2. The Framework

Question 1

What are the regulatory framework?

Answer 1

1) International Accounting Standards and International Financial Reporting Standards
2) Companies Act 2006
3) Framework for the preparation and presentation of financial statements

Question 2

What do the IFRS Foundation do?

Answer 2

Appoint committee members, raise funds and monitor their effectiveness.

Question 3

What are the sections of the IFRS Foundations?

Answer 3

IFRS Advisory Council
IAS Body
IFRS Interpretation Committee

Question 4

What does the IFRS Advisory Council do?

Answer 4

Take recommendations from individuals, corporations and national standard setters and then provide advice to the IASB on priority areas.

Question 5

What does the IASB do?

Answer 5

Set international accounting standards

Question 6

What does the IFRS interpretations committee do?

Answer 6

Report to the IASB with interpretations of IFRS’s and provide guidance on financial reporting issues not specifically addressed by IFRS’s.

Question 7

What are the stages required to develop and set standards?

Answer 7

1) Topic is identified
2) atopic is discussed and IASB may set up a working group
3) Discussion paper is issued and public comment invited
4) 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 8

What is the Companies Act 2006?

Answer 8

UK legislation which governs limited companies. It lays out regulations on how the company is to be managed and its reporting requirements.

Question 9

What are directors responsible for?

Answer 9

• Keeping proper accounting records
• preparing the financial statements, having them audited and presenting them to shareholders
• Filing the accounts at companies house (9m after year end for Ltd, 6m after fro Plc)

Question 10

Is the framework an accounting standard?

Answer 10

No, it is a set of principles

Question 11

What are the advantages to the principles based approach?

Answer 11

• Individuals must use their judgement
• No individual scenarios, less likely to go out of date
• Harder to avoid requirements
• The spirit of the regulation can be followed when there is no specific accounting requirements

Question 12

What are the sections of the Framework?

Answer 12

1) The objectives of the financial statements
2) The users and their information needs
3) The underlying assumptions of the FS
4) the Qualitative Characteristics of FS
5) The elements of FS
6) Recognition of elements in the FS
7) Measurement of elements in the FS

Question 13

What is the general purpose of financial statements?

Answer 13

To provide a wider range of users with information to enable them to make economic decisions.

Question 14

What is the accruals concept?

Answer 14

Costs and revenues should be matched together and included in the period to which they relate, not when cash is paid or received.

Question 15

What is going concern?

Answer 15

The assumption that the business will continue trading for the foreseeable future.

Question 16

What are the fundamental qualitative characteristics?

Answer 16

• Relevance

- Faithful representation

Question 17

What is the characteristic of relevance?

Answer 17

Predictive value - can predict future outcomes.
Confirmatory value - feedback about previous evaluations
Informations relevance is affected by its nature and materiality

Question 18

What makes information have a faithful representation?

Answer 18

It will be:

• Complete
• Neutral/Unbiased
• Free from error
• Report substance over form

Question 19

What are the enhancing qualitative characteristics?

Answer 19

Comparability - can be compared with similar informations from other entities.
Verifiability - represents faithfully the economic reality of the transactions.
Timeliness - available in time to be able to influence decisions
Understandability - presented clearly and concisely to make it understandable

Question 20

When should an element of the financial statements be recognised?

Answer 20

1) meets the definition, and
2) Is probably that future economic benefits with flow, and
3) The item has a cost or value that can be reliably measured

Question 21

What are the measures of elements?

Answer 21

Historical cost = original price paid
Current cost = cost if bought today
Realisable value = Amount you would receive if you sold the asset today
Present value = discounted value of all future cash flows

Question 22

What are the fundamental ethical principles?

Answer 22

Integrity - Straightforward and honest
Objectivity - fair in that they do
Professional competence and due care- refrain from undertaking work you are not competent to carry out and maintain professional knowledge
Confidentiality - all information is confidential, do not disclose unless required to do so
Professional behaviour - act in a professional manner, consistant with the good reputation

Question 23

What are the types of threat?

Answer 23

Self interest
Self review
Familiarity
Intimidation
Advocacy

Question 24

What is an advocacy threat?

Answer 24

When you speak up on behalf of another and are seen to be promoting them or their business

Question 25

What are the two underlying assumptions set out in the framework?

Answer 25

• the accruals concept

- going concern