Reporting Concepts Flashcards
What is the definition of an asset?
A resource controlled by the entity as a result of last events from which future economic benefits are expected to flow to the entity
What is a liability definition?
A present obligation of the entity arising from past events in which there is expected to be a future outflow of resources embodying economic benefit for the entity
What is the definition of equity?
The residual interest in an entity’s assets after deducting all its liabilities, equity = net assets = share capital + reserves
What is the definition of income?
Increases in economic benefits during the accounting period on the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants
What are expenses definition?
Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or increases of liabilities that result in decreases in equity, other than those relating to distributions to equity participants
What the fundamental and enhancing qualitative characteristics of the conceptual framework?
Fundamental ones are:
Faithful representation and relevance
Enhancing characteristics are:
Comparibility
Understandability
Verification
Timeliness
What are the allowable measurement bases for cost / value?
Historical cost - cash paid or fair value of consideration given
Current cost - amount it would cost to buy an equivalent asset today
Realisable (settlement value) - cash that could be obtained by selling the asset in an orderly disposal
Present value - present discounted value of future net cash inflows / outflows
What is a change in accounting estimate?
An adjustment to the carrying amount of an asset or a liability or the amount of the periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities. Changes in accounting estimates result from new information or new developments and, accordingly, are not corrections of errors.
What does recoverable amount mean?
It is the fair value of an item less it’s costs to sell
What is relevance all about?
relevant financial information is capable of making a difference in the decisions of people using it, i.e.
- confirmatory value and/or
- predictive value
what is faithful representation all about?
to be useful, financial information has to faithfully represent the economic phenomena it purports to represent. A perfect faithful representation would be:
- complete
- neutral
- free from error
what are the four ways of measuring monetary amounts in the financial statements?
- historical cost - we paid £278,500 for our house
- current cost - we would have to pay £300,000 for a similar house now
- realisable settlement value - we would get about £300,000 if we sold our house now
- present value - current estimate of present discounted cash flows - we would make about £180,000 profit if we rented our house out for 50 years.
what is ‘recognition’ in FS all about?
recognition is the process of showing an item in the FS, with a description in words and a number value. an item is recognised in the FS when:
- it meets the definition of an asset/liability/equity/income/expense (an element) AND
- it is probable that any future economic benefit will flow to/from the entity
- the item has a cost or value that can be measured with reliability
Once a UK company has changed from UK GAAP to IFRS, can they go back?
No, they cannot. This is to ensure consistency between FS.
- certain entities defined in FRS101 can produce their FS using EU adopted IFRS but with decreased disclosures.
- entities eligible to apply the FRS for smaller entities may continue to apply it.
- all other entities should apply FRS102 which replaces all existing UK accounting standards.
what is going on between IFRS and US GAAP financial reporting convergence?
There was a 2002 agreement between the US FASB & IASB - the Norwalk agreement
- the common conceptual framework was started in 2004 and revised in 2018
- the SEC (the guys in charge of US FS standards) are monitoring the progress of the convergence & if satisfied, IFRS could become mandatory in the US.
