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Question 1

What are the 4 main types of accounting statement?

Answer 1

Statement of profit or loss
Statement of financial position
cashflow statement
statement of changes in equity

Question 2

Who are the main users of financial accounts?

Answer 2

1) Investors
2) Creditors
3) Employees
4) Business contacts

Question 3

Why would investors want to look at accounts

Answer 3

Analysts wish to update their forecasts, investors want to see profits, accounting ratios and see if investment is worthwhile. Tool to hold managers to account (are they acting in shareholders interests).

Question 4

Why do creditors look at accounts

Answer 4

See liabilities of the company, see risk of default and if loans should come with covenants or restrictions. If current creditors want to see collateral available.

Question 5

Why do employees look at the accounts

Answer 5

To see if the company is healthy, and if there job is secure

Question 6

Why do business contacts look at accounts

Answer 6

Interested in continuity of sales, and looking at company pricing and trading policies implied from the accounts.

Question 7

What statute covers accounting in the UK

Answer 7

UK Companies Act 2006

Question 8

What is required to be produced under the UK Companies Act 2006 in terms of accounts

Answer 8

1) Statement of financial position
2) Statement of profit or loss
3) Disclosures/notes
4) Directors report
5) Auditors report

Question 9

Why do firms need an independent audit of accounts

Answer 9

For companies over a certain size it is a statutory requirement. Also give an opinion from not making the accounts and been given the relevant information to see if it presents a “true and fair” view. More generally it adds credibility to a company’s accounts.

Question 10

What is required in a Directors Report

Answer 10

Company activities over the last year, financial decisions of directors, details of the directors

Question 11

What else is needed in a Directors Report for companies listed on the UK stock exchange

Answer 11

Geographical analysis of turnover, and average time to pay creditors.

Question 12

What does ‘true and fair’ usually entail

Answer 12

Following the accounting principles and standards e.g. IASs. Though it can mean deviating from the rules when doing so will provide a true and fair view.

Question 13

What industries have extra accounting rules

Answer 13

Pensions, banks, charities

Question 14

IASB?

Answer 14

International Accounting Standards Board

Question 15

What are the standards released by the IASB called?

Answer 15

IFRSs

Question 16

Where does the IASB get its informal authority from?

Answer 16

In statute/regulations of a number of countries to comply with their standards

Question 17

All … companies must use IASB for consolidated accounts

Answer 17

UK Listed

Question 18

Pros of international standards

Answer 18

• harmonises accounting standards providing consistency and easy comparison
• Discussion process leads to healthy and focused debate on what accounting processes to use
• Often require more information than the law requires
• Can allow some flexibility

Question 19

Cons of international standards

Answer 19

• Rules might not be appropriate in all circumstances
• Standards may have been influenced by lobbying
• Standards allow alternative treatments creating inconsistencies e.g. methods of depreciation
• Some standards are too general, others too rigid