The Framework

Question 1

What is the regulatory framework made up of?

Answer 1

1) International Accounting Standards and International Financial Reporting Standards (IAS & IFRS)
2) Companies Act 2006
3) Framework for the preparation and presentation of financial statements

Question 2

What do the IFRS Foundation do?

Answer 2

• appoint IASB, advisory council and IFRS interpretations committee members
• raise funds for the IASB
• monitor the IASB effectiveness.

Question 3

What 3 entities make up the IFRS Foundations?

Answer 3

1. IFRS Advisory Council
2. IAS Body
3. IFRS Interpretation Committee

Question 4

What does the IFRS Advisory Council do?

Answer 4

Take recommendations from individuals, corporations, auditors and national standard setters and then provide advice to the IASB on priority areas.

Question 5

What does the IASB do?

Answer 5

Set international accounting standards. IFRS’s and IAS’s.

Question 6

What does the IFRS interpretations committee do?

Answer 6

Report to the IASB with interpretations of IFRS’s and provide guidance on financial reporting issues not specifically addressed by IFRS’s.

Question 7

What are the stages required to develop and set standards?

Answer 7

1) Topic is identified
2) Topic is discussed and IASB may set up a working group
3) Discussion paper is issued and public comment invited
4) Exposure draft is issued for public comment
5) IASB consults with IFRS advisory council and working groups before an IFRS is voted on and issued

Question 8

What is the Companies Act 2006?

Answer 8

UK legislation which governs limited companies. Lays out regulations on how the company is to be managed and the reporting requirements.

Question 9

What 3 elements are a companies directors responsible for?

Under the Companies Act 2006

Answer 9

1. Keeping proper accounting records
2. preparing the financial statements, having them audited and presenting them to shareholders
3. Filing the accounts at company’s house (9m after year end for Ltd, 6m after for Plc)

Question 10

What are the 4 advantages to the principles-based approach?

Answer 10

1. Individuals must use their judgement
2. No individual scenarios, less likely to go out of date
3. Harder to avoid requirements
4. The spirit of the regulation can be followed when there are no specific accounting requirements

Question 11

What are the 7 sections of the conceptual framework?

Answer 11

1) The objectives of general purpose financial reporting
2) The qualitative characteristics of useful financial information
3) Financial statements and the reporting entity
4) The elements of financial statements
5) Recognition and derecognition
6) Presentation and disclosure
7) Concepts of capital and capital maintenance

Question 12

What is the general purpose of financial statements?

what can members of the public, banks & shareholders find out?

Answer 12

The objective of general purpose financial reporting is to provide financial information/(information as to its financial position (solvency/assets and liabilities), financial performance (income and expenses/cash flows) and changes in an entity’s financial position which have not resulted from its financial performance (e.g. issues of share capital)) about the reporting entity (1) that is useful to existing and potential investors (1), lenders (1) and other creditors (1) in making decisions (1) about providing resources to the entity (or an example of a decision)”.To provide a wider range of users with information to enable them to make economic decisions.

Question 13

What is the accruals concept?

Answer 13

Costs and revenues should be matched together and included in the period to which they relate, not when cash is paid or received.

Question 14

What is going concern?

Answer 14

The assumption that the business will continue trading for the foreseeable future.

Question 15

Whin the Conceptual Framework - 2. The qualitative characteristics of useful financial information - Name the 2 fundamental qualitative characteristics?

Answer 15

1. Relevence
2. Faithful prepresentation

Question 16

Within the 8 conceptual framework sections - the qualitative characteristics of useful financial information - what does ‘relevance’ allow a user to decide?

Answer 16

1. Predictive value - can predict future outcomes
2. Confirmatory value - feedback about previous evaluations

Information’s relevance is affected by its nature and materiality

Question 17

What 4 elements make finanicial information have a faithful representation?

Answer 17

1. Complete
2. Neutral/Unbiased
3. Free from error
4. Report substance over form

Question 18

What are the 4 enhancing qualitative characteristics?

Answer 18

1. Comparability - can be compared with similar information from other entities
2. Verifiability - represents faithfully the economic reality of the transactions
3. Timeliness - available in time to be able to influence decisions
4. Understandability - presented clearly and concisely to make it understandable

Question 19

When should an element of the financial statements be recognised?

Answer 19

1) meets the definition of an element, and
2) provides relevant information, and
3) can be faithfully represented

Question 20

What are the 2 measures of elements?

Answer 20

1. Historical cost = original price paid
2. Current value = cost if bought today

Question 21

What 3 ways are there to obtain a ‘current value’?

Answer 21

1. Fair value = price received when selling asset, or transferring liability between market participents at the measurement date
2. Value in use (assests) / fulfillment value (liabilities) = present value of all the cash flows we expect to derive from an asset / cash outflows we expect to transfer to settle a liability
3. current cost = cost of an equivalent item if you replaced the asset or settle the liability today

Question 22

What are the 5 elements of a financial statement?

Answer 22

1.Assets
2.Liabilities
3.Equity
4.Income
5.Expense

Question 23

What is the definiton of an Asset?

Answer 23

Present economic resource controlled by an entity as a result of a past events. An economic reource is a right that has potential to produce economic benefits.

Question 24

What is the definiton of liabilities?

Answer 24

A present obligation of an entity to transfer an econmic resource asa result of past events

Question 25

What is the definiton of an Equity?

Answer 25

The residual interest in the assets of the entity after deducting all its liabilities.

Question 26

What is the definiton of an Income?

Answer 26

Increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims.

Question 27

What is the definiton of an Expenses?

Answer 27

Decreases in assests, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims.