Accounting Principles Flashcards
what is going concern?
the entity will continue in operation for the foreseeable future and it does not intend or need to liquidate or significantly reduce the scale of its operations
what happens if the business is no longer considered to be a going concern?
- assets are recognised at the expected selling amount
- liabilities are recognised at the amount they are likely to be settled for
what is accruals basis?
transactions should be reflected in the financial statements for the period in which they occur
what is a business entity?
the business is treated as being separate from its owners
what is materiality?
relates to the significance of tranactions, balances and errors within the financial statements
when is an item material?
if its omission or misstatement is likely to change the users perception or understanding of the information
what does material misstatements include?
the overstatements or understatement of profits and overvaluation of assets and liabilities
what is consistency?
the presentation and classification of items remain the same within the financial year
what is prudence?
good and careful judgement
what is money measurement?
an accounting transaction should only be recorded if it can be expressed in terms of money
what items cannot be recorded?
- employee skill level
- working conditions
- process efficiency
- customer support quality
- product durability
what are the 2 fundamental qualitative characteristics of the conceptual framework for financial reporting?
- relevance
- faithful representation
what are the 4 enhancing qualitative characteristics?
- comparability
- timeliness
- understandability
- verifiability
what makes financial information relevant?
if it is capable of influencing the decision of users
what makes financial information a faithful representation?
complete, neutral and error-free
what makes financial information comparable?
it should be possible to compare an entity over time and compare information with similar entities
what makes financial information timely?
Information should be provided within a sustainable time-scale for decision making purposes
what makes financial information understandable?
users should be able to understand the financial information through its classification, characterisation and presentation of information
what makes financial information verifiable?
if it can be verified
what are the ethical principles?
- integrity
- objectivity
- professional competence and due care
- confidentiality
- professional behaviour
what are the objectivity threats?
- self interest
- familiarity threats
what are personal threats to independence?
- self-interest
- familiarity
what are conflict of interest threats?
- a member in practice has a joint venture with a major competitor of a client
- a member in practice competes directly with a client
what are the 2 phases of professional competence and due care?
- gaining professional competence
- maintaining professional competence
