Financial reporting and conceptual framework Flashcards
What are the main parts of the annual report?
- statement of financial position (balance sheet at the end of the period)
- income statement for the period
- statement of changes in equity for the period
- statement of cash flows for the period
- notes compromising a summary of accounting policies and other explanatory notes
- directors’ report
- auditors’ report
what are the main parts of the financial statements?
- statement of comprehensive income for the period
- statement of changes in equity for the period
- statement of financial position (balance sheet) at the end of the period
- statement of cash flows
- notes to the financial statements which summarise the significant accounting policies along with other explanatory information
what is a principles based accoutinting system?
a standard that contains a substantive accounting principle that focuses on achieving the accounting objective of the standard
supply broad guidelines that can be applied to many situationsh
what is a rules based accounting system?
standards that contain specific details and mandatory definitions that attempt to meet as many potential contingencies and situations as possible, very prescriptive
spells out rules for every potential situation resulted in companies being able to structure transactions to circumvent unfavourable reporting
what is the IASB composed of?
- IFRS foundation
- International Accounting Standards Board (IASB)
- IFRS Advisory Council
- IFRS Interpretations Committee
what is the IASB due process?
- independent standard setting board
- thorough and systematic process for developing standards
- engagement with investors, regulators, business leaders and the global accountancy profession at every stage of the process; and
- collaborative efforts with the worldwide standard-setting community
what is financial accounting?
communicates organizations financial position to external parties - investors, banks, regulators, focuses on the past, annual and quarterly financial reports
what is management accounting?
help internal managers make decisions, focuses on present and future, hourly info
what are the principal qualitative characteristics of accouting information?
understandability, relevance, reliability and comparability
explain understandability - characteristic of accounting info
financial statements must be readily understandable by the users
explain relevance - accounting info characteristic
accounting info is relevant when it is capable of making a difference in a decision by helping users to form predictions about the outcomes of past, present and future events or to confirm or protect prior expectations - timelines and materiality
explain reliability - accounting info characteristic
free from material error and bias and can be depended upon by users to represent faithfully what it claims to represent
explain comparability - accounting info characterisitc
includes the concept of consistency - the usefulness of info is enhanced if it is prepared on a consistent basis from on period to the next and can be compared with corresponding info of the same entity for some other period or with similar info for other companies
what is the going concern assumption in preparation of financial statements?
assumed that the business will continue in operation for the foreseeable future or for at least 12 months after the end of the reporting period
means that the income statement and balance sheet assume no intention or necessity to liquidate or curtail significantly the scale of operation
what is the accrual basis assumption in the preparation of financial statements?
the effects of transactions and other events are recognised when they occur (accrual accounting) rather than when cash is received or paid (cash accounting)
revenue is recognized when earned and expense is recognized when incurred
what is the cash basis assumption in the preparation of financial statements?
revenue is recognized when received and expense is recognized when paid
what is a bad debt?
a balance due from a credit customer that is not collectible
what are the accounting entries needed when there is a bad debt?
the true value of the amount owed to the business must be reduced
Double entry:
1. reduce receivables - statement of financial position
2. create a bad debt expense - income statement
what is depreciation?
the systematic allocation of the depreciable amount of an asset over its useful life
all assets with a finite useful life are depreciable
depreciation expense =
(cost of the asset - salvage value)/useful life
