1. FINANCIAL REPORTING AND ACCOUNTING STANDARDS

Question 1

How can we compare companies?

Answer 1

numbers are comparable → international accounting standards = rules to make judgements in an international environment

Question 2

Do we need to protect investors? What is their risk?

Answer 2

Insolvency and FRAUD (= main risk)
if you invested, no buffer, you lose everything → you have to see the risk to protect investors

Question 3

IFRS is mandatory for who?

Answer 3

listed companies

BUT a private non-listed company can decide to adopt IFRS → to be more effective in delivering information to investors and to have discounts on taxes

Question 4

essential characteristics of accounting

Answer 4

-identification, measurement, and communication of financial information about
-economic entities to
-interested parties

Question 5

1st financial statement?

Answer 5

income statement

Question 6

high-quality international accounting standards

Answer 6

to avoid frauds → consistency
for all sectors →comparability

Question 7

elements of high-quality standards

Answer 7

1. Single set of high-quality accounting standards established by a single standard-setting body
2. Consistency in application and interpretation
3. Common disclosures
4. Common high-quality auditing standards and practices
5. Common approach to regulatory review and enforcement
6. Education and training of market participants
7. Common delivery systems (eXtensible Business Reporting Language—XBRL)
8. Common approach to corporate governance and legal frameworks around the world

Question 8

Objective of financial reporting

Answer 8

provide financial info about the reporting entity that is useful to:
-present and potential equity investors,
-lenders, and
-other creditors

–> in making decisions about providing resources to the entity

Question 9

General-purpose financial statements:

Answer 9

-provide financial reporting information to a wide variety of users
-provide the most useful information possible at the least cost

Question 10

Equity investors and creditors

Answer 10

primary user group
–> investors need info to assess the amount of cash flow the firm can generate

Question 11

Entity perspective

Answer 11

Companies are considered separate from their owners (shareholders)

Question 12

Investors are interested in assessing:

Answer 12

-company’s ability to generate net cash inflows and
-management’s ability to protect and enhance the capital providers’ investments

Question 13

objective of financial reporting places most emphasis on:

Answer 13

reporting to capital providers (=investors)

Question 14

Standard-setting organizations

Answer 14

-IASB (international accounting standards board)
-IOSCO (international organization of securities commissions)

Question 15

IASB composed of 4 organizations

Answer 15

1. IFRS foundation
2. International accouting standards board
3. IFRS advisory council
4. IFRS interpretations committee

Question 16

how much IFRS is close to IASB (USA)?

Answer 16

really close, but big difference:
-IFRS: principle-based –> sort of discretion on how to apply the principles, discretionary approach
-IASB: rules-based → go through the rules and abide perfectly

Question 17

due process

Answer 17

has the following elements:
1. independent standard-setting board
2. thorough and systematic process for developing standards
3. engagement with investors, regulators, business leaders, and the global accountancy profession at every stage of the process
4. collaborative efforts with the worldwide standard-setting community

–> show if new rules are effective and achieve the accounting objectives

Question 18

Accounting standard-setters use the following process in establishing international standards

Answer 18

1. Research
2. discussion paper
3. exposure draft
4. standard

Question 19

Types of Pronouncements

Answer 19

-International Financial Reporting Standards
-Conceptual Framework for Financial Reporting
-International Financial Reporting Standards Interpretations

Question 20

Conceptual Framework for Financial Reporting

Answer 20

give us the way in which the standards are built (characteristics, measures)

Question 21

International Financial Reporting Standards Interpretations

Answer 21

issuance interpretation (important when big change)

Question 22

Hierarchy of IFRS

Answer 22

companies first look to:

1. International Financial Reporting Standards, International Accounting Standards (issued by the predecessor to the IASB), and IFRS interpretations originated by the IFRS Interpretations Committee (and its predecessor, the IAS Interpretations Committee)

2.Conceptual Framework for Financial Reporting

3. Pronouncements of other standard-setting bodies that use a similar conceptual framework (U.S. GAAP)

Question 23

IFRS is comprised of:

Answer 23

1. International Financial Reporting Standards
2. International Accounting Standards
3. International Accounting Standards Interpretations

Question 24

Expectations gap

Answer 24

what the public thinks accountants should do and what accountants think they can do

Question 25

IOSCO

Answer 25

international organization of securities commissions
-does not set accounting standards
-dedicated to ensuring that global markets can operate efficiently and effectively
-supports using IFRS as the single set of international standards in cross-border offerings and listings

Question 26

IFRS stands for

Answer 26

international financial reporting standards

Question 27

major key players on international side of standard-setting are

Answer 27

-IASB (international accounting standards board)
-IOSCO (international organization of securities commissions)