Intro FAR Flashcards
What is Financial Reporting
Prep of financial statements which provide info on financial position & performance of a business to provide info to internal & external users.
What is a conceptual framework, an example and reasons for it’s creation
1) CF: Generally Accepted Accounting Principles that forms a frame for the evaluation of existing standards and development of new ones, usually dependent on a country’s laws, it’s rules based. There’s international & local and big and small.
2) Reason for creation:
Due to accounting standards-
a) Being inconsistent
b) Being biased to certain users
c) Not proactive in prevention of scandals
What is the IFRS framework, it’s purpose and scope.
1) IFRS: Agreed fundamental principles(not rules) for financial accounting & reporting to provide a basis for development of accounting standards.
2) Purpose:
a) Concepts for the prep & present of fin statements.
b) Guide for development of new IFRS not covered under IAS
3) Main Scope:
a) Objectives
b) Qualitative Characteristics
c) Definition, recognition & meaurement of elements
d) Reporting entity and assumptions
What are the 2 general purposes for financial reporting?
1) Present information to primary users who are Investors, lenders and traders.
2) Present the info they’ll need such as the resources of an entity, inflows & outflows and efficiency
What does the SOFP cover?
1) Economic resources/ assets & claims/ liabilities providing info for liquidity & solvency.
2) Changes in economic resources & claims resulting from the entity’s performance, events or transactions eg issuing of debt & equity instruments.
What does the SOFP cover?
1) Economic resources/ revenue & claims/ expenses assessing the entity’s ability to generate cash inflows
What does the statement of cash flows cover?
Assists users to assess the future cash inflows and outflows of a business through presentation of how the co obtains & spends cash, borrowing & repayment of debt, dividends etc.
What does the statement of equity cover?
Issuing of equity instruments, distributions of cash/ other assets to shareholders.
What are the fundamental qualitative characteristics of useful financial information?
1) Relevence: Were financial information can make a difference it must be reported through materiality which is an aspect of relevence based on nature & magnitude of an item.
2) Faithful representation: Seeks to maximise the concept of completeness, neutrality and freedom from error.
What are the enhancing qualitative characteristics?
1) Comparability: Info that can be compared within the organization or with others.
2) Verifiability: When independent observers agree on the faithfulness of info.
3) Timeliness: Info is available to decision makers in time to influence decisions.
4) Understandability: Classifying, characterising & presenting info clearly and concisely
What are the elements of financial statements and how are the recognised and measured?
1) Elements: Assets, Liabilities, Equity, Income and Expenses.
2) Recognition: Their criteria is-
a) Future Economic benefit with how the item will flow to or out the entity.
b) Items cost/ value can be measured.
Measurement: Were we assign monetary amounts to elements to items for reporting & recognisation. Done through Historical costs, Current Cost, NRV, Present Value.
Sources of regulation include?
1) National legislation
2) National accounting standards
3) Stock exchange regulations
