M1 Ethics & Professionalism Flashcards
Which of the following is a barrier in harmonising accounting standards globally?
Difference legal requirements
Cost associated with adoption and compliance
Diverse economic and social contexts around the globe
Travel costs are not directly relevant when talking about the process of standardisation, officials from bodies like IASB do not have to travel to other locations for the standard setting process, moreover, they have representation around the globe.
The goal of IASB is to:
Develop a single set of high-quality understandable and enforceable accounting standards
IASB is at the very centre of the standard setting process having sole responsibility for issuing International Financial Reporting Standards or IFRS. The goal of the IASB is to develop a single set of high-quality understandable and enforceable accounting standards.
The role of IFRS advisory council is to:
To provide a forum for the IASB to consult a wide spectrum of stakeholders
IASB lacks the legal authority to enforce compliance with the standards that it develops, making it necessary to cooperate closely with national authorities. To make this process more efficient, representatives of national standard-setters are in fact represented on the Board. IFRS advisory council exists to aid IASB in consulting wider audience.
A set of generally accepted theoretical principles which should be kept in mind when designing new accounting standards or when applying them in practice is called a/an:
Conceptual Framework
In the context of financial reporting, the term framework can be used in two different ways, a regulatory or institutional framework and a conceptual framework. A conceptual framework is a set of generally accepted theoretical principles which should be kept in mind when designing new accounting standards or when applying them in practice.
The four institutions which are at the very heart of the IFRS standard setting process do not include:
IFAC
International Federation of Accountants (IFAC) is a global organisation that supports the four independent standard-setting boards, IFAC is not responsible for establishing international standards, instead, it encourages compliance and issues guidance.
The goals of the conceptual framework do not include:
Helping the IFAC in developing future IFRSs and reviewing the existing body of standards
International Federation of Accountants (IFAC) is not responsible for developing IFRSs, the conceptual framework helps IASB in developing new standards.
The objective of financial reporting is to provide _________ about the reporting entity that is useful to _________ investors and lenders in making decisions about providing resources to the entity. Which of the following pairs are appropriate for the blanks?
Financial information; existing and potential
Financial accounting is the language through which the financial information is presented in from of financial statements to external users, including both existing and potential investors. The goal of financial reporting is to provide financial information to these users, to help them in making informed decisions.
A conceptual framework is a set of generally accepted theoretical principles that guide the bodies that design ________ and help users to apply them in practice. Which of the following words is suitable to fill the blank?
Financial reporting standards
A conceptual framework guides the bodies that design financial reporting standards and help the users in their application. These bodies include IASB, IFRS foundation, IFRS advisory council and IFRS Interpretations Committee.
An approach where the goal is to lay down the general principles that should universally govern financial accounting (making a link between the objectives of financial reporting and those general principles) is called:
Principles-based approach
There are two main approaches to financial reporting, one is called rules-based approach (for example Sarbanes-Oxley Act) and principles-based approach (for example UK Corporate Governance code).
An approach where the detailed regulations are presented such that all companies are required to uniformly follow them (leaving very little space for independent interpretation) is NOT called:
Mandatory approach
Principles-based approach
Accounting framework
A conceptual framework for accounting can be devised using two approaches, rules-based approach and principles-based approach. A rules-based approach is where the companies must strictly adhere to the provided standards or regulations.
Financial information will be called relevant if:
Information capable of making difference to the decision of the users
Financial information will be called relevant if:
Information capable of making difference to the decision of the users
Relevant information is the information that will help achieve the intended use, in other words, the information which is in accordance with the user requirements is called relevant information, it is not necessary that the information should have an impact on the decision of the users (a concept that is more relevant to materiality).
Which of the following is not an enhancing characteristic of financial reporting:
Reliability
Enhancing qualitative characteristics comprise of comparability, verifiability, timeliness and understandability.
Following are the qualitative characteristics of financial information:
I. Relevance
II. Understandability
III. Timeliness
IV. Faithful representation
Which of the above are fundamental qualitative characteristics?
I. Relevance
IV. Faithful representation
The Framework identifies two kinds of qualitative characteristics: fundamental and enhancing. Fundamental qualitative characteristics are composed of just two items: relevance and faithful representation.
The characteristic of Faithful representation does not include:
Comparable
Faithful representation is associated with all of the following characteristics: completeness (include all necessary explanations), neutrality (free from bias) and free from error (keeping in view the materiality).
