1 Flashcards

1
Q

What is accountability

A

A duty/responsibility that one individual, group or organisation owes to another

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2
Q

How can managers and entities be held accountable for their actions

A

Financial statements

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3
Q

Who can be held accountable

A

Companies and their managers/directors

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4
Q

To who are companies accountable

A

Those with power over the company such as providers of capital and the state

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5
Q

Who are affected by the company

A

Stakeholders

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6
Q

How can you ensure information is provided

A

Voluntary action by employees, develop best practice and develop regulations

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7
Q

Who sets regulations

A

Government through laws
Standard setting bodies
Industry bodies

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8
Q

Where can accounting rules come from

A

National legislators or standard setters

Transnational legislators

International standard setters

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9
Q

What are the different forms of regulation

A

General principle

Detailed rules

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10
Q

What is general principle

A

Gives high level guidance on how to account for various situations and transactions but doesn’t go into detail meaning those preparing financial statements need to use their judgement in applying the principles leading to lack of consistency in how similar situations are dealt with

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11
Q

What is detailed rules

A

Gives specific guidance on how to deal with situations and transactions. Business and rules are complex (IFRS) so may not be possible to anticipate every situation to which a rule should apply

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12
Q

Why are accounting regulations needed

A

Ensures minimum levels of disclosure
Enhance comparability

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13
Q

What does the agency theory regard a company as

A

Nexus of contracts between parties

Equity investors
Lenders
Managers

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14
Q

What does it mean if many contacts are based on accounting numbers

A

Managers pay may be profit related bonus

Lenders look at ability for companies to borrow (gearing)

Dividends tax

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15
Q

What is the link between Agency theory and accounting rules

A

Managers are responsible for preparing financial statements so risk they’ll choose accounting methods to benefit managers over shareholders. Reporting higher profits will lead to higher bonus. Reporting lower gearing will allow company to borrow more. Shareholders and lenders want to limit managers opportunities to prepare financial statements that suit managers interest and can be achieved by specifying how accounting numbers are measured in contracts.

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16
Q

What are the Economic motivations for regulation

A

A common and recognised set of accounting rules/principles is a signal of quality and better comparability leading to better investment decisions and lowers cost of capital.

17
Q

What are the Accounting issues covered by EU directives

A

4th and 7th directive of company law

18
Q

What is 4th directive

A

Single companies

19
Q

What is 7th directive

20
Q

Why would there be a change in accounting regulations

A

Response to corporate scandals, misleading, fraudulent information

21
Q

What is the aim of IASB

A

Develop single set of high quality, understandable, enforceable and globally accepted financial reporting standards based upon clearly articulated principles

22
Q

What does the aim of IASB imply the need of

A

Conceptual framework

Rigorous process of developing standards

Acceptance of standard by national regulators

23
Q

What is the conceptual framework

A

A constitution, coherent system of inter-related objectives and fundamentals that can lead to consistent standards and prescribes the nature, function and limits of financial accounting and financial statements

24
Q

What does the conceptual framework tend to apply

A

General purpose of financial statements

Prepared and presented at least annually and directed towards a wide range of users

25
List the Purpose of IASB Framework
Assist board Auditors can use it for areas not covered by standards Framework is not a standard - may conflict
26
What are possible objectives of accounting
Stewardship/accountability Help owners manage Protect creditors Calculate taxable income Decision making
27
What does IASB framework focus on meeting the needs of
All users but prioritise investors as they believe needs of investors meets most of others
28
What information is likely to be useful from IASB framework
economic decisions require information on entity’s ability to generate cash looks at financial position and performance and cash in and out flows
29
What are the Qualitative characteristics of IASB framework
Relevance Faithful representation
30
What are the enhancing characteristics of the IASB framework
Comparability Verifiability Timeliness Understandability
31
What are the criticisms of the conceptual framework
Too focused on investment decisions and does not recognise seperate need to provide information for assessing managers stewardship of resources Deleted concept of prudence Guidance on measurement was weak and confusing
32
What is stewardship
Responsibility of managers to use resources entrusted to them in interest of stakeholders to whom they are responsible