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FFA > Chapter 1 - Intro to financial reporting > Flashcards

Chapter 1 - Intro to financial reporting Flashcards

1
Q

What is the purpose of the accounting system of a business entity?

A

Records transactions and summarises the transactions to report financial performance and position of the entity.

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2
Q

What two elements does accounting consist of?

A

Recording and summarising

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3
Q

What is recording?

A

Transactions must be recorded as they occur in order to provide up-to date information

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4
Q

What is summarising?

A

The transactions for a period are summarised in order to provide information about the entity to interested parties

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5
Q

The summarised information is then presented in what form?

A

Form of financial statements

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6
Q

what is included in the financial statements?

A

Statement of profit or loss
Statement of financial position
Statement of changes in equity
Statement of cash flows
Notes to the financial statements

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7
Q

What are the key features of financial accounting?

A
  • for external users
  • prepared annually
  • required by law
  • reflects past performance and position
  • information calculated and presented in accordance with IAS
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8
Q

What are the key features of management accounting?

A
  • used by management to control the business and plan for the future
  • normally prepared monthly often on a rolling basis
  • not mandatory
  • includes budgets and forecasts
  • information prepared and presented in order to be relevant to managers
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9
Q

What is a sole trader?

A

the simplest form of business entity where a business is owned and operated by one individual. With this form of entity there is no distinction in law between and owner and the business.

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10
Q

What is a partnership?

A

similar to a sole trader in that the owners of the partnership share all the profits and have unlimited liability for the losses and debts of the business. Key distinction is that there are at least two owners.

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11
Q

What is a limited liability?

A

established as separate legal entities which make them distinct from their owners.

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12
Q

What is the Framework?

A

Presents main ideas, concepts and principles upon which all IFRS Standards, and therefore financial statements, are based.

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13
Q

What does the framework include?

A

Discussion of:
- objective of financial reporting
- the qualitative characteristics of useful financial information
- the definition, recognition and measurement of the elements from which the financial statements are constructed.

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14
Q

Who are the users of the financial statements?

A

Investors, management, employees, the public, competitors, government, lenders, suppliers, customers

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15
Q

What does the statement of profit or loss show?

A

1) income
2) expenses

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16
Q

What does the statement of financial position show?

A

Assets, liabilities and capital

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17
Q

What are assets?

A

a present economic resource controlled by the entity as a result of past events

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18
Q

What are liabilities?

A

a present obligation of the entity to transfer an economic resource as a result of past events

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19
Q

What is capital/equity?

A

a special kind of liability due to the owner(s) and is the residual interest in the assets of the entity after deducting all its liabilities

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20
Q

What is income?

A

increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims.

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21
Q

What are expenses?

A

decreases in assets, or increases in liabilities, that result in a decrease in equity, other in those relating to distributions to holders of equity claims.

22
Q

What is a hire purhcase?

A

paying for asset in the future, legally the asset belongs to the HP company, you control so you record.

23
Q

What is the accounting equation?

A

Asset - Liabilities = Equity/ Capital

24
Q

What are the fundamental qualitative characteristics?

A

1) Relevance
2) Faithful representation

25
Q

What are the enhancing qualitative characteristics?

A

1) Comparability
2) Verifiability
3) Timeliness
4) Understandability

26
Q

What is materiality?

A

an item is regarded as material if its omission or misstatement is likely to change the perception or understanding of the user of that information

27
Q

what is substance over form?

A

if information is to be prepared faithfully the economic substance of transactions must be accounted for, and not just their strict legal form

28
Q

what is going concern?

A

FInancial statements are presented on the basis that the entity will continue to trade for the foreseeable future

29
Q

What is the business entity?

A

This means that financial accounting information presented in the financial statements relates only to activities of the business and not to those of the owner

30
Q

What is the accruals basis of accounting?

A

This means that transactions are recorded when revenues are earned and when expenses are incurred. This pays no regard to the timing of cash receipts and payments

31
Q

What is prudence?

A

Prudence is the exercise of caution when making judgements under conditions of uncertainty. e.g., ensuring that assets and income are not overstated, and that liabilities and expenses are not understand

32
Q

What is consistency?

A

Users of the financial statements need to be able to compare the performance of an entity over a number of years and so classification and presentation of items included in financial statements must be retained from one accounting period to the next.

33
Q

What is the regulatory framework?

A

Required to ensure that relevant and reliable financial reporting is achieved to meet the needs of shareholders and other users.

34
Q

Financial accounts are used as the starting point for what?

A

Calculating taxable profits

35
Q

The stock markets rely on what?

A

The published financial statements by companies

36
Q

IFRS standards aim to what?

A

Harmonise as far as possible the different accounting standards and accounting policies of different countries

37
Q

The international accounting standards board (IASB) is responsible for what?

A

For developing and issuing new international financial reporting standards

38
Q

What is the IFRS IC?

A

Issues rapid guidance where there are differing interpretations of IASs/IFRSs

39
Q

What’s is the IFRS AC?

A

Advises the IASB in developing new standards

40
Q

Give some examples of advantages of harmonisation?

A

Access to international finance easier for companies
Tax liabilities easier to calculate

41
Q

Give some examples of disadvantages of harmonisation?

A

Different legal systems may prevent the application of certain accounting practices
Countries may be unwilling to accept another country’s standards
More costly to develop a fully detailed set of accounting standards

42
Q

Is the framework an accounting standard?

A

No

43
Q

What are shareholders?

A

Generally considered to be the party corporate governance rules and regulations most aim to protect

44
Q

What are directors?

A

Include executive and non executive directors. Shareholders prefer more NEDS

45
Q

What is the purpose of private sector govenrance?

A

To monitor the behaviour and conduct of the parties which control the resources owned by investors

46
Q

What is the purpose of private sector governance?

A

To enhance performance and accountability in creating long term shareholder valie

47
Q

What are the key concepts corporate governance requires individuals to have?

A

Fairness
Transparency
Innovation
Scepticism
Independent
Probity
Responsibility
Accountability
Reputation
Judgement
Integrity

48
Q

What is appropriate formal structures in relation to effective corporate governance?

A

Formal structures such a audit and remuneration committees which include effective and independent Ned’s, encourage climate of responsibility, accountability and transparency

49
Q

What is a code of ethics and an ethical culture in relation to effective corporate governance?

A

Directors and managers should take a sustainable long term perspective to strategy and should encourage ethical behaviour

50
Q

What is a clear mission and objectives in relation to effective corporate governance?

A

Common purpose can be implemented through a clear corporate mission and coherent strategic objectives which are able to be broken down into meaningful department and team objectives

51
Q

What is focus on efficiency and effectiveness in relation to effective corporate governance?

A

Both should be valued and promoted across organisation

52
Q

What is respect for all in relation to effective corporate governance?

A

Employees at All levels should be valued and respected and encouraged to suggest improvements

FFA (19 decks)

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