10: The regulatory and conceptual framework

Question 1

What kind of approach to the framework do we have in the UK?

Answer 1

Principles based approach

Question 2

What are the two fundamental characteristics?

Answer 2

• Relevance

- Faithful representation

Question 3

What regulatory standards are we looking at in FR?

Answer 3

IFRS standards

Question 4

What do IFRS standards comprise of?

Answer 4

IFRS and IAS standards

Question 5

What do IFRS foundation do? 2

Answer 5

• Supervise IASB

- Responsible for governance

Question 6

What are the objectives of the IFRS foundation? 2

Answer 6

• Develop high quality standards

- Promote the use and convergence of national accounting standards

Question 7

What does the IASB board do? 2

Answer 7

• Solely responsible for issuing IFRS’s

- Create a single set of understandable and enforceable accounting standards

Question 8

What does the IFRS Advisory Council do? 2

Answer 8

Advise board agenda

-Informing IASB of the views/opinions of organisations and individuals

Question 9

What do the IFRS Interpretations committee do? 2

Answer 9

-Issue guidance on how to apply the standards practically

For when people do not know how to apply the standard

Question 10

What does the IFRS Advisory council do to allow individuals and organisations to participate in standard setting? 2 steps

Answer 10

• Issue ED (exposure draft)

- Public come back with comments

Question 11

What are interpretations made by the interpretations committee known as?

Answer 11

IFRIC Interpretations

Question 12

Who provides a forum for the IASB to consult with the national accounting standard setters, academics and other interested parties?

Answer 12

IFRS Foundation

Question 13

What are the five ways the IFRS are used around the world?

Answer 13

• National requirements
• A basis for national requirements
• International benchmark
• Used by regulatory authorities for domestic and foreign companies
• Used by companies themselves

Question 14

How does the IASB prepare the IFRS’s?

Answer 14

In accordance with due process

Question 15

What is the first step with standard setting?

Answer 15

Establish consultative group

Question 16

What is the second step with standard setting?

Answer 16

Project is accepted and committee set up

Question 17

What is the third step with standard setting?

Answer 17

On major projects the IASB develops and publishes a discussion document

Question 18

What is the fourth step with standard setting?

Answer 18

Following receipt and review of comments an exposure draft is produced

Question 19

What is the fifth and final step with standard setting?

Answer 19

Folowing receipt and review of comments the final IFRS is issued.

Question 20

ARe IFRS’s intended to apply to immaterial items?

Answer 20

No

Question 21

Are IFRS’s retrospective?

Answer 21

No

Question 22

What is the IASB’s Framework for the presentation and presentation of financial statements do?

Answer 22

Sets out the concepts underlying the preparation and presentation of financial statements for external users.

Question 23

Who is the IASB’s Framework for the presentation and presentation of financial statements for?

Answer 23

External users

Question 24

Can the conceptual framework override accounting standards?

Answer 24

No

Question 25

What is the objective of the financial statements?

Answer 25

To provide information about the - financial position - performance and; - changes in financial position of an entity that is useful to a wide range of users in making decisions.

Question 26

What are the two underlying assumptions?

Answer 26

- Accruals basis | - Going concern

Question 27

What is the accruals basis?

Answer 27

- The effects of transactions and other events are recognised when they occur and not when cash transfers. -They are reported in the financial statements in the period to which they relate

Question 28

What is the going concern basis?

Answer 28

The financial statements are prepared on the basis that an entity will continue in operation for the foreseeable future.

Question 29

If you are expected to trade for more than 12m what basis do you use?

Answer 29

Going concern

Question 30

If you are expected to trade for less than 12m what to you do?

Answer 30

Make a lot of disclosures

Question 31

What are the two fundamental characteristics?

Answer 31

- Relevance | - Faithful representation

Question 32

Describe relevance

Answer 32

To be useful -relevant to the decision making process of the user.

Question 33

Describe faithful representation

Answer 33

Accounting for transactions in line with the IFRS'

Question 34

What are the four aspects of reliability?

Answer 34

Completeness Neutrality Free from error Substance over form

Question 35

Completeness

Answer 35

Information must be complete within restrictions of materiality and cost to be reliable. Omissions may cause information to be misleading

Question 36

Neutrality

Answer 36

Information is not neutral if it has been selected or presented in such a way as to -influence the making of a decision or judgement in order to achieve a predetermined result or outcome.

Question 37

Free from error

Answer 37

No material errors or omissions

Question 38

Substance over form

Answer 38

Economic substance should be recorded. Not just its legal form.

Question 39

What are the four enhancing qualitative characteristics?

Answer 39

Comparability Verifiability Timeliness Understandability

Question 40

Comparability

Answer 40

Users must be able to compare period to period and company to company

Question 41

Verifiability

Answer 41

Knowledgeable and Independent users could reach a consensus that the depiction is a faithful representation.

Question 42

Timeliness

Answer 42

Having information available in time for decision makers to be capable of influencing their decisions.

Question 43

Understandability

Answer 43

Assuming users have a reasonable business knowledge and willingness to study, the statements should be understandable.

Question 44

What are the three other accounting concepts?

Answer 44

Fair presentation Consistency The business entity concept

Question 45

What are the three factors for Fair presentation to happen?

Answer 45

- Compliance with accounting standards - Presented in a manner that provides relevant, reliable, comparable and understandable information - Additional disclosure when required

Question 46

What is consistency?

Answer 46

The presentation and classification should stay same from period to period.

Question 47

What is the business entity concept?

Answer 47

Treat the business as separate from the owner. Transactions of business should never be mixed with transactions of owner.

Question 48

What are the four measurement bases that are mentioned in the conceptual framework?

Answer 48

* Historical cost * Current cost (replacement cost) * Realisable value (fair value) * Present value

Question 49

What are the three capital maintenance concepts you need to understand?

Answer 49

* Real financial capital maintenance * Money financial capital maintenance; and * Physical capital maintenance

Question 50

Real financial capital maintenance

Answer 50

General price rise

Question 51

Real financial capital maintenance

Answer 51

General price rise

Question 52

Money financial capital maintenance

Answer 52

Physical profit

Question 53

Physical capital maintenance

Answer 53

Specific prise rise

Question 54

What do IFRS foundation do? 2

Answer 54

- Supervise IASB | - Responsible for governance

Question 55

What are the objectives of the IFRS foundation? 2

Answer 55

- Develop high quality standards | - Promote the use and convergence of national accounting standards