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FAR > Chapter 1 - Conceptual framework > Flashcards

Chapter 1 - Conceptual framework Flashcards

1
Q

Financial accounting consists of what two elements?

A
  1. Record transactions as they take place

2. Summarize transactions for one period

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2
Q

What is the objective of general purpose financial reporting?

A
  • provide info to users who make decisions about resources

- fulfill management stewardship role (safe keep resources for efficient/profitable use)

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3
Q

List user groups.

A

Investors

Management

Customers

Suppliers

Lendors

Government (tax)

Employees

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4
Q

What are the two FUNDAMENTAL qualitative characteristics?

A
  1. Relevance

2. Faithful representation

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5
Q

Relevance

Affected by:

1.

2.

A
  1. Nature

2. Materiality

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6
Q

Relevant (nature) info can have what type of information?

A

Predictive - help assess future

Confirmatory - helps confirm past predictions

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7
Q

For information to be faithfully represented, it must be

1.

2.

3.

A
  1. Completeness
  2. Neutral
  3. Free from error
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8
Q

What are the 4 ENHANCING qualitative characteristics?

A
  1. Comparability
  2. Understandability
  3. Timeliness
  4. Verifiability
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9
Q

How to recognise assets?

A

Probable economic benefit INFLOW

cost measured reliably

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10
Q

How to recognise liabilities?

A

Probable economic benefit OUTFLOW

cost measured reliably

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11
Q

How to recognise income?

A

INCREASE in future economic benefits = INCREASE in asset, DECREASE in liability

cost measured reliably

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12
Q

How to recognise expenses?

A

DECREASE in future economic benefits = DECREASE in asset, INCREASE in liability

cost measured reliably

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13
Q

What are the 4 bases of measurement?

A

Historic cost

Current cost

Realisable value

Present value

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14
Q

What is historic cost?

A

originally bought for cost

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15
Q

What is current cost?

A

cost to replace with similar asset

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16
Q

What is realisable value?

A

how much can be sold for

17
Q

What is present value?

A

discounted value of cash flows from asset

18
Q

What does IFRS Foundation do?

A
  • funding

- appoint members for IASB, IFRS advisory council/interpretations committee

19
Q

What does IASB do?

A
  • general technical matters

- prepare standards

20
Q

What does IFRS advisory council/interpretations committee do?

A
  • advice on setting standard

- interpret standards

21
Q

Why is there a drive to harmonise global accounting standards?

A
  • management want consistency
  • investors are diverse globally, better comparison
  • technology developments, more practical possible
22
Q

What are the limitation of F/S?

A
  • uses set formats for presentation (unusual businesses need more flexibility)
  • aggregation of info (all admin expenses into one)
  • excludes non financial info (customer satisfcation/employee turnover, environmental impact)
  • backward looking (using historic info to make decisions about the future?)
23
Q

ICAEW code of ethics

Integrity

A

Straightforward/honest

24
Q

ICAEW code of ethics

Objectivity

A

No bias

Conflict of interest

Undue influence

25
Q

ICAEW code of ethics

Confidential

A

Don’t disclose to third party without authority - need legal/professional duty to do so.

Confidential info not used for personal advantage

26
Q

ICAEW code of ethics

Professional competence

A

Maintain knowledge/skill with current practice/legislation

Act with professional standards

27
Q

ICAEW code of ethics

Professional behaviour

A

Comply with laws/regulations

Don’t discredit profession

28
Q

When does judgement vary?

A

Valuation

R&D

Brand

29
Q

Who does the ICAEW guidance apply to?

A

members

students

member firms and their employees

30
Q

What are the THREATS to the fundamental principles?

A

Self interest

Self review

Familiarity

Advocacy

Intimidation

MANAGEMENT

31
Q

What is a self interest threat?

A

Financial/other interest of accountant or family member

affect judgment/behaviour

32
Q

What is a self review threat?

A

not properly evaluate own work

33
Q

What is a familiarity threat?

A

Long/close relationship

too sympathetic/accepting of client

34
Q

What is a advocacy threat?

A

Promote client’s position

Objectivity compromised

35
Q

EXAM TECHNIQUE: if deliberate manipulation?

A

Explain which of the 5 threats it is

36
Q

EXAM TECHNIQUE: if genuine mistakes?

A

Question professional competence

suggestion: additional training

37
Q

EXAM TECHNIQUE: Actions against ethic problems

A

Gather facts to understand situation

Talk to individual affected

Escalate internally (senior management, audit commitee)

External - ICAEW Ethics helpline

If matter cannot be resolved, consider resignation

FAR (11 decks)

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