Chapter 7

Question 1

Normer och normgivare i Sverige

Answer 1

• Bokföringsnämnden (BFN): allmänna råd och informationsmaterial för att utveckla god redovisningssed
• Finansinspektionen - bindande föreskrifter, främst mot finansiella företag
• Rådet för finansiell rapportering

Question 2

Lagar och regler i Sverige

Answer 2

• Bokföringslagen BFL
• Årsredovisningslagen ÅRL

Question 3

FASB

Answer 3

The Financial Accounting Standards Board - responsible for establishing accounting and financial reporting standards in the US. Issues GAAP, Generally Accepted Accounting Principles

Question 4

Normative theories - definition and example

Answer 4

Suggests how accounting practices should be, rather than describing how they are. It is prescriptive in nature and aims to improve accounting practices.
- Relates to or establishes standards/norms
- Conceptual frameworks is normative theory

Question 5

Building blocks of the IASB Conceptual Framework

Answer 5

1. Definition of the reporting entity
2. Perceived users of financial statements
3. Objectives of general purpose financial reporting
4. Qualitative characteristics that general purpose financial statements should posses
5. Elements of financial statements

Question 6

Building blocks of the IASB Conceptual Framework - “Definition of the reporting entity”

Answer 6

Reporting entity - when the entity have users who do not have access to information relevant to decision making and who are judged to be dependent on general purpose financial statements

Question 7

Building blocks of the IASB Conceptual Framework - “Perceived users of financial reports”

Answer 7

IASB definition - the primary users to whom general purpose financial reports are directed

Question 8

Building blocks of the IASB Conceptual Framework - “The objective of general purpose financial reporting”

Answer 8

Objectives:
- Stewardship - whether the resources entrusted to management have been used for their intended or appropriate purpose
- Decision usefulness - provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions (a decision usefulness approach)

Question 9

Building blocks of the IASB Conceptual Framework - “Qualitative characteristics of financial reports”

Answer 9

• Fundamental qualitative characteristics - Relevance & Faithful representation. Attributes that information must possess.
• Enhancing qualitative characteristics - Comparability, Verifiability, Timeliness, Understandability

Question 10

Fundamental qualitative characteristics - Relevance

Answer 10

–> financial statements should only include relevant information to decision makers. Two aspects:
- Predictive value
- Confirmatory value
- (Materiality)

Question 11

Fundamental qualitative characteristics - Faithful representation

Answer 11

–> information is complete, neutral and free from error. 3 attributes:
- Completeness
- Neutrality (prudence)
- Freedom from error

Question 12

Enhancing qualitative characteristics - Comparability

Answer 12

Be able to compare accounting information between entities

Question 13

Enhancing qualitative characteristics - Verifiability

Answer 13

Refers to the ability to ensure that information represents what it purports to represent, without error or bias

Question 14

Enhancing qualitative characteristics - Timeliness

Answer 14

Having information available to decision-makers in time to be capable of influencing their decisions

Question 15

Enhancing qualitative characteristics - Understandability

Answer 15

Classifying, characterising and presenting information clearly and concisely makes it understandable

Question 16

Building blocks of the IASB Conceptual Framework - “The elements of financial accounting”

Answer 16

The elements –> assets, liabilities, income, expenses and equity. The IASB conceptual framework has an asset/liability approach - links profit to changes that have occurred in the assets and liabilities.

Question 17

Definition of assets

Answer 17

= is a present economic resource CONTROLLED by the entity as a result of past events.
“Economic resource” - is a right that has the potential to produce economic benefit

Question 18

Definition of liability

Answer 18

= is a present obligation of the entity to transfer an economic resource as a results of past events

Question 19

Definition of equity

Answer 19

= the residual interest in the assets of the entity after deducting allt its liabilities. Assets - liabilities = equity

Question 20

Definition of income

Answer 20

= increases in assets, or decreases in liabilities, that result in increases in equity

Question 21

Definition of expenses

Answer 21

= decreases in assets, or increases in liabilities, that result in decreases in equity

Question 22

2 Measurement principles (IASB)

Answer 22

• Historical cost measurement bases
• Current value measurement bases

Question 23

Measurement principles - Historical cost measurement bases

Answer 23

Information derived from the price of the transaction that gave rise to the item being measured

Question 24

Measurement principles - Current value measurement bases - fair value

Answer 24

• Fair value - the price that would be received to sell an asset, or paid to transfer a liability (market value)

Question 25

Measurement principles - Current value measurement bases - Value in use / fulfillment value

Answer 25

Reflects entity-specific current expectations about the amount, timing and uncertainty of future cash flows

Question 26

Measurement principles - Current value measurement bases - Current cost

Answer 26

Reflects the current amount that would be:
- paid to acquire an equivalent asset
- received to take on an equivalent liability

Question 27

Advantages of conceptual framework for financial accounting

Answer 27

• The thinking behind a certain standard is more transparent, this facilitates the communication between standard-setters and their constituents
• Relieves standard setters from potential “political pressure”, find support for their arguments in the framework

Question 28

Drawbacks of conceptual framework

Answer 28

• Restricted view of accounting and accountability steeming from a narrow view of the primary audience
• No competition between alternative financial reporting system stifle innovation
• Some assets/liabilities are not recongnized in the financial statements