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Financial Reporting (International Standards) > ANNUAL REPORTS > Flashcards

ANNUAL REPORTS Flashcards

1
Q

Name the 6 stakeholder groups that make use of information contained in annual reports.

A
  • Managers and employees
  • Investment analysts and information intermediaries
  • Shareholders and directors
  • Customers and strategic partners
  • Regulators and tax agencies
  • Governments and the public
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2
Q

What constrains the supply of information in an annual report?

A

Supply constrained by cost/benefit assessment

  • Cost: collation, dissemination, business risk
  • Benefit: shareholders needs
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3
Q

Who ensures a minimum supply of information in annual reports?

A

Regulatory agencies

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4
Q

Limitations and constraints of accounting information?

A
  • Materiality thresholds
  • Cannot be considered absolute
  • Historical
  • Quantifiable information
  • Only one source of information
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5
Q

What are the 3 components of the regulatory framework?

A
  • Legislation
  • Accounting standards
  • Governance (stock exchange)
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6
Q

Name the 5 elements of financial reporting legislation (per the Companies Act 2014 and EU directives) adopted in Ireland.

A
  • Accounting standards
  • Accounting records
  • Audit (small company exemptions)
  • Income statement and balance sheet (annual)
  • True and fair view
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7
Q

What are accounting standards?

A

Principles, rules and guidance governing the accounting treatment of transactions and other items presented in the financial statements.

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8
Q

Why do we use accounting standards?

A

Increase transparency (faithful representation) and comparability of financial information by reducing variations in accounting practice and introducing a degree of uniformity in reporting.

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9
Q

Describe the steps in the standard-setting due process?

A
  • Research programme
  • Developing a proposal for publication
  • Redeliberations and finalisation
  • Post-implementation reviews
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10
Q

What are the two natures of standards and their corresponding strengths and weaknesses?

A
  1. Rules-based
  2. Principles-based
  3. Strengths: Unambiguous Minimise loopholes; Weaknesses: Potential for manipulation
  4. Strengths: Non-prescriptive, Reflect established concepts, Professional judgement; Weaknesses: Reliability? Integrity?
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11
Q

What are the two reporting frameworks in Ireland?

A
  1. Company law based financial statements - company law and local Irish GAAP (FRS 102)
  2. IAS/IFRS based financial statements – IAS and company law (as appropriate)
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12
Q

How does governance (via stock exchange bodies) shape the nature of annual reports in Ireland?

A
  • Listing requirements
  • Regulations apply only to listed companies
  • Generally as required by company law & accounting frameworks
  • Not legal regulations but can sanction noncompliance
  • Equitable access to information
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13
Q

Why was the conceptual framework for financial reporting rewritten in 2018 (implementation 2020)?

A

Balance information demand with cost of information supply.

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14
Q

What is the objective of a general purpose financial statement?

A

Provide financial information about the reporting entity that is useful to primary users in making decisions about providing resources to the entity.

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15
Q

What are the two primary qualitative characteristics, and related sub-groups, of financial information?

A
  1. Fundamental:
  • Relevance
  • Faithful Representation
  1. Enhancing
  • Comparable
  • Verifiable
  • Timely
  • Understandable
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16
Q

What are the 4 elements that make up the framework for financial reporting?

A

RUME

  1. Recognition: future inflow/outflow economic benefit, reliable cost measurement
  2. Underlying assumption: Going Concern
  3. Measurement: monetary value, and a measurement base
  4. Elements: financial position and financial performance
17
Q

What does IAS1 set out to provide?

A

To provide information about the financial position, financial performance, and cash flows of a business that is useful to a wide range of users in making economic decisions.

18
Q

What are the 6 principles of financial reporting?

A
  • Comparative information & consistency of presentation
  • Fair presentation & compliance with international standards
  • Frequency of reporting
  • Going concern & accruals basis
  • Materiality and aggregation
  • Offsetting
19
Q

Seven items that must be included in the structure and content of financial statements?

A
  • Clearly identify the financial statement
  • Name of reporting entity
  • Single entity or group?
  • Reporting period, changes?
  • Presentation currency
  • Level of rounding
  • Formats not prescribed but minimum line disclosures
20
Q

What are the items that must be included in the Statement of profit or loss & other comprehensive income (SoPLOCI)?

A

Must show:

  • Revenue
  • Finance costs
  • Tax expense
  • ~Profit or loss from discontinued operations~
  • Profit or loss for the year
  • Each class of other comprehensive income
  • Total comprehensive income for the year
  • Separate disclosure of material items
21
Q

How do we divide expenses in the SoPLOCI?

A
  • Cost of sales: All costs related to purchase or manufacture of goods for resale or provision of services including materials purchasing & transport, production salaries & overheads…
  • Selling & distribution expenses: All costs related to sales distribution of good/services including delivery costs, distribution salaries & overheads, marketing activities including advertising, promotion, publicity……
  • Administrative expenses: All costs related to administrative service including administration salaries & overheads, directors fees, professional fees…
  • Research & development
  • Impairment losses trade receivables…
22
Q

What is the Statement of Changes in Equity?

A

Shows how each component of equity has changed

during an accounting period, reconciling between

opening & closing balances.

23
Q

What items are presented in the Statement of Changes in Equity?

A
  • Total comprehensive income for the year;
  • Effects of any changes in accounting policies;
  • Share issues;
  • Dividends paid.
24
Q

What are the three elements of the Statement of Financial Position?

A
  • Assets
    • An asset is a current asset if it satisfies any of the following criteria:
      • Expected to be realised within normal operating cycle;
      • Held for purpose of being traded;
      • Expected to be realised within 12 months after reporting period;
      • Cash or a cash equivalent
    • All other assets are non-current assets.
  • Liabilities
    • A liability is a current liability if it satisfies any of the following criteria:
    • Expected to be settled within normal operating cycle;
    • Held for the purpose of being traded;
    • Due to be settled within 12 months after reporting period;
    • No right to defer settlement for at least
    • 12 months after reporting period.
  • All other liabilities are non-current liabilities.
  • Equity
    • Values as per closing values on statement of changes in equity
25
Q

What are the requirements (and suggestions) for inclusion in the Notes to the Financial Statements?

A
  • Must
    • Present basis of preparation and specific accounting policies used
    • Disclose information required by IFRSs not presented elsewhere
    • Provide additional information not presented elsewhere but relevant to understanding
  • Should
    • Include narrative descriptions & detailed analysis of items on face of financial statements
    • Be presented in a systematic manner
    • Be cross-referenced
    • Be presented in the following order:
      • Statement of compliance with IFRSs
      • Summary significant accounting policies and measurement bases applied
      • Supporting information in order of presentation in financial statements
26
Q

What are the 5 required disclosures?

A
  • Dividends proposed or declared
  • Domicile, legal form, country of incorporation and address of registered office or principal place of business
  • Judgements and key sources of estimation
  • Name of parent and ultimate parent of group
  • Operations and principal activities
27
Q

What is the audit process (Before audit - 3 steps; During audit - 5 steps; Post-Audit - 2 steps)?

A
28
Q

What are the 5 duties of an auditor (broader than their client alone)?

A
  • Audit report to shareholders
  • Evidence of approval & report resignation
  • Professional integrity
  • Report failure to keep adequate accounting records
  • Report indictable offences
29
Q

What are the two rights of auditors?

A
  • Access to accounting records
  • Notice of/attendance at AGM
30
Q

What are the 4 things an audit must identify at the start of the report?

A
  • Auditing standards adopted in conducting audit
  • Financial reporting framework adopted by company
  • Financial statements subject to audit
  • Scope of audit
31
Q

What are the 3 things that an auditor must confirm as done by the end of the audit?

A
  • Obtained all information and explanations considered necessary
  • Underlying accounting records properly permit financial statements to be audited
  • Directors report consistent with financial statements
32
Q

What is the basis of opinion on financial statements?

A
  • Give true and fair view of the financial position at end of the year and profit or loss during the year
  • Properly prepared in accordance with relevant financial reporting framework & requirements of Companies Act 2014
33
Q

What is International Financial Reporting Standard (IFRS) Practice Statement Management Commentary?

A

A broad, non-binding framework for the presentation of narrative reporting to accompany financial statements prepared in accordance with IFRS (est. in December 2010).

34
Q

What is management commentary?

A

Management commentary is a narrative report that provides a context within which to interpret the financial position, financial performance and cash flows of an entity.

35
Q

What is Narrative Reporting?

A

“Information that accompanies financial statements as part of a company’s financial reporting.

  • It explains the main trends and factors underlying the development, performance and position of the company’s business during the period covered by the financial statements. CONFIRMATIVE
  • It also explains the main trends and factors that are likely to affect the company’s future development, performance and position”. PREDICTIVE
36
Q

What are the qualities of effective management commentary?

A
  • Clearly identifies compliance
  • Provides context
  • Forward looking
  • Provides understanding of nature of business
  • Style

Financial Reporting (International Standards) (6 decks)

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