Chapter 12: Regulatory Framework Flashcards
What must you annualy disclose to Companies House?
- Financial statements, including the balance sheet and profit and loss accounts
- Disclosures, which are additional notes
What is the main piece of legislation relevant to financial reporting? (Hint: It is an act)
Companies Act 2006
Which are the names of the two accounting standard which are mandatory?
- IFRS (International Financial Reporting Standards)
- GAAP (Generally Accepted Accounting Principles)
What does the UK GAAP consist of the main standards? (3)
FRS 100
FRS 102
FRS 105
What does the FRS 100 set out?
The overall reporting framework
What does the FRS 102 set out?
Accounting rules for majority of businesses
What does the FRS 105 set out?
Accounting rules for “micro businesses”
What is the purpose of Accounting Standards?
Outlines a general accounting practice - that a business is expected to follow - for a particular transaction or event
Financial statements that comply with the accounting standards allow common understanding between users
What is the scope of Accounting Standards?
Must be followed by Limited companies and LLPs as well as Sole Traders and Partnerships to give a TRUE AND FAIR VIEW of financial accounts.
If the calculation of profits are involved, it must comply with UK GAAP on unincorporated companies.
FRS 102: What are the 10 ‘qualitive characteristics’ of information in the financial statements?
(Hint: Think URM ReSPeCCT B)
Understandability
Relevance
Materiality
Reliability Substance over form Prudance Completeness Comparability Timeliness
Benefits over costs
FRS 102: What is the definition of an asset?
Resource controlled by the entity
as a result from past events
which will provide future economic benefits
FRS 102: What is the definition of a liability?
A present obligation arising from past events
which will result in an outflow of economic benefits from the entity
FRS 102: What is performance?
The relationship between income and expenses
FRS 102: What is income? (2)
- Transactions and events that increase equity
- other than capital contribution from owners
- Sole Traders
- Partnerships
- LLPs
- Company
Which of these can use cash/ accrual basis of accounting?
Sole traders can use cash/ accruals basis of accounting.
Partnerships, LLPs, Companies can only use accruals basis of accounting.
In order to recognise an asset, liability, income or expense, what criteria must be met? (3)
DEFINITION
1. It must meet the definition of an asset, liability, income or expense as defined.
ECONOMIC BENEFIT
2. There must be probability that future economic benefit will rise to or from the entity.
VALUE
3. The item must have a cost or value that can be reliably measured.
An entity is not allowed to offset its assets to liabilities, and income to expenses. This will affect which 2 characteristics of the information? (2)
- Completeness
- Relevance
FRS 102: Define provision
A provision is a liability of uncertain timing or amount
What are the size thresholds for a “micro entity”?
- Turnover < £632,000
- Total assets < £316,000
- Average number of employees < 10
Where do you account for contingent assets and liabilities?
Disclose as a note to the accounts
How many of the size thresholds must an entity meet for it to be classed as a micro entity? (FRS 105)
2 out of the 3 criteria
Which accounting concept means that accounts should be prepared in a consistent manner year on year?
Comparability
True and/or false?
- An asset is a resource controlled by the entity as a result of past events and from which economic benefits have flowed to the entity.
- An expense is a cost to the business, other than distributions to the owners.
1 is false and 2 is true
An asset must be able to generate future economic benefits
‘from which future economics benefits are expected to flow to the entity’
Are sole traders required to follow FRS 102?
No