Financial Reporting & the regulatory environment Flashcards
1) Why should you invest valuable time to learn about the principles of financial accounting?
2) Why should one be concerned with the quality of information provided by an enitity?
1) Accounting produces a social good: information.
2) It is important to ensure informed decision making.
We say that accounting has 3 main principles?
Count - measure and quantify
Account - describing and identifying the existence of events during the economic cycle of an organisation ( recording financial statements)
Accountability - explaining what one has done with resources one was entrusted with)
What are accounts in financial accounting?
Financial statements usually provided by accountants
What is the flow of financial reporting?
1) Identify and collect information about transactions, activities
2) Prepare financial statements
3) Financial statements then adjusted with compliance of accounting rules and principles ( large companies - auditors)
4) Audited financial statements presented to owners/shareholders and results released. reported.
What is the difference between Financial accounting and Financial reporting?
FA: process of collecting, measuring and recording financial information to produce financial statements.
FR - the process of analysisng and communication information included in financial statement to stakeholders
What is the difference between financial statement and annual report?
Financial statement is included in the annual report. Annual report includes many things such as audit report etc.
So we know that financial reporting is the actual process of communicating and analysing information to relevant stakeholders, but certain rules are are allowed why?
Faithful representation
Comparability and prevent fraudulent reporting
What is a regulatory framework?
A regulatory framework provides a set of rules and regulations for accounting.
What is the relationship between IFRS AND IASB?
The International Accounting Standards Board (IASB), founded in 2001 and based in London, oversees and updates the International Financial Reporting Standards (IFRS). ( so IASB are not an accounting regulator)
so do IASB have authority to enforce any national/transnational bodies in the implementation of IFRS Standards.
No they do not.
What is IAS 1?
IAS 1 is concerned with the presentation of financial statements. It gives guidance on how they should be structured and what they should contain.
What is IAS 16?
Referring to Property, Plant and Equipment, IAS 16 outlines how these items should be treated by your accounting function.
What is IAS 36?
Concerned with Impairment of Assets
Name 2 very common regulatory framework?
GAAP is a common set of accepted accounting principles, standards, and procedures that companies and their accountants must follow when they compile their financial statements.
2) Companies act 2006 for all uk companies
To create comparability within a country what regulatory framework is needed?
GAAP or local GAAP and ‘standards’ outlines and prescribes – how a transaction should be presented – how items are measured – what needs to be included – what could be omitted
What is a jurisdiction?
the official power to make legal decisions and judgements. e.g. law court and EU.
Main accounting ideas are the same and concepts e.g. profit, revenue, in different countries but many countries will have different numbers, despite following required rules and standards, why is this the case, is it a problem?
The ‘forms and contents’ of a set of accounts/financial statements vary because of the local GAAP adhered to by companies are set by a country’s authority which are adapted to the local culture, business norms, values, principles, political and historical establishments.
Yes, there is a growth in multi national firms and globalisation, there is demand for high quality financial information
Finish off the 2 sentences?
1) Since 2005, all EU countries adopted….
2) In many countries, IASB standards are adopted and used
for. ..
3) private firms have a choice:
1) IASB STANDARDS
2) public listed firms but not for private firms
3) to use IFRSs or to use 1local standards (local GAAP)
What is the difference between IASs and
IFRSs?
IASs were issued by International Accounting Standards
Committee (IASC) and IFRSs were issued by International
Accounting Standards Board (IASB) that replaces IASC
What is the aim of the IASB? ( another definition)
IASB is an independent group of experts with an appropriate
mix of recent practical experience in setting accounting
standards, in preparing, auditing, or using financial reports,
and in accounting education. Board members are responsible
for the development and publication of IFRS Standards,
including the IFRS for SMEs Standard
Again do The IASB have the power to enforce accounting
standards?
And how many jursidictions adopt the IFRS today?
no they do not, this is left to local authorities, such as:
– Stock exchange (for listed companies)
– Company registrars
• Today, 144 jurisdictions use IFRSs, including the UK, the EU
and many Asian and African countries but NOT the USA
1) IAS 1 prescribes a fixed format for the statement of financial position.
Select one:
True
False
2) The International Accounting Standards Board is an accounting regulator.
Select one:
True
False
False
False
Failure to record an accrued liability ( an expense a business has incurred during a specific period but has yet to be billed for. e.g. accured wages) causes a company to
Select one:
a.
understate liabilities.
b.
overstate expenses.
c.
overstate assets.
d.
understate owners’ equity.
A.
What does Accrual mean and what does accrual expense/liability mean?
You don’t track cash, you track transactions. What you track is revenue when earned and costs when incurred.
occur when you incur an expense that you haven’t been billed for (aka a debt). For example, you receive a good now and pay for it later (e.g., when you receive an invoice). Although you don’t pay immediately, you’re obligated to pay the accrued expense in the future.
381500
What happened in Enron?
What is an advantage of global standards for publicly accountable entities?
last word is finance.
What is a disadvantage of global standards for publicly accountable entities?
We are going to look at creating a statement of comprehensive income and statement of financial position for HK LTD?
What do we do here for a?
Hint what does authorised mean?
(b) Provide for depreciation at the following rates:
(i) Plant and machinery 20% on cost
(ii) Fixtures and fittings 10% on cost
(iii) Buildings 2% on cost
Charge all depreciation to cost of sales.
(c) Provide $5,348,000 for income tax.
(d) The loan was raised during the year and there is no outstanding interest accrued at the year-end.
E) Government grants of $85,000 have been received in respect of plant purchased during the year and are shown in the trial balance. One-fifth is to be taken into profit in the current year. ( HINT 5 YEARS)
Not related to HK LTD but solve this
Tweddle bought an item of PPE for $10 mil and received govt grant of $2mil. The PPE has a useful life of 10 years and has 0 residual value.
(f) During the year, a fire took place at one of the company’s depots, involving losses of $200,000. These losses have already been written off to cost of sales shown in the trial balance. Since the end of the financial year a settlement of $150,000 has been agreed with the company’s insurers.
(g) $500,000 of the inventory is obsolete. This has a realisable value of $250,000. ( HINT WHAT DOES IAS 2 SAY)
(h) Acquisitions of property, plant and equipment during the year were: plant $173,000; and fixtures $144,000. The company’s policy is to provide a full year’s depreciation in the year a non-current asset is acquired.
(i) A final ordinary dividend of 3 cents per share is declared and was an obligation before the year-end,
together with the balance of the preference dividend. Neither dividend was paid at the year-end.
(j) The goodwill has not been impaired.
(k) The land was revalued at the year-end at $2,500,000.
On a statement of comprehensive income what expenses do we only have and what is the outline of it?
Administrative expenses
Finance costs
Distribution costs
Profit/loss on sale
Workout Cost of sales, Admin expenses?
With all of that Complete a statement of comprehensive income?
Workout the RE?
HINT THE PROFIT FOR THE YEAR IS NET INCOME IT DOESNT INCLUDE OCI
What is the statement of financial position for HK limited
