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Principles Of Accounting > Lecture 3 > Flashcards

Lecture 3 Flashcards

1
Q

Tell me about IAS Regulation

A

It overrides national company law
Requires all listed groups to prepare financial statement using IFRS (international financial reporting standards)

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2
Q

Tell me about UK Company law: Companies Act 2006 probs DOMT need to know this tbh

A

Formats of presentation of the statement of financial position and profit and loss account
True and fair view
Methods of valuation of assets and liabilities contained in the financial position
Accounting rules apply to companies not following IAS Regulation
Contains other rules for management and audit of a company

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3
Q

Tell me about the FRC (Financial Reporting Council)

A

UK’s independent regulator responsible for promoting high quality corporate governance and reporting
Major restructure in July 2012
Authorised by UK Government
Monitors and enforce accounting and auditing standards
Oversight professional bodies and firms
Works though a structure of committees and councils

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4
Q

What is corporate governance?

A

The way a company is managed by directors in the interest of shareholders and the wider capital market

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5
Q

Tell me about CG in terms of regulation

A

London Stock Exchange sets code on CG for directors running a company
Recommends a ‘code of good practice’
Principle of ‘comply or explain’

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6
Q

Tell me about the FCA (Financial Conduct Authority)

A

Single market regulator
Regulates market for shares
Has accounting rules for fair market
Three kinds of listing (different levels of regulation and disclosure)

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7
Q

Regarding the FCA, what are the 2 accounting rules for fair market?

A

Compliance with Disclosure and Transparency
Compliance with Listing Rules

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8
Q

Regarding the FCA, what are the three kinds of listing?

A

Premium (meet high standards of regulation)
Standard (overseas companies)
AIM (new and smaller size)

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9
Q

What are auditors/what is their role?

A

Report to shareholders
Give opinion on a true and fair view from financial statements
Do not cover the whole annual report
Aim is to ‘give reasonable assurance that the financial statements are free from material misstatement’
Use auditing standards: International Standards for Auditing (ISAs)

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10
Q

Tell me about the tax system

A

Companies pay corporation tax
Taxable profit is based on accounting profit but with additional rules

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11
Q

What are some views AGAINST regulation?

A

Market forces ensure information flow
Lenders will ensure they have good info for reassurance
Costs may exceed benefits

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12
Q

What are some views FOR regulation?

A

Supply and demand do not meet unless a regulator intervenes
Stakeholders may lose confidence or may need protection
Scandals result where there is inadequate regulation

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13
Q

What do trading businesses do?

A

Business buying goods for resale.
Will hold inventories (stocks of goods)

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14
Q

What do manufacturing businesses do?

A

Converting raw materials to finished products.

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15
Q

What types of inventories will manufacturing businesses hold?

A

Raw materials
Work in progress
Finished goods

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16
Q

What are the parts of a listed companies Annual report?

A

Primary financial statements
Notes to the financial statements - giving more detail to figures in the PFS (personal financial specialist)
Narrative reports - Strategic report (business performance), CG (workings of management process)

17
Q

What are the three categories of financial info?

A

Part of a listed companies annual report
Other general purpose financial reports
Other public information

18
Q

What is included in the other general purpose financial reports?

A

Half yearly reports, quarterly management reports, prospectus

19
Q

What are the primary financial statements?

A

Statement of financial position/balance sheet
Income statement (profit and loss account)
Statement of cash flows
Statement of changes in equity (IASB requirement)

20
Q

What is included in the notes to financial statements?

A

Accounting policies
Detailed analysis of some numbers
Information about uncertainties

21
Q

What do narrative reports contain?

A

Chairman’s statement
Chief executive’s report
Business model
Key performance indicators
Risks and uncertainties

22
Q

What is the format for statement of financial position, income statement, statement of changes in equity? (Lowkey feel like we don’t need to know this, the stuff is so random)

A

No standard format under IRS
Basic lists of items
- specified but variation expected in method of presentation

23
Q

What are Groups regarded as (for accounting purposes)?

A

A single economic entity

24
Q

What are groups made up of?

A

A parent company who controls a number of subsidiary (less important) companies

25
Q

How is control normally earned in a company?

A

Owning shares that hold majority voting rights in annual general meeting

26
Q

What are associated companies?

A

A company that a parent company might hold shares in that give less control but still give significant influence

27
Q

What does the parent have to produce?

A

Consolidated financial statements reflecting the combined results of the entire group of companies

28
Q

What company produces consolidated financial statements?

A

Safe and Sure plc

29
Q

What do consolidated financial statements contain?

A

Two columns: current and previous year
Notes to accounts for more detail

30
Q

What are the 4 measures of profit in the consolidated income statement?

A

Gross
From operations
Before tax
For the period

31
Q

What are continuing operations?

A

Activities that will continue into the next trading period

32
Q

What are discontinued operations?

A

Activity that has been stopped

33
Q

What is the aim of a consolidated income statement?

A

To assist estimates of future profits

34
Q

Structure of consolidated income statement?

A
  1. Cash flows from operating activities
  2. Cash flows from investing activities
  3. Cash flows from financing activities
35
Q

What is depreciation’s effect on cash flow?

A

Cash flow will be greater than profits.

36
Q

What does reduction in cash (cash flow lower than profit) result from?

A

Inventories and receivables increase
Payable decrease

37
Q

What does increase in cash (cash flow greater than profit) result from?

A

Inventories and receivables decrease
Payables increase

Principles Of Accounting (10 decks)

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