) Recognition of revenue.
B) The making of accounting estimates.
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C) Disclosure of information in the notes to the financial statements.
D) Use of IFRS or ASPE for publicly traded companies in Canada.
Answer: D
Rationale: Publicly traded companies in Canada are required to use IFRS; they do not have a
choice between IFRS and ASPE. Therefore, professional judgment is not required for this
decision.
5. Which of the following statements pertaining to generally accepted accounting principles
(GAAP) is INCORRECT?
A) The process of developing GAAP is political.
B) If a proposal for new financial reporting is not accepted by users, it is unlikely to become part
of GAAP.
C) If an entity that follows GAAP encounters transactions that are not addressed by the CPA
Canada Handbook, it is permitted to adopt accounting practices that are consistent with
industry practice.
D) Publicly traded companies are required to submit financial statements that comply with
GAAP to the securities commissions under which they are registered.
Answer: C
Rationale: If an entity encounters transactions not addressed by the CPA Canada Handbook, it
must look to other sources of GAAP in a hierarchy, not simply adopt industry practice.
6. Which of the following examples does NOT demonstrate the interrelationships of financial
statement elements?
A) A sale on account will increase assets and equity.
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B) Depreciation of equipment will decrease assets and decrease equity.
C) The payment of a payable will decrease liabilities and increase assets.
D) The contribution of capital will increase an asset and increase equity.
Answer: C
Rationale: Payment of a payable decreases both liabilities and assets (cash). It does not increase
assets.
7. Which of the following statements pertaining to GAAP for publicly accountable enterprises
(PAEs) is correct?
A) PAEs include not-for-profit organizations.
B) Commencing in 2011, most Canadian PAEs are required to elect to report under either IFRS
or ASPE on a prospective basis.
C) PAEs include an entity that, as one of its primary businesses, holds assets in a fiduciary
capacity for a broad group of outsiders.
D) CPA Canada and the Financial Accounting Standards Board (FASB) harmonized the accounting
standards of the United States and Canada for PAEs beginning in 1998.
Answer: C
Rationale: A publicly accountable enterprise is one that has issued or is planning to issue
securities in a public market or holds assets in a fiduciary capacity for a broad group of
outsiders.
8. Which of the following statements pertaining to private enterprises (PEs) is INCORRECT?
A) PEs may adopt either ASPE or IFRS but once a set of standards is adopted, the PEs are not
permitted to apply some standards from ASPE and others from IFRS.
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