Regulation of Accounting

Question 1

What are the 4 sections of the Conceptual Framework that are important at this level?

Answer 1

The objective of financial statements.
Qualitative characteristics of financial statements.
Underlying assumptions.
The elements of the financial statements.

Question 2

What is the objective of financial statements?

Answer 2

To provide information about the reporting entity that is useful to existing and potential investors, lenders and other creditors.

Question 3

What are the two fundamental characteristics of financial information?

Answer 3

Relevance and Faithful Representation.

Question 4

What does the fundamental characteristic ‘relevance’ mean?

Answer 4

Assists users in evaluating the past and predicting the future.
Materiality, confirmatory and predictive value.

Question 5

What does the fundamental characteristic ‘faithful representation’ mean?

Answer 5

To give a true and fair view of the financial statements.

Complete.

Question 6

What are the four enhancing characteristics of financial information.

Answer 6

Verifiability, timeliness, understandability and comparability.

Question 7

What does the enhancing characteristic ‘Verifiability’ mean?

Answer 7

The information can be proven.

Question 8

What does the enhancing characteristic ‘Timeliness’ mean?

Answer 8

The information is given in time to influence the decisions of users.

Question 9

What does the enhancing characteristic ‘Understandability’ mean?

Answer 9

The information should be readily understandable by users, who have reasonable knowledge.

Question 10

What does the enhancing characteristic ‘Comparability’ mean?

Answer 10

The information should be consistent and use all of the accounting policies.

Question 11

What does materiality mean?

Answer 11

Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions of users taken on the basis of the financial statements.

Question 12

What does going concern mean?

Answer 12

The entity is viewed as continuing in operation for the foreseeable future. It is assumed that the entity has neither the intention nor the necessity of liquidation or ceasing to trade.

Question 13

What is capital?

Answer 13

The amount a business owes to the owner. In a company this is known as equity.

Question 14

What does IAS 1 state?

Answer 14

The objective of a financial statement is to provide information about the financial position, performance and cash flows of an entity that is useful to a wide range of users in making economic decisions.

Question 15

What is fair presentation?

Answer 15

The faithful reputation of the effects of transactions, other events and conditions in accordance with the Conceptual Framework so that the reliability of financial statements is kept. Following all of the IAS’s.

Question 16

What is a departure from IAS’s?

Answer 16

A special case where not all of the standards have to be followed (car showroom example).

Question 17

What is the accrual basis of accounting?

Answer 17

Revenue or expenses are recorded when a transaction occurs rather than when payment is received or made.

Question 18

What is historical cost?

Answer 18

Transactions are recorded at their cost when they occured.

Question 19

What are the 5 ethics included in IFAC Code of Ethics?

Answer 19

Integrity
Objectivity
Professional Competence and Due Care
Confidentiality
Professional Behavior

Question 20

What does the principle ‘Integrity’ mean?

Answer 20

Being straightforward and honest.

Question 21

What does the principle ‘Objectivity’ mean?

Answer 21

To not allow bias, conflict of interest or influence to affect judgements.

Question 22

What does the principle ‘Professional Competence and Due Care’ mean?

Answer 22

To maintain knowledge and skill and act in accordance with technical and professional standards.

Question 23

What does the principle ‘Confidentiality’ mean?

Answer 23

Respect confidential information and do not disclose it to others.

Question 24

What does the principle ‘Professional Behavior’ mean?

Answer 24

To avoid action that discredits the profession.

Question 25

What is the accounting equation?

Answer 25

Assets = Capital + Liabilities

Question 26

How do you calculate capital?

Answer 26

Capital + Profit - Drawings