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Chapter 5 Flashcards

1
Q

Who is the board refer to?

A

the international accounting standards board

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2
Q

What role does the board have?

A

they are the independent accounting standard setting body of the IFRS foundation

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3
Q

What is the board responsible for?

A

issuing international accounting standards

these come in the form of IAS standards and IFRS standards

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4
Q

According to the conceptual framework, what is the objective of financial statements?

A

provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity

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5
Q

What are the two fundamental characteristics of the fundamental qualitative characteristics aligned by the conceptual framework?

A

relevance

faithful representation

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6
Q

What does relevance mean in terms of the qualitative characteristics?

A

financial information is useful if it can assist users decision-making by helping them evaluate past, present or future events or by confirming, or correcting their existing values

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7
Q

What two things would relevant information have?

A

predictive value

confirmatory value

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8
Q

What is predictive value?

A

helps users in assessing the future of the business

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9
Q

What it confirmatory value?

A

helps users in confirming past predictions

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10
Q

What is are the qualities of faithful representation?

A

in order to faithfully represent the transaction and other events, information must be

complete

neutral

free from error

showing substance over form

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11
Q

What does showing substance over form suggest?

A

transactions must be presented according to their economic substance rather than legal form

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12
Q

What does prudence mean?

A

exercising caution under situations of uncertainty

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13
Q

How is neutrality supported in faithful representation?

A

through the exercise of prudence

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14
Q

What are the 4 enhancing characteristics of relevance and faithful representation?

A

comparability

verifiability

timelessness

understandability

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15
Q

Comparability

A

enhancing factor

  • information should be produced on consistent basis
  • the financial statements should be comparable with the financial statements of - other entities and the same entity for earlier period
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16
Q

Verifiability

A

enhancing factor

  • info can be checked
  • a consensus could be reached by observers (although not necessarily through complete agreement) and that the information faithfully represents transactions or events
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17
Q

Timeliness

A

info should be supplied to users in time to be used in decision making

recent info is generally more useful

some info remains timely for a long time after the end of a reporting period

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18
Q

Understandability

A

information must be understandable to users who have a reasonable knowledge of business and accounting

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19
Q

Why is ISA 1 Presentation of Financial Statement important?

A

it deals with the structure and content of the financial statements

there are prescribed formats that are recommended

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20
Q

What does the ISA 1 Presentation of Financial Statement comprises? (5)

A

s of financial position

s of profit or loss

s showing either changes of equity or changes in equity except for those arising with owners

s of cash flow

accounting policies

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21
Q

Objective of IAS 1 Presentation of Financial Statement

A

to ensure comparability by prescribing the basis for the presentation of general-purpose financial statement

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22
Q

What is the objective of financial statement?

A

to provide a summary of the accounting transactions for a period

23
Q

What does the IAS 1 Presentation of Financial Statement require the fair representation of?

A

financial position

financial performance

cash flows of the entities

24
Q

What does the fair presentation require?

A

the faithful representation of the effects of transaction in accordance with the requirements of the conceptual framework

25
What does the application of the IFRS Standards presume to achieve?
fair presentation
26
Accrual concept
requires that transactions and events recognised when they occur, not when cash is received or paid for them
27
What does accrual concept mean in terns of cost?
it means that the cost incurred in generating income are matched against the revenues they have generated
28
What does the going concern concept require?
the entity is viewed was continuing its operations for the foreseeable future - at least 12 months an assumption is made that there is no intention or necessity to liquidate or curtail materially in its operations
29
What does the going concern concept mean for the assets?
this means that assets do not need to be valued on a break-up basis the value at which they could be sold separately by the business if the business were to be liquidated
30
What happens if the management of a business does not believe that the going concern concept should apply?
they should disclose the fact itself the basis on which the accounts have been prepared the reason why the entity is no longer a going concern
31
What are the other accounting concepts and conversions which are applied in the process?
materiality
32
What materiality mean according to the IAS 1 Presentation of Financial Statements?
information is material if its omission, misstatement or obscuring could influence the economic decisions of users taken on the basis of the financial statements
33
What does materiality depend on?
on the size or effect of the item judged in particular circumstances of its omission or misstatement
34
What is the rule of thumb for determining whether an item is a material
determining it is subjective anyways a percentage is often used but any decision made must be made in context
35
What is the IAS 1 Presentation of Financial Settings rule on offsetting?
they do not allow assets and liabilities, or income and expenses to be offset (deducted) from one another unless another international accounting standard allows it
36
What is an important accounting convention in the statement of financial position?
assets and liabilities are recorded
37
What happens to assets in important accounting convention in the statement of financial position?
assets are recorded at the amount of cash or cash equivalent paid, or fair value of the consideration given for the
38
What happens to liabilities in important accounting convention in the statement of financial position
liabilities are recorded at the amount of proceeds received in exchange for the obligation
39
What is an advantage of historical cost accounting?
removes subjectivity of estimating the value of an asset or liability eg. there is usually objective evidence of what an asset cost
40
Why are regulations needed?
- ensures accounts are sufficiently reliable and useful, prepared without unnecessary delay - financial accounts are used for reporting to shareholders for a company on the condition and performance of the company - the annual financial statements are the main document used for reporting to the shareholders of a company on the condition and performance of the company - the stock markets rely on financial statements published by the companies - international investors prefer information to be presented in a similar and comparable way - no matter where the company is based
41
Where is the technical definition of sustainability from?
1987 Brundtland report
42
What is the definition of sustainability?
development that meets the needs of the present without compromising the ability of the future generations to meet their own needs
43
Who are the Financial Stability Board (FSB)?
an international body that monitors the global financial system
44
What did the FSB do?
created the task force on climate related financial disclosers (TCFD) to develop recommendations on the disclosers companies should make to help users properly assess risks related to climate change
45
In 2021, what did the IFRS foundation create?
the international sustainability standards board (ISSB)
46
What did the ISSB have to do?
they develop a set of sustainability disclosure standards (IFRS Sustainability Disclosure Standards)
47
When were the first standards of the IFRS issued?
in June 2023 aimed to provide users with reliable, comparable sustainability-related information the core content of these standards is consistent with recommendations of TCFD
48
What are the two fundamentals in sustainability reporting?
impacts and dependencies
49
What is an impact?
the effect of the organisation
50
What is a dependency?
the effect on the organisation
51
Explain impact further
how the decisions and actions of an organisation positively and negatively affect environmental, social and governanace (ESG) issues
52
Explain dependencies further
how environmental, social and governance (ESG) issues can affect the organisation's ability to create and maintain value
53
Examples of Impacts
human rights health and safety carbon emmisons depletion and scarcity of natural resources endangers species
54
Examples of Dependencies
employee welfare environmental change and pollution employee know-how supplier and customer relationship

ACA KAPLAN (13 decks)

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