Chapter 10 Section 1

Question 1

What must large companies provide shareholders annually with? In accordance with the companies act 2006

Answer 1

• Income statement (usually past 12 months)
• Balance sheet (relating to the end of the accounting reference period)
• A director’s report
• An auditors report
• A Cash flow statement
• A statement of changes in equity

Question 2

What must documents that are provided annually to shareholders also be delivered annually to?

Answer 2

Registrar of companies

Question 3

What sources outline methods for disclosure and acceptable accounting?

Answer 3

• Various companies acts (legal requirements for all companies)
• Financial Reporting Council (FRC) issues and reviews accounting standards
• International Accounting Standards Board (IASB)

Question 4

What does the International accounting standards board issue and who must abide by these?

Answer 4

International Financial Reporting Standards (IFRS)

all UK listed companies consolidated accounts must apply these

Question 5

What should records kept for accounting purposes allow for?

Answer 5

A true and fair view of a companies financial position

note - precise definition of true and fair not given by companies acts

Question 6

List what companies listed on the LSE have to provide additionally in terms of accountancy

Answer 6

half yearly interim reports

Question 7

What companies are exempted from delivering full annual statements to the registrar of companies? Under which act?

Answer 7

Small and medium sized companies

Companies act 2006

Question 8

Under companies act what defines a small company

Answer 8

Turnover of less than 10.2 million

Balance sheet total of less than 5.1 million

Average of less than 50 employees

Question 9

Under companies act what defines a medium company

Answer 9

Turnover of less than 36 million

Balance sheet total of less than 18 million

Average of less than 250 employees

Question 10

What are the two legal categories of organisation?

Answer 10

Bodies sole and bodies corporate

Question 11

what is bodies sole

Answer 11

sole traders and partnerships

Question 12

what are bodies corporate

Answer 12

all other forms of organisation aside from bodies sole and bodies corporate which are recognised by law as being a legal entity separate from their owners

Question 13

Do bodies sole have to produce accounts

Answer 13

no legal requirement

Question 14

what are the two classes of companies limited by shares?

Answer 14

Public company

Private company

Question 15

How does the companies act define a public and private company

Answer 15

Public company - one that has minimum issued share capital of £50,000 (the shares must be at least 25% paid-up, with any share premium fully paid-up and is registered as being a public company)

Private company - any other company

Question 16

what is a close company defined as

Answer 16

In the income and corporation taxes act 1988 as broadly speaking one which is under the control of 5 or fewer persons or is under the control of its directors

Question 17

What is the FRC responsible for

Answer 17

Determining general policy and issuing accounting standards known as the financial reporting standards (FRS)

Question 18

What is IASB?

Answer 18

an independant, privately funded accounting standard setter

Question 19

What does IASB set?

Answer 19

IFRS

International accounting Standards IAS and IASB pronouncements

Question 20

Does IASB have authority?

Answer 20

No authority to require compliance with its accounting standards.

Question 21

Who must adhere to IFRS and why?

Answer 21

Under EU regulation companies governed by EU law member state must prepare their statements in conformity with IFRS.

Requirement to adopt IFRS applies to the consolidated accounts of listed companies. AIM companies are also required to use IFRS in drawing up their group accounts

UK listed companies are able to use IFRS in their individual company accounts.

Other companies and Limited liability partnerships in the UK are permitted to use IFRS in their individual or consolidated accounts.

Question 22

What are companies not adhering to IFRS fit their accounts expected to comply with?

Answer 22

Accounting standards set by the FRC - commonly referred to as GAAP (generally accepted accounting practice).

Question 23

Do small companies have to adhere to Financial reporting standards?

Answer 23

Yes but with reduced disclosures

Question 24

when does a company qualify as a micro-entity? And what does this mean?

Answer 24

Turnover under £632,000 and a balance sheet of no more than £316,000

Question 25

When are UK accounts prepared under IFRS?

Answer 25

consolidated accounts of listed companies

Question 26

what makes up UK GAAP?

Answer 26

FRS 102 and the reporting requirements of companies act 2006

Question 27

When did FRS 102 take effect?

Answer 27

1st Jan 2015

Question 28

what is FRS 102?

Answer 28

A single standard covering the various different items previously covered under separate standards.

Question 29

What is the role of an auditor?

Answer 29

to report to shareholders on whether the accounts have been properly prepared and give a ‘true and fair view’

Question 30

what are the two types of auditors report?

Answer 30

Unqualified (‘clean’/’clear’) – gives an accurate view and all ok – true and fair view of the company

Qualified
o Material – might be gaps missing of information
o Fundamental – pretty much everything looks wrong. Likely to cause accounts to go back to the board of directors for re-assessment.