2. The Financial Reporting Environment Flashcards
What is the IASB’s purpose of General Purpose Financial Statements?
Financial statements ‘directed towards the common information needs of a wide range of users’
Who are the primary users of General Purpose Financial Statements?
Existing and potential investors, lenders, and other creditors
What are generally the 5 statements presented in the General Purpose Financial Statements?
Statement of Financial Position, Statement of Comprehensive Income, Statement of Cash Flows, Statement of Changes in Equity, Supporting Notes
Does the IASB recommend readers of the GPFS have a knowledge of accounting?
Yes, readers should have a reasonable knowledge of business and economic activities and who review and analyse the information diligently.
What does Management Accounting focus on?
Focuses on providing information for decision making by parties who work within an organisation, that is, for internal as opposed to external users and it is largely unregulated
What is a free market?
A market in which the supply of goods and services, and the respective prices, are determined on the basis of the forces of supply and demand
Does the government or accounting profession regulate the AASB?
The Government
What is the public interest theory of regulation?
This suggests that regulation is developed in the ‘public interest’. Regulators are assumed to be motivated by the ‘public interest’ and will select regulation on the basis that the social benefits of the regulation exceed the social costs
What is the capture theory?
This theory suggests that although regulation is often introduced to protect the public, the regulatory mechanisms are often subsequently captured so as to protect the interests of particular self-interested groups within society, typically those whose activities are most affected by the regulation
What does ASRB stand for?
Accounting Standards Review Board
What is the private interest theory (or economic interest group theory)?
Also known as economic interest group theory, it proposes that the regulators introduce regulation that best serves the regulators’ own private interest. That is, regulators are motivated not by the public interest but by their own self-interest.
What is XBRL?
Extensible business reporting language. The global standard format for exchanging business information
What is Financial accounting?
A process involving the collection and processing of financial information to assist in the making of various decisions by many parties internal and external to the organisation.
What is Neutrality?
Neutrality requires that information contained in the financial statements must be free from bias.
What is Creative accounting?
An approach to accounting wherein objectivity is not employed, but rather, those responsible for the preparation of accounts select accounting methods that provide the accounting result desired by the preparers.
