Flashcards
Part A
Cards in this deck (94)
- 1Conceptual frameworkis accepted theoretical principles which form the frame of reference for financial reporting
- 2Without it Conceptual frameworkcontradictions and inconsistencies occur.
Going Concern will NOT Apply. - 3AdvantagesStandardising accounting practice
Less open to criticism from external pressure (Political)
Without it, stds may focus on profit or loss or valuation of net assets. - 4DisadvantagesConceptual framework will not suit all users
You might need a variety of accounting stds, each for a different purpose
Not conclusive that Conceptual make it easier to make documents - 5GAAP:Generally Accepted Accounting Practice
Signfifies all the rules from whatever source which govern accounting - 6Combination ofNational company law
National accounting standards
Local stock exchange requirements - 7Non mandatory sourcesInternational accounting standards
Statutory required in other countries - 8Purposes of Conceptual FrameworkDevelopment of future IRFS
Harmonisation of regulations
National standard setting bodies in developing national stds
Preparers of financial statements
Assist Auditors and Users of financial statements
Provides people interest in IASB with information about approach to the formulation of IFRS
Determine treatment on things not identified before. - 9Providers of risk capitalInvestors
- 10Objective of financial reportingEconomic resources of the entity
Claims against the entity
Economic resources and claims - 11Economic resources and the claim against itsHelps user to assess the entity liqudiyt and solvency and likely needs for additional finacnign
- 12Accruals basisrecords revenues and expenses when they are incurred, regardless of when cash is exchanged
- 13Going concernunderlying assumption that the company will continue
- 14Fundamental qualitative characteristics :Relevance
Faithful representation - 15RelevanceInformation that make a difference to decisions made by users
- 16Faithful representationComplete
Neutrality
Free from error - 17Enhancing qualitative characteristicsComparability
Verifiability
Timeliness -
Understandability - 18ComparabilitySimilarities/differences
E.G Disclosing in new financial documents. - 19VerifiabilityRepresents economic phenomena
- 20TimelinessInformation is less useful
- 21UnderstandabilityUser have a reasonable knowledge of business and activity
- 22Materiality,it is material if omitting or misstated
- 23Statement of financial position 3 things broken upAsset:
Liability:
Equity - 24Asset:Control
Past events
Inflow of benefits - 25Liability:Present obligation
Past event
Outflow of benefits - 26EquityThe residual interest in the assets of the entity after liability's
- 27Future economic benefitThe potential to contribute directly or indirectly to the flow of cash and cash equivalents to the entity.
- 28Assets : Control is not reliant onPhysical form
Legal rights - 29Obligation.A duty or responsbility to act or perform in a certain way
- 30Provision:A present obligation which satisfies the rest of the definition of a liability even if the amount of the obligation has to be estimated.
- 31Income/Gains:Increase in economic benefits, decrease in liabilities increases In equity other than from equity participants.
- 32Expenses/ Losses:Decrease in economic benefits
- 33RecognitionThe process of incorporating in the statement of financial position or statement of profit or loss and other comprehensive income an item that meets the definition of an element and satisfied the following criteria for recognition
- 34CrietieraIt is probable that any future economic benefit associated with the item will flow to or from the entity.
The item has a cost or value that can be measured with reliability. Should NOT Be material - 35Historical cost AssetsAssets are recovered at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquired them at the time of their acquisition.
- 36Historical cost LiabilitiesLiabilities are recorded at the amount of proceeds received in exchange for the obligation, or in some circumstances at the amounts of cash or cash equivalent expected to be paid to satisfy the liability in the normal course of business
- 37Current cost.Assets are carried at the amount of cash or cash equivalents that would have to be paid if the same or an equivalent asset was acquired currently.
- 38Realisable value :the amount of cash that could currently be obtained by selling an asset in an orderly disposal
- 39Settlement value :Undiscounted amounts of cash or cash equvialents expected to be paidd to satisfyt the liabilites in the nroaml course of business
- 40Present Value.A current estimate of the present discounted value of the future net cash flows in the normal course of business
- 41REGULATORY FRAMEWORK principles-based system worksA principles-based system works within a set of laid down principles.
- 42rules-based systemregulated for issues as they arise. Both of these advantage and disadvantages.
- 43IFRS Pros(A) Business can present its financial statements on the same basis as its foreign competitors making comparison easier
(B) Cross-border listing will be facilitated making it easier to raise capital abord
( C ) Companies with foregin subsisdaries will have a common company wide accounting language
( D) Foregin companies which are targets for takeovers or mergers can be easily appraised - 44IFRS ConsCost of implementing IFRS
Lower level of detail in IFRS - 45International harmonisation ProsInvestors would be able to compare financial results as well as making national investment decisions
Multinational companies would from harmonisation for many reasons.
Government coould save and time and money if they could adopt international standards and if these used internally,
Tax authorities. It will be easier to calculate the tax liability of investors including multinationals who receive income from overseas sources - 46International harmonisation Pros 2Regional economic groups usually promote trade within a specific geographical region
Large international accounting firms would benefit as accounting and auditing would be much easier. - 47Cons to harmonisationDifference purposes. legal system and user groups
Unwilling to accept other country standards
Lack of strong accountancy bodies - 48All listed entitles in member states have been required to use IFRS in their consolidated financial statements since 20xxAll listed entitles in member states have been required to use IFRS in their consolidated financial statements since 2005.
- 49Setting IFRS Step 1Step 1 Advisory Committee
- 50Step 2Discussion Papers
- 51Step 3Developing an Exposure Draft
- 52Step 4Final International Reporting Standard
- 53National standard setters Step 1National standard setters would co ordinate their work plans so that when the IASB start a paroject national standard setter would also add it to their own work places so they can plau a full part in devleoping international consensus
- 54These people will be required to vote fort he IASB preferred solutionFALSE
Natioanl standard setters would not be required to vote for the IASB preferred solution in their national standardss since each country remains free to adopt IASB standards will amendemens or to adopt other standard. - 55IASB would continue to....publis its own Exposure Drafts and other documents for public comment
- 56National standard setters would publish their own exposure document at approximately the same time as IASBNational standard setters would publish their own exposure document at approximately the same time as IASB
- 57National standard setters would folow their own full due process which they would ideally choose to integrate with the IASB due process. This would avoid uncessary delas in completing stds and would minimise any differencesNational standard setters would folow their own full due process which they would ideally choose to integrate with the IASB due process. This would avoid uncessary delas in completing stds and would minimise any differences
- 58X of the fulltime members of IASB have formal liasion resposnbilities with national std setters7 of the fulltime members of IASB have formal liasion resposnbilities with national std setters
- 59Interpretation of IFRS 1Interpret the application of IFRS and provide timely guidance on finacnial reporting issues not specifically addressed in IFRs or IASs
- 60IFRS 2To have regard to the Boards’s objective of workign actively with national standard ssetters to bring about convergence of national accoutning std and IFRS to high quality solution
- 61IFRS 3To review on a tiumely basis any new identified finacnial reporting issues not address in exitign IFRSs
- 62Favour of accounting standards the following pointsReduce confusion variations in methods
Focal point for debate
Oblige companies to disclose accounting policies used in the preparation of accountings
Less rigid alternative to enforcing conformity
Disclose more accounting information. - 63Against standardisation and in favour of choice.Inappropriate in some circumstances
Lobbying or government pressure
Conceptual framework of accounting
Trend towards rigidity. - 64IASB is dominated by theUS
- 65ACCOUNTING FOR INFLATION Historical cost accounting AdvantagesAmounts used are objective and free from bias
Amounts are reliable they can always be verified, they exist on invoices and documents
Amount in the statement of financial position can be matched perfectly with amounts in the statement of cash flows.
Opportunites for creative accoutning are less tha nunder systems which allow managfement to apply their judgement to the valuation of assets
It has been used for centureis and is easily undrstood - 66DisadvantagesIt can lead to understatement of assets in sofp.
Depreication will be understated
When inventory prices are rising and when the company is operating a FIFO system, the cheapest inventories are being charged to costs of sales and the most expensive are being designated as closing inventory in the statement of financial position.
An organisation selling in an inflationary market will see its revenue and profits rise but this is paper profit distorted by understated depreication and costs of sales - 67The disadvantages lead toDepressa company share price and makes it vulunerable to take over
Leave to overstated profit, which lead sto too much being distributed to shareholdrs.
Shareholders will expected higher dividends and higher rwaged.
Overstated profits lead to overstated tax bill - 68Current value of accountingRevalue non current assets in line with market value.
Assets and liabilities at FAIR VALUE
Inventories : Current replacement cost OR NRV - 69Capital :Under a financial concept of capital, such as invested money or invested purchasing power capital is the net asset or equity of the entity.
- 70physical concept of capitalUnder physical concept of capital such as operating capability capital is the productive capacity of the enity based on units per day
- 71Profit :Residual amount after expenses
- 72Financial capital maintenance:Profit is the increase in nominal money capital over the period: CPP
- 73Physical capital maintenaceProfit is the increase in the phsyical productivity capacityy over the period.
- 74Current purchasing poweris a method accounting for general inflation. It does so by express asset values in a stable monetary unit the $ of current purchasing power.
ASSUMES THAT MONEY VALUES ARE STABLE
ASSUMES THAT MONEY VALUES ARE STABLE - 75WHEN PRICE ARE RISING£1 START = £0.8 AS END
WHEN PRICES RICES CURRENT VLAUE OF ASSETS WILL ALSO RISE - 76Specific price influence:Measure prices changes over time for a specific asset or a group of asset
- 77General price inflation:: Average rate of inflation, which reduces the general purchasing power of money
- 78Revenue after index :Revenue *(Index on at EoY/ Index at date of sale)
- 79Cost of goods soldCoGs*(Index on Eoy/Index when index is boughted
- 80Holding cash:(Revenue after index) – Revenue
- 81Payables :credit inventory*(Index on at EoY/Time it was booughted on credited)) - Credit inventory
- 82Advantages:STable money value provides meaningful basis of comaprison
Profit is measure in real terms and excludes inflationary value increments
Avoids the subjective vlaluations of current value accounting
Provide a stable monetary unit
Raw data is easily verified - 83Disadvantage :Not clear what £c means
Approximations involved
Less meaning than current valuate statemnt of financial postion - 84Current cost accountingCCA is based on a physical concept of capital maintenance. Profits is recognised after the operation capability of the business has been maintained.
- 85Deprival value of an assetis the less which a business entity would suffer if it were deprived of the use of the asset
- 86CCA deprival value is nearly always ............................CCA deprival value is nearly always replacement cost
- 87Deprival value is lower ofNet replacement cost
Higher or net realisable value and economic value - 88Why would an asset not be replaced?Assets is not worth replacing because the asset is technologically obsolete and has been supersded by more modern equipment or
Because the business is chanigng the nature of its oprations and will not want to continue in the same line of business one the asset has been used up - 89AdvantagesReduce the operation capability
Opportunity cost considered
Relevant to the needs of information users in:
Stability of business enetiy,Vulnerability of business or liquidity, Evaluating the performance of management, Judging future prospects, Implemented fairly easily - 90DisadvantagesImpossible to make valualtiosn of EV or NRV without subjective judgements
Estiamte of replacement costs for non current assets
Total assets will have aggregate value which his not menaingful
Depreival value is an unrealistic concept. - 91NET REALIZABLE VALUEAmount that could be obtained - Cost of disposal
- 92Recousethe legal right to demand compensation or payment
- 93Under current cost accouting goods are sold toReplacement cost
- 94—
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- Flashcards on Part A , created by D A on 07/04/2019.
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