Understanding and interpretation of published financial reports

Question 1

What is the 6 steps in the accounting process?

Answer 1

journalise transactions
post to ledger
prepare trial balance
end period adjustments
prepare an adjusted trial balance
prepare financial statements

Question 2

For every journal transaction, what must be equal

Answer 2

debit

credit

Question 3

in what way does the journal record events

Answer 3

chronological

Question 4

What does the trial balance prove?

Answer 4

equality of debits and credits

Question 5

What are the financial statements

Answer 5

profit and loss
balance sheet
statement of changes of equity
cash flow statement

Question 6

What does the profit and loss statement show

Answer 6

the result of activities for the period

Question 7

what does the balance sheet show?

Answer 7

financial position of the business as at the end of the period

Question 8

What does the statement of changes in equity show

Answer 8

movement of equity items during the period

Question 9

what does the cash flow show

Answer 9

cash inflows

cash outflows

Question 10

Who are financial reports given to? For what?

Answer 10

interested parties

reporting

Question 11

interested parties can come from

Answer 11

internal

external

Question 12

internal interested parties include the

Answer 12

management

Question 13

external interested parties include

Answer 13

investors

government

Question 14

What are the uses of published financial reports?

Answer 14

aid potential shareholders to decide whether to invest in company

help creditors to decide whether to lend money to the company

Question 15

Financial reports are presented in what way?

Answer 15

comparative

amounts for 2 consecutive periods

Question 16

Reported information may be rounded off because of what principle

Answer 16

materiality

Question 17

What is consolidation

Answer 17

combination of financial statements for 2 or more legal entities

Question 18

What is CFS?

Answer 18

consolidated financial statement of a group presented as a single entity

Question 19

a holding company is known as a

Answer 19

parent company

Question 20

when is a company a subsidiary of a holding company?

Answer 20

when the company controls more than 50% of voting power

Question 21

Who are affected by consolidated group accounts?

Answer 21

current and prospective shareholders
long term creditors of holding company
management

Question 22

How are the respective people affected by consolidated group accounts?

Answer 22

profitability is affected by profitability of all companies in the group

creditors have indiret claim on subsidiaries

evaluated on management based on all resources under its control

Question 23

the voting power is relative to the

Answer 23

issue ordinary share capital owned

Question 24

when a company does not own 100% of issued share capital of a company, they do not own 100% of the subsidiary’s

Answer 24

net assets

Question 25

The remaining net asset belongs to

Answer 25

outside shareholders

Question 26

Non-controlling interest is the remaining

Answer 26

percentage

Question 27

Annual Reports include

Answer 27

Chairman's Statement
Corporate Governance
directors' report
statement by directors
Independent auditors report
balance sheet
profit and loss account
statement of changes in equity
cash flow statement
Notes to the financial statement

Question 28

What does the notes to the financial statement include

Answer 28

significant accounting policies

Question 29

What comments does the chairman statement include

Answer 29

overall trading conditions in period
current economic climate
general outlook
Performance by each major activity
Significant interests
strategies and plans for the future

Question 30

corporate government is the implementation and execution of

Answer 30

processes
practices
of proper stewardship

Question 31

what is proper stewardship?

Answer 31

entity properly utlise time, talent, resources in best interest of absent owners

Question 32

What does the directors report include

Answer 32

names of directors and interest in shares/debentures
issue of shares and debentures
amount of dividend recommended, paid 
acquisition and disposal of subsidiaries
financial results
principal activities of the company
important events after the period (post balance sheet event)
transaction that is unusual or material
other voluntary information

Question 33

The companies act requires that financial statement must present a

Answer 33

true and fair view

Question 34

What does a true and fair view mean

Answer 34

accounts are not

materially misstated or ommited

Question 35

A true and fair view means that the financial statements abide by

Answer 35

adoption of legal requirements, acceptable accounting standards
appropriate classification of items
consistent application of GAAP

Question 36

What is GAAP

Answer 36

generally accepted accounting principles

Question 37

the management is known as the

Answer 37

board of directors

Question 38

What are the roles of the board of directors

Answer 38

responsible for preparation and presentation of financial statement

ensure proper accounting, other records maintained by the company

report to the shareholder at AGM (final accounts, directors’ report)

Question 39

At each AGM, every public company has to appoint an

Answer 39

auditor

Question 40

What is the role of an auditor?

Answer 40

review documents and financial data in a company

highlight errors and discrepancies in company accounts

will form an opinion if it presents a true and fair view, shown in auditor’s report

Question 41

Auditors are not responsible to prevent

Answer 41

fraud or error

Question 42

Auditors must exercise reasonable care in case fraud is uncovered so that they are not accused of being

Answer 42

negligent

Question 43

Auditors need to ensure that any anomalies are explained by

Answer 43

independent evidence