Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

2021 M92 Business and Finance > Chapter 7 - Accounting Standards > Flashcards

Chapter 7 - Accounting Standards Flashcards

You may prefer our related Brainscape-certified flashcards:
Series 66 flashcards SIE Exam flashcards Series 63 flashcards Series 79 Top-Off Exam flashcards Series 7 Top-off Exam flashcards CFA flashcards Series 65 flashcards
1
Q

UK companies including the subsidiaries of quoted companies were previously allowed to use UK generally accepted accounting principles (old UK GAAP) a new accounting standard (FRS 102) has been published that has become…

A

The new UK GAAP in 2015

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

The IFRS foundation should develop a single set of high quality, understandable, enforceable, and globally accepted international financial reporting standards through its standard setting body, the…

A

International accounting standards board

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

The IFRS foundation should ?????? The use and rigorous application of those standards

A

Promote

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

The IFRS foundation should take account of the financial reporting needs of emerging economies and…

A

Small and medium sized entities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

The IFRS foundation should promote and facilitate the adoption of IFRS, being the standards and interpretations used by the IASB through the convergence of IFRS and…

A

National accounting standards

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

The governance and oversight of the activities undertaken by the IFRS foundation and its standard setting body rests with its…

A

Trustees

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

The IFRS foundation trustees are responsible for…

A

Safeguarding the independence of IASB and ensuring the financing of the organisation. The trustees are publicly accountable to a monitoring board of public authorities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

The IASB stands for?

A

International accounting standards board

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

The IASB is supported by the IFRS interpretations committee whose role is to offer guidance where…

A

Divergence in practice occurs and by a range of advisory bodies.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

The IASB cooperates with national accounting standard setters to achieve convergence in accounting standards around the world, in the UK this is the ????? And in the USA this is the ???????

A

Financial reporting council, in the USA this is the financial accounting standards board

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

IASB uses different terminology from UK GAAP, for instance, balance sheet is called… And profit and loss account is called…

A

Statement of financial position, and income statement or statement of comprehensive income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

From 2005 companies listed on the stock exchange, in common with all companies listed on EU stock exchange were required to prepare their ?????????? ???????? Folllowing ????

A

Consolidated accounts following IFRS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

UK companies not listed on the London stock exchange are free to use IFRS however many companies have shown a reluctance to…

A

Move away from UK generally accepted accounting principles

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Most major economies require of allow the use of…

A

IFRS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

The vision of global accounting standards has been publically supported by many international organisations including…

A

G20, world bank, IMF and Basel committee

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

In the USA, the securities exchange commission allows overseas firms to use IFRS (the international version not the EU version) when doing business or listing securities in the USA and has been considering whether to allow US firms to use IFRS instead of …

A

US GAAP

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Some commentators have suggested that USA will keep…

A

Its own accounting standards and not adopt IFRS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

IFRS only apply in the EU after they have been…

A

Formally endorsed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

The EU has set up the accounting regulatory committee which is composed of representatives from ???????? And role is to ????????

A

Member states, and role is to endorse IFRS for use by quoted companies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

The ARC (accounting regulatory committee) will take account of a recommendation from…

A

EFRAG (European financial reporting advisory group) in deciding whether to endorse a standard.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

The European financial reporting advisory group is composed of representatives from European national standard setters, the major accounting firms and…

A

Industry groups.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

In regards to endorsement, the European Parliament has to..

A

Approve

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

IFRS are applied in the EU may differ from that used elsewhere. The ARC has endorsed the majority of standards without making changes. It deleted some wording, in relation to…

A

Fair value option and hedge accounting, in IAS 39 (financial instruments recognition and measurement)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Which two underlying assumptions are used in IFRS?

A
  1. Accruals basis

2. Going concern

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What is the accruals basis?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What is going concern?

A

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 entities ability to continue as a going concern, the uncertainties must be disclosed. Of 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.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

The IFRS framework describes the quantitive charetierstcs of financial statements as being…

A
  • understandability
  • relevance
  • reliability and
  • comparability
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

The IFRS framework sets out the statement of financial position (balance sheet) as comprising …

A

Assets, Liabilities and equities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Assets are…

A

Resources controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Liabilities are…

A

A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Equity is…

A

Residual interest in the assets of the entity after deducting all its liabilities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

The statement of comprehensive income (income statement) compromises…

A
  • income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or reductions in liabilities
  • expenses are decreases in such economic benefits
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

An item is recognised in the financial statements when it is probable that a future…

A

Economic benefit will flow to or from an entity and when the item has cost or value that be measured with reliability.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

For many years company law on the UK has required all companies to prepare financial statements each year which give a …

A

True and fair view

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

The companies act 2006 incorporates a requirement which applies to all financial statements, whether or not they are prepared in accordance with IFRS that the directors must….

A

Not approve them unless they are satisfied that they give a true and fair view

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

The requirement to show a true and fair view is not an equivalent requirement in…

A

The USA and most European countries

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

In most other countries than the UK, accounts are taken to present a company’s results fairly if they comply with…

A

Accounting standards

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

True and fair is not defined in legislation but has been generally interpreted as giving….

A

A faithful representation of the financial performance of a company for the period, it’s financial position, and where relevant, it’s cash flows at the end of the period.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

If directors conclude that compliance with an accounting standard would be misleading and conflict with the requirement to give a true and fair view, the entity is required to…

A

Depart from the accounting standard, with detailed disclosure of nature, reasons, and impact of the departure. This is only expected to happen in very rare occasions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

In June 2014 the FRC published a statement reconfirming the importance of the true and fair view requirement. Stephen Haddrill, chief executive of the FRC has said…

A

“The requirement to present a true and fair view in financial statements is enshrined in EU and UK law. This statement confirms the fundamental importance of this concept to UK GAAP and IFRS.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

The statement issued by FRC reminds preparers of accounts that professional judgement is still important. (True and fair etc) it applies to all states of preparation of accounts, good practice is in the following examples:

A
  • where there is a choice of accounting policies allowed under accounting standards, ensuring that those selected are appropriate, taking into account the circumstances of the company
  • establishing accounting policies for items not specifically covered by accounting standards of where they are ambiguous
  • making judgments for example about valuation, aimed at giving a true and fair view.
  • not using detailed accounting rules as an excuse for poor accounting
  • considering what is and what is not materiel
  • giving appropriate disclosures even where not specifically required by accounting standards
  • ensuring that significant information is not obscured by immaterial or irrelevant disclosures
  • standing back at the end of the accounts process and making sure the accounts overall do give a “true and fair” view
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

The IASB together with the financial accounting standards board FASB its U.S. Equivalent, created the financial crisis advisory group to committee financial reporting issues arising from the…

A

Global financial crisis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

Financial crisis advisory group reported in July 2009 and the chief areas addressed were:

A
  • effective financial reporting
  • limitations of financial reporting
  • convergence of accounting standards
  • standard setter independence and accountability
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

In 2009 the FCAG reported the financial crisis had exposed weakness in accounting standards and their application. These weakness reduced the credibility of financial reporting, which in part contributed to the general loss of confidence in the financial system. The weaknesses primarily involved:

A
  • the difficulty of applying fair value (market to market) accounting in illiquid markets
  • the delayed recognition of losses associated with loans (particularly banks)
  • issues surrounding the broad range of off balance sheet financing structures, especially in the USA
  • the extraordinary complexity of accounting standards for financial instruments, including multiple approaches to re confusing asset impairment.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

There is currently no comprehensive …….. Standard

A

IFRS insurance accounting standard

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

???? ? Is the standard that relates to insurance contracts, but this mainly deals with the definition of an insurance contract and guidance in presentation and disclosure requirements.

A

IFRS 4

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

In regards to IFRS 4 requirements, insurers need to make extensive disclosures about their…

A

Risk management policy, interest and credit risk information and terms and conditions of insurance contracts with the impact on future cash flows

48
Q

In regards to IFRS 4 requirements, insurance liabilities must be kept in the insurers balance sheet until…

A

They are discharged, cancelled or expire

49
Q

In regards to IFRS 4, insurance liabilities must be included in the balance sheet without offsetting them against…

A

Related reinsurance assets

50
Q

In regards to IFRS 4 requirements, there should be a test for the adequacy of…

A

Recognised insurance liabilities

51
Q

In regards to IFRS 4 requirements, there should be an impairment test for…

A

Reinsurance assets

52
Q

In regards to IFRS 4 requirements, there should be provisions for possible claims under contracts that are not in existence at the reporting date such as catastrophe, and equalisation provisions, are…

A

Not permitted (by way of contrast, UK GAAP requires equalisation reserves to be shown as a liability)

53
Q

The IASB is currently working on…

A

Phase II of their insurance accounting project

54
Q

What does IASBs insurance accounting project aim to do?

A

Providing a single source of principle based guidance to account for all types of insurance contracts.

55
Q

IFRS 4 is an interim standard that allows insurers…

A

To continue using various existing accounting practices that have developed in a piecemeal fashion over many years.

56
Q

In July 2010, the IASB issued the exposure draft insurance contracts with a four month comment period, ending November 2010. The proposals in the exposure draft were planned to eliminate inconsistencies and weaknesses in existing practices by …

A

Replacing IFRS 4 insurance contracts

57
Q

IASBs exposure draft attracted a wide divergence of views and in June 2013 the IASB published a revised set of proposals dealing with the accounting for insurance contracts. Redeliberations began in early … And the final standard is now expected to be issued in…

A

2014, new standard in 2015

58
Q

The IASB had been working jointly with the U.S. accounting standards board to develop a common accounting standard for insurance. However in February 2014, the FASB tentatively decided to…

A

Abandon its convergence efforts with the IASB on insurance contracts, and instead focus its future efforts on making targeted improvements to the existing US GAAP insurance accounting model.

59
Q

The insurance industry focuses on managing assets and alibi its on an economic basis, something which its accounting practices often…

A

Do not reflect

60
Q

The application of IFRS can result in significant accounting mismatch between …

A

Assets and liabilities when there is little or no economic mismatch

61
Q

A significant economic mismatch, for example between the duration of assets and liabilities might exist that is not apparent from the financial statements due to the accounting policies selected by an insurance company. In addition where an international insurance group reports a particular insurance contract line item, (e,g differed acuistion costs) in its balance sheet, different recognition and measurement bases may have been used to determine the amount reported because IFRS 4 permits the…

A

Consideration of amounts determined under different previous GAAPs

62
Q

The expectation is that phase II of the insurance accounting project will result in…

A

Improved consistency in the recognition and measurement of insurance assets and liabilities within the industry.

63
Q

Quoted companies are required to prepare their consolidated accounts following…

A

International financial reporting standards

64
Q

IFRS requires claims development tables to be shown for general insurers. Claims development tables show valuable information about…

A

How accurate managements prior estimates of outstanding claims were, and the extent to which insurance liabilities are subject to variation.

65
Q

Users of financial statements generally appear to agree that claims development tables have the potential to provide some really useful information. However, there is some variation in how these tables are shown, including how:

A
  • accounts for acquisitions and disposals
  • factor in the effects of foreign exchange fluctuations
  • include incurred by not reported IBNR claims in the tables
  • account for the effects of discounted liabilities.
66
Q

IFRS financial statements consist of…

A
  • a balance sheet
  • income statement
  • a cash flow statement
  • notes, including a summary of the significant accounting policies
  • either a SOCE or a SORIE
67
Q

If a company includes a SORIE, it is also required to show in the notes a reconciliation of…

A

Opening and closing share capital reserves.

68
Q

IFRS requires comparative information for the …… To be shown.

A

Previous accounting year

69
Q

The IASB has published IFRS for use by SMEs, which will offer an alternative to fill IFRS. The IFRS for SMEs is a self contained standard of ??? Pages, designed to…

A

230 pages. Designed to meet the needs and capabilities of SMEs.

70
Q

SMEs account for what percentage of companies around the world?

A

95%

71
Q

IFRS for use by SMEs, the standard is available for any…

A

Jurisdiction to adopt. Whether or not it has adopted full IFRS.

72
Q

IASBs only restriction with regards to the standard for SMEs is that…

A

Listed companies and financial institutions should not use it.

73
Q

In 2004 all UK companies where required to prepare their accounts in accordance with…

A

UK GAAP

74
Q

From 2005 quoted companies where required to prepare their ???????? Accounts following ???????

A

Consolidated accounts following IFRS

75
Q

Changes to UK GAAP in the last few years have sought to mirror developments in international accounting, and the most recent UK financial reporting standards and urgent issues task force interpretations have been largely, although not exclusively taken directly from…

A

IFRS

76
Q

For accounting periods commencing January 2015, a new ……… As embodied in the FRS 102

A

UK GAAP

77
Q

The FRC is the UKs independent regulator responsible for…

A

Promoting confidence in corporate reporting and governance. The FRC’s mission is to promote high quality corporate governance and reporting to foster investment.

78
Q

In support of its mission, FRC states it will continue to…

A
  • use our unique strengths and breadth to address issues in a cohesive and effective manner by working together within the FRC on governance, stewardship, accounting and actuarial standards and audit issues.
  • use our monitoring work in the conduct area to identity new risks more effectively, to develop and apply the most appropriate remedies and to take a firm action where necessary.
  • help secure public confidence and trust by reinforcing our independence as a regulator and thought leader, across our full range of responsibilities. And
  • build on our growing international influence.
79
Q

The FRC issues accounting standards for the UK and Ireland but, with the move to IFRS, it is increasingly focused on influencing the setting of standards by the IASB on behalf of…

A

It’s stakeholders

80
Q

What is the FRRP?

A

Financial reporting review panel

81
Q

The FRRP reviews the …

A

Financial statements of publicly quoted and large private companies for compliance with company law and applicable accounting standards.

82
Q

FRRP reviews are carried out on a …

A

Sample basis, according to certain risk criteria.

83
Q

The FRC’s corporate reporting review included the following comment, “we continue to see good quality corporate reporting by large public companies. The corporate reporting of FTSE 350 companies, In particular…

A

Remains at a good level”

84
Q

The FRC’s corporate reporting review included the following comment, “our reviews of accounts produced by smaller listed and other entities often give rise to issues that are the results of the company not having sufficent or appropriate resource to recognise or address accounting questions. We tend to see…

A

Straightforward areas of non compliance, rather than mangement misjudgment of complex matters”

85
Q

In regards to FRC’s corporate reporting review, they made the comment, “the FRC discourages companies from including unnecessary disclosures in their accounts. Few boards, however, appear to have followed the initiative shown by others last year who reviewed their accounts to highlight key messages and support them with relevant, consice disclosures that they are not obscured by….

A

Immaterial detail or repetition

86
Q

The FRRP can ask directors to explain apparent departures from requirements. If the FRRP not satisfied by the directors explanations, it aims to persuade the directors to…

A

Adopt a more appropriate accounting treatment.

87
Q

Depending on the circumstances, the FRRP may accept another form of remedial action. For example, correction of comparative figures in the next set of if annual financial statements. Failing voluntary correction, the FRRP can apply to the court for an order to secure the necessary revision of financial statements, although…

A

To date it has never had to do this.

88
Q

What are SORPs?

A

Statements of recommended practice.

89
Q

What are SORPs?

A

SORPs are recommendations on accounting practices for specialised industries, such as insurance, and they supplement accounting standards. SORPs are not issued by FRC but by industry bodies.

90
Q

A SORP is required to carry a statement confirming that the SORP does not appear to contain any fundamental points of principle that are…

A

Unacceptable in the context of current accounting practice.

91
Q

Who produces the SORP for insurance businesses?

A

The association of British insurers

92
Q

Insurance companies preparing accounts following UK GAAP for their 2014 results are required to state that they have complied with the…

A

SORP

93
Q

The ABI SORP will cease to apply once the new accounting standard, … is adopted.

A

FRS 103 insurance contracts

94
Q

SORPs are recommendations for which industries?

A

Specialised

95
Q

What is the FRSSE?

A

Financial reporting standard for smaller entities.

96
Q

The FRSSE has existed for many years, providing small companies with…

A

A simplified one stop shop for their accounting requirements.

97
Q

In September 2014, the FRC issued a consultation on the future of the FRSSE. The proposal is that the FRSSE is withdrawn and small entities (those that turnover less than £10.2million with asset and employee number conditions too) will use FRS 102, but with some relations on…

A

Disclosure and presentation

98
Q

A new standard will be issued for micro entities expected to be those with a turnover of less than £632,000 known as …. And based on FRS 102 but with a number of significant simplifications

A

FRSME

99
Q

The FRC proposals all arise because changes in ??????? ???, and their outcome will depend on user feedback as well as on the results of the BIS consultation on the implementation of the new …

A

European law. And on the new EU accounting directive.

100
Q

The new EU accounting directive just be implemented in UK law by… And be applicable by…

A

July 2015, and January 2016

101
Q

The EU accounting directive limits the disclosures permitted to be required for small entities, so the FRC has concluded that the FRSSE in its current form is…

A

Unsustainable

102
Q

It is expected that under the proposals, the FRSSE will no longer be available from 1 January 2016 and that instead, small entities will follow FRS 102 for recognition and measurement purposes. Limited disclosures, as permitted the EU directive, will then be required for…

A

Small entities.

103
Q

Although UK quoted companies have been required to produce their consolidated accounts in accordance with IFRS for some time, other companies were slow to change from the old UK GAAP to IFRS. Indeed it was common for quoted companies that prepared IFRS accounts to publish the accounts for their…

A

Subsidiaries using the old UK GAAP

104
Q

Reasons for the reluctance to convert from UK GAAP to IFRS were likely to include the following:

A
  • potential adverse tax consequences
  • potential adverse effect on distributable profits
  • potential adverse impact on regulatory solvency
  • potential adverse implications on debt covenants, particularly if the adoption of IFRS were to change the gearing ratios
  • concern over the implications of conversion from the UK GAAP to IFRS in terms of management time, skills available, training requirements, changes required to systems and cost.
105
Q

As changes were made to UK GAAP to confirm to IFRS the differences between the two standards clearly…

A

Reduced

106
Q

Differences between IFRS and UK GAAP still existed and included:

A
  • for some businesses IFRS could produce more volatility in the headline reported result, e.g reporting long investment return not the value fluctuations.
  • in UK GAAP the cash flow statement did not include any amounts relating to the long term business except cash transactions between the long term business and shareholders
  • in IFRS the cash flow includes all cash movements on the long term business.
  • UK GAAP required the equalisation provision to be shown as a liability and movements in the provision to be shown in the profit and loss account.
  • IFRS does not allow the equalisation provision to be included in the accounts.
  • UK GAAP was very prescriptive over the layout and description of line items in the financial statements
  • IFRS is much less prescriptive
107
Q

With having UK GAAP and IFRS, some companies had to prepare accounts on…

A

More than one basis.

108
Q

Why would a company have to prepare accounts on more than one basis, give examples?

A
  • IFRS accounts if it had a parent company reporting IFRS results
  • US GAAP accounts if it had a parent reporting us GAAP results.

In addition, adjustments to the UK GAAP accounts needed to be made for tax computation purposes in accordance with the rules governed by tax legislation.

109
Q

On 14 March 2013, the FRC issues FRS 102, the financial reporting standard applicable in the UK and Republic of Ireland. The standard completes a fundamental modernisation of UK and Irish accounting standards, providing succinct accounting and reporting…

A

Requirements for unlisted entities.

110
Q

FRS 102 is based on the IFRS for SMEs but also incorporates a number of accounting practices from…

A

UK GAAP

111
Q

FRS 102 became effective from, 1st January 2015 and it will be the new …

A

UK GAAP

112
Q

Quoted companies will continue to have to use IFRS for their consolidated accounts and small entities can continue to use FRSSE. All other companies will have to use FRS 102 unless they…

A

Voluntarily chose to follow IFRS

113
Q

FRS 103 ????????? Was issued by the FRC in March 2014 and contains specific accounting requirements for insurers that are applying FRS …

A

‘Insurance contracts’ and FRS 102

114
Q

FRS 103 consolidates existing guidance included within IFRS 4 insurance contracts and elements of ABI SORP. It will allow entities to continue with their …

A

Current practices for insurance contracts.

115
Q

FRS 103 is applicable for accounting periods beginning on or after 1 January 2015. One FRS 103 is adopted the … Will cease to apply.

A

ABI SORP

116
Q

FRS 103 is expected to have a limited life and will be revised by the FRC when the IASB completes its own …

A

Insurance accounting project.

117
Q

Old UK GAAP has been replaced by…

A

FRS 102 which will be the new UK GAAP

2021 M92 Business and Finance (11 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions