The Conceptual framework, accounting concepts and conventions

Question 1

what is the IFRS foundation purpose

Answer 1

• organisation which overseas accounting guidance across the globe
• it is responsible for issuing International Accounting Standards

Question 2

what is the IFRS foundation made up of?

Answer 2

• IAS + IFRS - accounting rule book tells us how to recognise, measure, disclose items in financial statement
• Conceptual Framework -outline key attributes and concepts fundamental to each set of financial statement

Question 3

what are the two types of qualitative characteristics

Answer 3

• Fundamental
• Enhancing

Question 4

what are the fundamental characteristics

Answer 4

• relevance (predictive/ confirmatory value)
• faithful representation (complete/neutral)

Question 5

what is prudence

Answer 5

exercising cautions under certain situations of uncertainty

Question 6

what are the enhancing characteristics

Answer 6

• Comparability
• Verifiability
• Timeliness
• Understandability

Question 7

what are the 3 rules that link in with the objective of IAS 1

Answer 7

• fair presentation
• departure from international standard
• comparative information

Question 8

what is the accruals basis?

Answer 8

the effect of transactions and other events are recognised when they occur, and not as cash is received or paid (cash basis)

Question 9

what does the IAS 1 Presentation of Financial Statements deal with?

Answer 9

The structure and content of financial statements

Question 10

what is materiality?

Answer 10

information is material if its omission, misstatement could influence economic decisions

Question 11

what is offsetting?

Answer 11

not allowing assets and liabilties or income and expenses to be deducted from each other unless IAS allows such treatment

Question 12

what is historical cost convention?

Answer 12

• assets are recorded at the amount of cash paid
• liabilities are recorded at the amount of proceeds received

Question 13

what is the advantage and disadvantage of historical cost accounting?

Answer 13

ADV -removes subjectivity of estimating asset/liability
DISADV - values become out of date quickly

Question 14

how is accounting regulated through legislation?

Answer 14

The Companies Act 2006 (CA 2006) prescribes formats and contents for financial statements.

Question 15

how is accounting regulated through financial reporting standards?

Answer 15

• how to account for and present specific items in the financial statements
• The Financial Reporting Council Sets UK standards
• The International Accounting Standards sets international standard

Question 16

how is accounting regulated through Generally Accepted Accounting Practice?

Answer 16

The set of accounting practices applied in a given country