Chapter 1: Introduction to Accounting - The regulation of accounting Flashcards
Which act of law are companies in the UK obliged to comply with?
What standards should financial statements be prepared in accordance with?
In the UK, all companies must comply with the provisions of the Companies Act.
In the UK, financial statements must be prepared with either the UK GAAP or IFRS Standards. They must also give a true and fair view of the performance and position of the company.
Give the meaning of GAAP in the UK and the meaning of GAAP internationally?
In the UK, GAAP refers to Generally Accepted Accounting Practice.
Internationally, the term GAAP refers to Generally Accepted Accounting Principles.
What is the UK GAAP?
Generally Accepted Accounting Practice (GAAP)
GAAP is a term used to cover all the rules, from whatever source, which govern accounting in various jurisdictions. The requirement that financial information is relevant, reliable, comparable and understandable is common to both IFRS Standards and GAAP.
What is the obligation for financial reporting on limited liability companies?
How is the form and content of financial statements regulated?
Limited liability companies are required by the Companies Act 2006 to prepare and publish financial statements annually.
The form and content of financial statements is regulated by legislation but must comply with accepted accounting and financial reporting standards.
For listed groups this means compliance with IFRS Standards.
Non-listed companies generally follow accounting standards which are substantially converged with international ones.
Certain entities are exempt from preparing financial statements under s394 of the Companies Act.
What is the purpose of accounting standards?
Which bodies were responsible for developing accounting standards in the UK and Internationally?
While ethical principles underpin financial accounting, different people could still interpret situations differently. Professional judgement is applied by accountants based on their interpretation of a scenario, which can lead to subjectivity in accounting.
In order to deal with some of this subjectivity, and to achieve comparability between different organisations, accounting standards were developed.
These were developed at an international level by the International Accounting Standards Board (IASB) and at a UK level by the Financial Reporting Council (FRC).
What is the FRC?
The FRC sets UK and Ireland accounting standards via its Codes and Standards Committee. The Corporate Reporting Council supports and advises the Codes and Standards Committee in accounting and reporting. It is responsible for the development of UK standards and for considering and commenting on international proposals.
What is the ISSB?
In 2021, the IASB announced the formation of the International Sustainability Standards Board (the ISSB), which formally recognised the need for companies to disclose sustainability-related non-financial information alongside their financial statements.
What are the standards issued by the International Accounting Standards Board (IASB)? (2)
What is the difference between the two?
1) The International Financial Reporting Standards (IFRS)
2) International Accounting Standards (IAS)
The IAS and IFRS Standards have the same status, IASs are simply older standards; those published since 2001 are called IFRS Standards.
Under what standards must non-listed companies in the UK report?
Non-listed companies in the UK can choose to report under IFRS Standards or UK financial reporting standards (FRS).
What does the UK GAAP encompass?
UK GAAP encompasses:
1) the Companies Act 2006
2) UK accounting standards (which are derived from the IFRS Standards with limited exceptions.
Give the UK equivalent for the following International Terms:
1) Statement of profit or loss
2) Statement of financial position
3) Non-current asset
4) Carrying amount
5) Inventories
6) Receivables
7) Irrecoverable debt
8) Irrecoverable debt expense
9) Allowance for receivables
10) Retained Earnings
11) Payables
12) Non-current liabilities
13) Current liabilities
14) Revenue
15) Finance costs
16) Property, plant and equipment
1) Income statement or Profit and loss account
2) Balance sheet
3) Fixed asset
4) Net book value
5) Stock
6) Debtors
7) Bad debt
8) Bad and doubtful debt expenses
9) Allowance for doubtful debts
10 Retained profits (reserve)
11) Creditors
12) Creditors: amount falling due after more than one year
13) Creditors: amount falling due in less than one year
14) Turnover
15) Interest payable
16) Tangible fixed assets
What is the TCFD?
The Taskforce on Climate-related Financial Disclosures (TCFD) requires most UK companies to disclose information on the climate-related risks and opportunities that they face.
Explain the principle that financial statements are required to present a true and fair view of the financial results of the entity.
Financial statements are required to give a true and fair view or present fairly in all material respects the financial results of the entity. These terms are not defined and tend to be decided in courts of law on the facts.
The Conceptual Framework states that if financial information is to be useful, it must be relevant and faithfully represent what it purports to represent.
The Companies Act 2006 requires that financial statements should give a true and fair view of the financial position of the entity at a particular point in time.
IAS 1, Presentation of Financial Statements, financial statements should present fairly the financial position and performance, and the cash flows, of the entity. This requires financial representation of the the effects of transactions.
