Introduction Flashcards
(49 cards)
define accounting
past events are summarized into numerical information which is then presented to managers and other interested parties for decision making and control purposes
what does “past events are summarised” in the definition of accounting mena
gathering data and summarised what happened in the past and predict what will happen in the future
what does the “numerical information” mean in the definition of accounting
eg currency, results, averages
function of accounting
control outcomes and activities to enable you to account for actions and your use of resources to achieve accountability to those who entrusted you with resources and power
examples of decisions made using accounting information
production levels product/service cost selling prices staff needed to meet budgeted sales target staffing costs and income generated financing expenses
what is revenue
money from all sales made
what are the qualities expected of accounting information
relevance faithful representation comparability verifiability timeliness understandability materiality
what is meant by the relevance quality
financial information must be relevant to users’ decision making needs ie no irrelevant information
in relation to relevance, how do you tell if the information is relevant
if it has predictive value and it has confirmatory value
only material information should be used
what is confirmatory value
the previous predictions have been correct
who decides what material information is relevant
company
what is meant by the faithful representation quality
the information is: complete neutral and un biased free from error reliable
what does free from error mean in faithful representation
accounts don’t have to be 100% accurate but estimates can sometimes be made eg on utilities (heat, lighting) and then can be adjusted later for accuracy including a note in the financial statement
what is meant by the comparibilty quality
information should be comparable over time so accounts should be prepared the same every year
why is comparability important
similarities and differences are readily apparent
eg between competitors
how can comparability be improved
through consistency i.e. using the same accounting treatments for the same types of item, from period to period
what does IFRS stand for
international financial reporting standards
what is meant by the verifiability quality
independent, knowledgeable observers agree that the information is of faithful representation eg auditors
what does the job of an auditor include
checking that financial statements are correct
examples of the big 5 auditors
Earnest and Young (EY) Grant Thornton Deloitte PwC KPMG
what is meant by the timeliness quality
information should be available to users in time for it to be capable of influencing decisions
if left too long, the usefulness of information declines
what does a plc stand for
public limited company
what is an independence note
note signed by auditor to confirm independence
what type of companies don’t have to produce annual reports at the end of each year
ltd
