Chapter 1

Question 1

What would happen if financial statements were not regulated?

Answer 1

Provides incompetent or unscrupulous managers to provide financial information that might mislead stakeholder of the business. which would result in poor economic decisions.

Question 2

What are the sources of regulation?

Answer 2

Legislation
Accounting standards
Stock exchange regulations

Question 3

What does GAAP stand for?

Answer 3

Generally Accepted Accounting Practice

Question 4

What is IASB working towards?

Answer 4

A set of globally accepted standards and tries to achieve convergence between the various regulations.

Question 5

What is the difference between big and little GAAP?

Answer 5

Big GAAP applies to large companies
Little GAAP applies to simpler companies and some standards are written specifically for smaller companies such as FRS105

Question 6

What is the purpose of accounting standards?

Answer 6

The main purpose of AS is to reduce or eliminate variations in accounting practice and to introduce a degree of uniformity into financial reporting

Question 7

In general what requirements do standards set out?

Answer 7

Recognition,
Measurement,
Presentation,
Disclosure of transactions

Question 8

Advantages of standardisation?

Answer 8

Faithful representation - ensure that accounting standards are free from bias and that “creative accounting” is outlawed

Comparability - important for users to be able to compare accounts over different time periods (trends) and different companies

Question 9

What does IAS1 allow?

Answer 9

IAS1 allows companies to depart from the requirements of a standard in the “extremely rare circumstances” in which compliance would result in an unfaithful representation

Question 10

What is the objective of IFRS1 First-time Adoption of international Financial reporting?

Answer 10

To ensure that an entity first financial statement which complies with IS should contain high-quality information

Question 11

Waht does IFRS1 require user to do?

Answer 11

Provide past financial information which can be used to compare the current financial information
Provide a BS a the start of using the standards that complies with IASB
The same applies to the opening Income statement

Question 12

What reconciliations does a comapny need to provide in their first IFRS financial statements

Answer 12

A reconciliation of equity

A reconciliation of total comprehensive income for the last period in reported under previous GAAP