Read everyday Flashcards
Solvency.
Ability to pay back liabilities
Trustee
A trustee is any person or organization that holds the legal title of an asset or group of assets for another person, called the grantor. A trustee is granted this legal title through a trust in which the they hold title to the assets held in trust for the benefit of others.
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Insolvency
Bankruptcy Liquidation
Incorporation.
Literal: Inclusion of something as part of a whole.
Incorporation is the term used to describe the formation and registration of a limited company. When this process is complete, a certificate of incorporation will be issued. The legal status of a limited company is that it is a separate entity from the owners of that business.
Mortgage
a legal agreement by which a bank, building society, etc. lends money at interest in exchange for taking title of the debtor’s property, with the condition that the conveyance of title becomes void upon the payment of the debt.
Floating Charge
It is the mortgage over the constantly fluctuating assets of a company providing security to the lender.
Policy
A course or principle of action adopted or proposed by an organization or individual.
It is basically a set of guidelines or rules to follow (which can be preset) when completing a task.
Materiality
(Materiality refers to identifying the issues that matter most to a company’s business and stakeholders and determining how important they are.)
(Materiality in accounting refers to the relative size of an amount, and the impact it makes on the financial statements. In the accounting process, accountants deem relatively large sums of money to be material)
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An item is regarded as material if its omission or misstatement is likely to change the perception or understanding of the users of that information.
On the other hand, an error that is too trivial to affect anyone’s understanding of the accounts is considered immaterial.
Materiality is simply a measure of how important that information is to users.
Mutually Exclusive (Something that cannot coexist)
Mutually exclusive is a statistical term describing two or more events that cannot happen simultaneously. It is commonly used to describe a situation where the occurrence of one outcome supersedes the other. For example, war and peace cannot coexist at the same time. This makes them mutually exclusive.
Threshold quality for information/financial statements?
Basic necessity of an information required to consider other qualities. A cut off point.
Equity
Equity, typically referred to as shareholders’ equity (or owners’ equity for privately held companies), represents the amount of money that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company’s debt was paid off in the case of liquidation. In the case of acquisition, it is the value of company sales minus any liabilities owed by the company not transferred with the sale.
Credit
credits refer to outgoing money
Debit
debits refer to incoming money
Realize
to convert into actual money.
realized assets. b. : to bring or get by sale, investment, or effort : gain. realized a large profit.
Overdraft
a deficit in a bank account caused by drawing more money than the account holds
Why is there mistrust between shareholders and directors and auditors?
Due to unreliable and fradulaent financial reporting (often for monetary gain) there are cases where directors often cook the books like Worldcom or Enron.
Cadbury report 1992.
The system by which companies are directed and controlled in the interests of shareholder and in relation to those stakeholders beyond the company.
Corporate governance divided into two?
Purpose and objectives
Purpose: Monitor parties within a company who control the resources owned by investors.
Objectives: Contribute to improved corporate performance and accountability in creating long term shareholder value.
read page 32 for learning major objectives.
Basic requirements directors of a company have to follow to be accountable to the stakeholders of a business?
A general duty of care to act in good faith for the benefit of the company.
A duty to avoid conflict of interests. Between personal interest and those of the company and its stakeholders,
AND TO MAKE A DISCLOSURE IF SUCH A CONFLICT ARISES.
Directors responsibilities by law?
To maintain and establish adequate system of internal controls which prevent and detects fraud and error
To maintain adequate accounting records that provide a basis for the preparation of annual financial statements.
Prepare annual financial statements that show a true and fair view of financial position and performance of the company, which should comply with relevant laws, regulations and IFRS standards.
responsibility to approve the annual financial statements prior to their publication, and to file it in accordance with local law and regulations
Need for corporate governance?
Basic elements of a sound corporate governance?
Effective management
Effective systems of internal control
oversight of management by non-executive directors
fair appraisal of director performance
fair remunerations to directors
fair financial reporting
constructive relationship with shareholders.
What is the UK corporate governance code (2006) ?
All listed companies in the UK have to submit a report stating how they have complied with the provisions of the code and a statement of compliance with the code. If they have not reasons for so and alternative action they have taken.
5 areas the code provides guidance on?
*Board leadership and company purpose
*division of responsibilities of the board of directors
*composition, succession and evaluation of the board of directors
*audit risk and internal control
*remuneration of the board of directors.
Us Sarbanes Oxley act enforces? Incompliance may lead to criminal charges.
Sound system of internal control
Clear documentation of financial process, risks and controls
evidence that management have evaluated the adequacy and designs of system and controls
evidence that the auditor has evaluated the adequacy and design of system controls
