Chapter 2 - Information Requirements of Financial Statements

Question 1

• Statement of Financial Position

Answer 1

Helps users assess the companies financial strengths and weaknesses.

• Liquidity
• Solvency
• Ability to obtain more financing

Question 2

• Statement of Profit Loss

Answer 2

Helps users assess the return made on the companies economic resources and the uncertainty of future cash flows.

Question 3

• Statement of Changes in Equity

Answer 3

Completes the picture of how assets and liabilities have changed

• New Share Issues
• New Loans

Question 4

• Statement of Cash Flows

Answer 4

Shows how the company has obtained and spent cash and helps users assess the companies ability to generate future cash inflows

Question 5

• Directors Responsibilities - The Companies act 2006

Maintaining adequate accounting records:

Answer 5

• Show and explain the companies transactions
• Disclose the companies financial position reasonably accurately at any time
• Ensure that the company’s financial statements comply with the Companies Act 2006

Question 6

• Directors Responsibilities - The Companies act 2006

Only approve the Financial Statements if they give a true and fair view of:

Answer 6

• The assets, liabilities and Financial Position

- The Profit/Loss

Question 7

• Directors Responsibilities - The Companies act 2006

Prepare the Financial Statements for every Financial Year:

Answer 7

• Financial Statements must be sent to every shareholder
• Must file Financial Statements with Companies House within:

Private Company = 9 Months
Public Company = 6 Months

Question 8

• Directors Responsibilities - The Companies act 2006

Approve and sign the Financial Statements:

Answer 8

• The board of directors must approve the Financial Statements
• One director must sign the Statement of Financial Position on behalf of all of the directors

Question 9

• Directors Responsibilities - The Companies act 2006

Directors MUST prepare an Annual STRATEGIC Report:

Answer 9

Give a review of the company’s business which includes:

• The development and performance of the company’s business during the year including key performance indicators
• The position of the company’s business at the end of the financial year
• A description of the principal risks and uncertainties facing the company

Question 10

• Directors Responsibilities - The Companies act 2006

Directors MUST prepare an Annual DIRECTORS Report:

Answer 10

Directors must prepare an annual directors report that contains information such as:

• The names of the directors that served during the year
• Recommended dividend payments
• A statement that the directors have taken appropriate steps to ensure the auditors have been made aware of all the information that is relevant to their audit of the financial statements

Question 11

• Directors Responsibilities - The Companies act 2006

Legal Minimum requirement for accounting records:

Answer 11

• Entries from day to day of all sums of money received and expended by the company - As well a description of what they relate to
• A record of the assets and liabilities of the company
• Statements of inventory held by the company at the end of each financial year