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Accounting > Financial Systems > Flashcards

Financial Systems Flashcards

1
Q

internal reporting

A
  • reports are used by people who participate in running and managing the business
  • reports do not have to comply with Australian accounting standards
  • uses special purpose reports like performance reports, sales forecasts, financial budgets
  • reports are prepared by management accountant and is submitted to different levels of management for planning and control
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2
Q

external reporting

A
  • reports are used by people who participate in running and managing the business
  • reports have to comply with Australian accounting standards
  • uses general purpose reports like balance sheet, income statement, statement of changes in equity, statement of cash flow
  • reports enables users to assess the entity’s performance, position and liquidity
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3
Q

roles of accountant

A
  • provides reports for decision making
  • dealing with day to day tex accounting
  • communication of information contained in financial reports to managers
  • assist in internal audit
  • preparation of internal and external accounting reports
  • supervise staff recording day to day transactions
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4
Q

internal auditing

A

conduct on going reviews to ensure established procedures and policies are followed

  • purpose is to detect and correct errors and identify deficiencies so that improvements can be made
  • efficient internal audit can reduce time taken for external audit and produce cost savings
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5
Q

full internal audit includes

A

review of business procedures and policies
- review efficiency of internal control systems and other systems and check that policies are being followed and business complies with all laws
detection and correction of errors and deficiencies
- identify any errors and deficiencies in established procedures and policies and develop solutions to correct and minimise errors and deficiencies

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6
Q

external auditing

A

independent examination of financial reports and supporting documents to determine if they comply with the level of quality specified in accounting standards and provides a true and fair view of entity’s performance and financial position

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7
Q

function of external auditing

A
  • protect external users who depend on company’s financial reports to make decisions by examining the financial reports on behalf of stakeholders
  • provide confidence to stakeholders who want to invest their money in Australian capital market by ensuring that financial reports provide true and fair view of entity’s performance and financial position
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8
Q

external auditors

A
  • controlled by corporations act and must be registered with ASIC
  • must comply with corporations act and auditing standards
  • appointed by shareholders and reappointed at AGM
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9
Q

independence of external auditors

A
  • the act clearly spells out need for auditors to be independent and provides for penalties if requirements are not met
  • auditors are required to notify ASIC if they have been subjected to any attempt at influencing their decision
  • the act contains the 5/7 rule where an auditor who has had a significant role in the audit of a company and has served for more than 5 successive financial years is not eligible to continue until he has had at least 2 successive years of non involvement
  • external auditors are required to attend the company’s AGM and shareholders must be given opportunity to question them
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10
Q

role of auditors

A
  • perform independent audit of financial statements
  • must satisfy themselves that company’s records are kept in accordance with the act and accounting standards and gives true and fair reflection of financial position at end of period
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11
Q

legal requirements of companies

A
  • public and large proprietary companies are required to have their annual financial reports audited
  • auditors must have access to all company’s financial records to test the systems and ensure that everything is recorded properly
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12
Q

accounting standards

A

instructions and guidelines that outline how a business should complete specific elements when recording transactions

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13
Q

purpose of accounting standards

A
  • protect external users by ensuring that financial reports contain relevant and reliable information
  • assist directors in discharging their obligations in relations to financial reporting and in preparation of financial reports by providing them with benchmarks and frameworks
  • provide confidence to investors in Australian capital market by being concerned for them and reducing cost of capital
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14
Q

how accounting standards are developed

A
  • prepared by AASB and developed in conformity with the framework
  • government requires international standards to be adopted, so AASB must refer to IASB
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15
Q

financial reporting council

A
  • cannot influence AASB in development of accounting standards or go against national standard setters around the world
  • acts as advisory body to AASB and appoints members to AASB except chairman appointed by federal treasurer
  • monitors process for adopting international standards
  • oversees standard setting process in Australia
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16
Q

international accounting standards board

A
  • consists of 14 members
  • develops set of high quality international standards which are transparent and comparable
  • works with national standard setters around the world
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17
Q

Australian accounting standards board

A
  • consists of 13 members including chairman appointed by federal treasurer
  • develops conceptual framework for purpose of evaluating proposed standards
  • develops and issues accounting standards for purpose of corporations act and must refer to IASB when developing standards to be used in Australia
  • must carry out cost benefit analysis of impact of proposed standards unless standard is based on existing international standard
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18
Q

Australian securities and investments commission

A

Australia’s corporate, market and financial service regulator

  • issues interpretations of accounting standards in the form of practice notes
  • makes information about companies available as soon as practicable
  • regulates and informs public about Australian companies
  • initiates legal proceedings against reporting entities for non compliance with accounting standards
  • monitors compliance of accounting standards in relations to reporting entities
  • efficiently receives, stores and processes information given to them
19
Q

Australian securities exchange

A

aims to provide informed, fair and competitive market for securities

  • provides system for trading securities and for public companies to raise capital
  • provides shareholders and investors market to buy and sell shares
  • provides regulation of public companies and surveillance to ensure regulations are followed
  • has a detailed set of rules called listing rules which sets out the requirements of a company
20
Q

lobby groups

A

groups which attempts to influence standard setting with reference to their industries goals and interests
- works through being appointed as member of FRC or AASB, being appointed to committee or advisory body established by FRC or AASB or being involved in standard setting process

21
Q

conceptual framework

A

describes concepts of and objectives for general purpose financial reporting and concepts that underlies preparation and presentation of financial reports for external users

22
Q

role and purpose of conceptual framework

A
  • assist AASB in development of future and review of existing accounting standards
  • assist preparers in applying accounting standards and in dealing with new financial reporting issues not covered by a standard
  • assist auditors in deciding whether financial reports conform with accounting standards
  • assist users of financial reports in interpreting information contained in the reports prepared in conformity with accounting standards
23
Q

conceptual framework consists of

A
  • definition of reporting entity
  • objectives of general purpose financial reporting
  • qualitative characteristics of financial information
  • definition and recognition of financial statements
24
Q

definition of reporting entity

A

entities used by users dependent on general purpose financial reports for making and evaluating decisions on allocation of scarce resources

25
Q

objectives of general purpose financial reporting

A

GPFR’s are financial reports intended to meet needs of users who cannot command preparation of reports for specific information needs
- government requires such reports to be prepared in accordance with the statement of accounting concepts and accounting standards
objectives:
- provides information to users for making and evaluating decisions on scarce resources
- for management and governing bodies to discharge their accountability to users of the reports who entrusted them with their scarce resources

26
Q

qualitative characteristics of financial information

A 
fundamental qualitative characteristics
- relevance
- faithful representation
enhancing qualitative characteristics
- comparability 
- understandability
- verifiability
- timeliness
27
Q

relevance

A

relevant information is capable of making a difference in users decisions even if they choose not to take advantage of it or are already aware of it from other sources

28
Q

financial information is capable of making a difference in decisions if it has

A

predictive value
- where financial information can be used as an input to predict future outcomes
confirmatory value
- where financial information provides feedback about previous evaluations
both
- information that has predictive value often also has confirmatory value

29
Q

material

A

information is material if omitting or misstating it could influence the decisions made by users on basis of financial information about a specific reporting entity

30
Q

faithful representation

A

financial information must faithfully represent the phenomena it purports to represent

31
Q

characteristics of a faithful representation

A
  • complete
  • neutral
  • free from error
32
Q

complete

A

a complete depiction includes all necessary information for users to understand the phenomenon being depicted, including all necessary explanations and descriptions

33
Q

neutral

A
  • a neutral depiction is without bias in the selection and presentation of financial information
  • depiction is not slanted, weighted, emphasised, de emphasised or manipulated to increase the probability that information will be received favorably or unfavorably by users
  • neutral information does not mean information with no purpose or has no influence on behavior
34
Q

free from error

A

there are no errors or omissions in the descriptions of the phenomenon depicted and process used to produce reported information has been selected and applied with no errors in the process

35
Q

comparability

A

enables users to identify and understand similarities in and differences among items

  • users decisions involve choosing between alternatives
  • information about a reporting entity is more useful if it can be compared with similar information about other entities
36
Q

consistency

A

use of the same method for the same items within a reporting entity or in a single period across entities

37
Q

verifiability

A

different knowledgeable observers could reach a consensus that a particular depiction is a faithful representation

  • direct: verifying amounts or other representations through direct observation
  • indirect: checking inputs to a model, formula or other techniques and recalculating outputs using the same methodology
38
Q

timeliness

A

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

  • the older the information, the less useful it is
  • some information may continue to be timely long after the end of the reporting period because users may need to identify and assess trends
39
Q

understandability

A

exists when users of financial statements are able to comprehend the meaning of these statements

  • classifying, describing and presenting information clearly and concisely can make it understandable
  • excluding complex and hard to understand information from financial reports might make it easier to understand but reports will be incomplete and misleading
40
Q

asset

A

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

  • it is probable that an inflow of economic benefits will occur
  • the value of the asset can be measure reliably
41
Q

liability

A

future sacrifices of economic benefits that the entity is presently obliged to make to other entities as a result of past events

  • it is probable that an outflow of economic benefits will occur
  • the value of the expense can be measured reliably
42
Q

equity

A

residual interest in the assets of the entity after deducting its liabilities

43
Q

income

A

increase in economic benefits during an accounting period in the form of inflows or enhancements of assets or decrease of liabilities which results in increase in equity other than those relating to contributions from equity participants

  • it is probable that an inflow of economic benefits will occur
  • the value of the income can be measure reliably
44
Q

expense

A

decrease in economic benefits during an accounting period in the form of outflows or depletion of assets or incurrence of liabilities which results in decrease in equity other than those relating to distributions to equity participants

  • it is probable that an outflow of economic benefits will occur
  • the value of the expense can be measured reliably

Accounting (11 decks)

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