Semester 1 Week 3 PP (Reporting Framework) Flashcards
Contains knowledge on Reporting Framework
How then are IFRSs used?
Various Governmental bodies do require it – for example a listed company in the EU must publish accounts using IFRSs
What is the UK Framework?
In the UK the accounting, auditing and actuarial professions are governed by the Financial Reporting Council (FRC) this is a governmental organisation
It does have legal powers (the IASB does not)
Its accounting standards work is done by one of its subcommittees, the Accounting Standards Board (ASB)
What is a criticism of the IFRSs?
A criticism of IFRSs is that they are concentrated on large companies. The UK has a strong tradition of small companies, especially owner managed, so these IFRS don’t help much in the UK.
Young Decorating Ltd. (Young) is a small painting and decorating company run by John Young. The company is owned 50% each by John and his wife Mary. Last year the turnover was £280,000 and the profit £35,000.
Do you think Young should have to prepare accounts of the same size and level as BP or HSBC?
No.
Young Decorating Ltd. is a small painting and decorating company with a turnover of £280,000 and a profit of £35,000. Compared to large multinational corporations like BP or HSBC, the scale of operations, financial transactions, and regulatory requirements would be significantly different.
What is UK Law on which accounts you use?
In the UK
Listed and public interest entities must use IFRS (case in all EU countries)
Other companies can chose to use either FRS or voluntarily use IFRS.
Smaller companies (which qualify) can use FRS 101 and 105.
Companies not complying would be in breach of the law.
Do you think it is possible to write standards which would tell you exactly what to do in every situation?
No. For this reason the standards are written to be principles based, not rules based. The job of a reporting accountant is often therefore applying and interpreting the standards in real life situations.
What are Finance Costs?
Interest costs.
What are Finance Income?
Interest income.
What is IAS 1 about?
It shows us how to layout a company’s Statement of Financial Position (balance sheet) SFP for short, and Statement of Profit or Loss (P/L for short). IAS 1 allows items to be categorised either by nature or function
Nature would be items such as “raw materials and consumables used” and “employee pay and benefits”. Function lays expenses out by:
Cost of sales: As before
Distribution costs: Costs of transporting, marketing and selling goods
Administrative expenses: Costs of running the business, e.g. rent, rates, insurance legal fees etc.
What other statements do a set of accounts have to include?
A set of accounts is also required to include:
1. A statement of changes in equity
2. A statement of cashflows
3. Associated notes
Who is responsible for preparing the financial statements in a company?
Directors of a company are responsible for preparing the financial statements not the auditors
Directors should:
Follow the applicable accounting standard and implementation guidance
If no standard exists the director should chose a policy that produces “relevant and reliable information”
What does Retrospective application mean?
Applying a new policy as if it always applied (i.e. amend opening balances).
What does Prospective application mean?
Recognising a change only from the date the change happens.
Why should a company change accounting policies?
A company should change accounting policies only if:
A new IFRS is issued or current one changes
It results in the financial statements giving more relevant or more reliable information
IAS 8 covers changes like these.
In 2021 Jasson Ltd had no assets under lease, they therefore had no accounting policy dealing with leases.
In 2022 they acquire assets under lease and apply the provisions of the relevant standard (IFRS 16) for the first time. Is this a change in accounting policy?
No, this is not a change in accounting policy. Dealing with a type of transaction and applying the relevant standard for the first time is not considered to be a change in accounting policy.
