The Conceptual Framework, Accounting Concepts And Conventions

Question 1

IASB

Answer 1

International accounting standards board - responsible for issuing international accounting standards

Question 2

Fundamental characteristics of the ‘conceptual framework’

Answer 2

Relevance - helps make the statements more relevant to the user by helping them assess past present or future events
Faithful representative - complete, neutral and free from error

Question 3

Enhancing characteristics of the ‘conceptual framework’

Answer 3

Comparability - assess relative performance with other firms
Verifiability - should be able to check that the information is valid and correct
Timeliness - should be available in time to influence their decisions
Understandability - info is understandable to people with basic knowledge

Question 4

Departures from international accounting standards

Answer 4

An entity who’s financial statements comply with IAS standards should disclose that. And departure from this should be disclosed and an explanation of the circumstances together with an estimation of the financial impact

Question 5

Comparative information

Answer 5

IAS 1 requires that you should provide comparatives so can compare year on year figures

Question 6

Accruals concept

Answer 6

Transactions are recognised when transaction happens not when cash is received

Question 7

Going concern concept

Answer 7

• an underlying assumption

It assumes the entity will continue working for the foreseeable future (> 12 months)

Question 8

Materiality concept

Answer 8

Item is material if omission or misstatement would influence users of the financial statement

Question 9

Historical cost convention

Answer 9

Assets and liabilities are recorded at their original cost. Advantages - more reliable

Question 10

The need for regulation

Answer 10

• ensures accounts are sufficiently reliable and useful
• financial accounts are used as the starting point for calculating taxable profits
• annual financial statements are the main document used for reporting to shareholders
• the sock markets rely on financial statements published by companies
• international investors prefer information to be presented in a similar and comparable way

Question 11

How is accounting regulated

Answer 11

Legislation - companies act 2006
Financial reporting standards - FRC sets uk standards
Generally accepted accounting practice (GAAP) - set of accounting practices applied in a given country
The concept of fair presentation