Chapter 7

Question 1

What is the IRFS foundation?

Answer 1

The IFRS Foundation is a not-for-profit international organisation responsible for developing a single set of high-quality global accounting standards, known as IFRS Standards.

Question 2

What’s the aim/mission of the IRFS?

Answer 2

Its mission is to develop standards that bring transparency, accountability and efficiency to financial markets around the world.

Question 3

What is the IASB?

Answer 3

International Accounting Standards Board (IASB)

Question 4

Who uses IFRS?

Answer 4

UK companies listed on the London Stock Exchange are required to prepare their consolidated accounts following the UK-adopted International Financial Reporting Standards (IFRS).

Question 5

What is the USA version of IRFS?

Answer 5

In the USA the Securities Exchange Commission (SEC) allows overseas firms to use IFRS (the international version, not the UK version)

Question 6

What is the IFRS framework?

Answer 6

Accrual basis

Going concern

Question 7

What is meant by accrual basis?

Answer 7

the effect of transactions and other events are recognised when they occur, not as cash is received or paid.

Question 8

What is meant by going concern?

Answer 8

If management has significant concerns about the entity’s ability to continue as a going concern, the uncertainties must be disclosed. If management concludes that the entity is not a going concern, the financial statements should not be prepared on a going concern basis, in which case International Accounting Standard 1 requires a series of disclosures.

Question 9

What is the FPC?

Answer 9

Financial Policy Committee (FPC)

Question 10

What is IFRS 17?

Answer 10

The objective is to help investors and others better understand insurers’ risk exposure, profitability and financial position

Question 11

What does IFRS 17 replace?

Answer 11

IFRS 4

Question 12

What is the combined ratio?

Answer 12

analyses claims and expenses incurred divided by premiums earned. It provides a measure of the profitability of underwriting activities, and it may be split into a claims ratio and an expense ratio.

Question 13

What is a claims development table?

Answer 13

CDTs convey valuable information about how accurate management’s prior estimates of outstanding claims were, and the extent to which insurance liabilities are subject to variation.

Question 14

What should an IFRS financial statement consist of?

Answer 14

a balance sheet;

an income statement;

a cash flow statement; and

notes, including a summary of the significant accounting policies.

Question 15

What do small or medium size entities use in regard to financial reporting standards?

Answer 15

FRS 102

Question 16

What is UKGAAP?

Answer 16

UK Generally Accepted Accounting Principles (UK GAAP)

Question 17

What is classed as a small entity?

Answer 17

• Turnover less than £10.2m.
• Total assets less than £5.1m.
• 50 employees or less.

Question 18

What financial reporting standards to micro entities use?

Answer 18

FRS 105

Question 19

What is classed as a micro entity?

Answer 19

Turnover less than £632,000.

assets less than £316,000.

10 employees or less

Question 20

What is the role of the IFRS Interpretations Committee?

Answer 20

offer guidance to the International Accounting Standards Board (IASB) where divergence in practice occurs.

Question 21

Briefly outline the underlying assumptions used in IFRS

Answer 21

• Accrual basis – the effect of transactions and other events are recognised when they occur, not as cash is received or paid.
• Going concern – the financial statements are prepared on the basis that an entity will continue in operation for the foreseeable future. If management has significant concerns about the entity’s ability to continue as a going concern, the uncertainties must be disclosed. If management concludes that the entity is not a going concern, the financial statements should not be prepared on a going-concern basis, in which case International Accounting Standard 1 requires a series of disclosures.

Question 22

What is the generally accepted interpretation of the ‘true and fair’ requirement under the Companies Act 2006

Answer 22

giving a faithful representation of the financial performance of the company for the period, its financial position and, where relevant, its cash flows at the end of the period.

Question 23

What is the current UK GAAP?

Answer 23

The current UK GAAP is FRS 102, which is based on the IFRS for SMEs. Insurers that adopt FRS 102 will also have to adopt FRS 103, which consolidates existing guidance included within IFRS 4 Insurance Contracts.

Question 24

A company works on an accrual accounting basis. If it sells a product on the 1 September, invoice for it on 10 September, have 15 days payment terms and receive payment on 1 October, when would the payment be regarded as received?

Answer 24

1 September.

Question 25

When preparing accounts, the accrual accounting basis:

Answer 25

treats income as revenue when it is earned rather than when the cash is received.

Question 26

Which body is currently the UK’s main independent regulator of corporate financial reporting and governance?

Answer 26

Financial Reporting Council.

Question 27

If a public company fails to meet the Financial Reporting Council’s [FRC] Board requirements, which FRC Committee can seek an explanation from the company’s directors?

Answer 27

The Conduct Committee.

Question 28

A UK listed firm prepares its accounts in accordance with the International Financial Reporting Standards. If the directors do NOT believe this provides an accurate picture of the company’s trading position, what must they do?

Answer 28

Depart from the standards and provide detailed disclosures why.