2 - Framework

Question 1

What is the regulatory framework made up of?

Answer 1

• International accounting standards (IAS’s) & International Financial Reporting Standards (IFRS’s)
• Companies Act 2006
• Conceptual Framework for Financial Reporting

Question 2

What are the stages of setting a standard?

Answer 2

1 - Topic is identified
2 - Topic is discussed and the IASB setup a working group
3 - Discussion paper is issued and public comment is invited
4 - An exposure draft is issued for public comment
5 - IASB consults with IFRS advisory council and working groups before an IFRS is voted on and issued

Question 3

What are the responsibilities of a director under the companies act 2006?

Answer 3

1 - Keep proper accounting records
2 - Preparing financial statements, having them audited (if needed) and presenting them to the shareholders at a general meeting
3 - Filing the accounts at Companies House (once they are approved)

Question 4

What are some advantages of the principle based approach?

Answer 4

• an individual must use their judgement in applying the framework instead of it being a tick box exercise
• as there are no specific scenarios, it is unlikely to go out of date
• When following a principle, it is hared to avoid the requirements or find the loopholes
• The spirit of the regulation can be followed where there is no specific accounting treatment

Question 5

What are the eight sections of the framework?

Answer 5

1 - The objective of general purpose financial reporting
2 - The qualitative characteristics of useful financial information
3 - Financial statements and the reporting entity
4 - The elements of the financial statements
5 - Recognition and de-recognition
6 - Measurement of elements
7 - Presentation of disclosure
8 - Concepts of capital and capital maintenance

Question 6

What it he objective of general purpose financial reporting?

Answer 6

To provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity

Question 7

What is the accrual concept?

Answer 7

Costs and income should be included in the period to which they relate and not when the cash is paid/received

Question 8

What makes information Material?

Answer 8

If omitting, misstating or obscuring it could be expected to influence decisions the the users make on the financial information provided

Question 9

What makes information faithfully represented?

Answer 9

If it is:
- Complete
- Neutral
- Free from errors

Question 10

What is prudence

Answer 10

When exercising caution when making judgements under conditions or uncertainty. We should take care not to overstate assets or revenue and not to understate liabilities or expenses

Question 11

Explain the following enchanting qualitative characteristic - Comparability

Answer 11

Information is more useful if it can be compared to similar information about other entities or the same entity but for a different period

Question 12

Explain the following enchanting qualitative characteristic - Verifiability

Answer 12

Information that helps to assure users the it is represented faithfully and reliably. This is often if multiple, independant observers can agree that the information is represented fairly

Question 13

Explain the following enchanting qualitative characteristic - Timelessness

Answer 13

When information is available to users in time to be capable of influencing a decision

Question 14

Explain the following enchanting qualitative characteristic - Understandability

Answer 14

When information is presented clearly so that the user is able to interpret the effectivly

Question 15

What is the definition of an asset as laid out be the framework?

Answer 15

A present economic resource controlled by the entity as a result of past events.

Question 16

What is the definition of a liability as laid out be the framework?

Answer 16

A present obligation of the entity to transfer an economic resource as a result of past events

Question 17

What is the definition of equity as laid out be the framework?

Answer 17

The residual interest in the assets of the entity after deducting all of its liabilities

Question 18

What is the definition of income as laid out be the framework?

Answer 18

Increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions (buying new shares) from holders of equity claims

Question 19

What is the definition of expenses as laid out be the framework?

Answer 19

Decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions (dividends) to holders of equity claims

Question 20

When should an element of the financial statements be recognised?

Answer 20

1 - if it meets the definition of an element
2 - if it provides relevant information
3 - if it can be faithfully represented

Question 21

What is historical cost?

Answer 21

The method of measurement used where something is recognised at the original price paid or received

Question 22

What is current value?

Answer 22

The method of measurement used where either fair value (price you would received if sold), Value in use/fulfilment value (the cash in- flows we expect to receive from an asset/the cash outflows we expect to transfer to settle a liability) or Current Cost (the cost to replace an item or settle a liability)