Session 1 (P2)

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Questions and Answers

What is a key difference between French GAAP and IFRS regarding the concept of conservatism?

French GAAP employs historical cost while IFRS does not prioritize historical cost. (correct)

French GAAP is based on fair value, while IFRS emphasizes historical cost.

IFRS is strictly based on historical cost and does not allow fair value.

Both French GAAP and IFRS adopt a similar approach to conservatism.

Which of the following is true regarding the regulatory requirements for financial statements in France?

All non-listed companies in France are required to disclose their financial statements in accordance with IFRS.

Only listed companies must comply with IFRS for their consolidated financial statements.

All companies in France can choose between IFRS or US GAAP for their individual financial statements.

Individual financial statements must comply with French GAAP, while consolidated statements for listed groups must comply with IFRS. (correct)

How do IFRS and French GAAP differ in their approach to accounting’s mission?

French GAAP is designed for historical data while IFRS is more concerned with future projections.

Both frameworks prioritize providing financial information to stakeholders over historical tracking.

GAAP focuses on being the historical narrative of a company while IFRS emphasizes financial markets.

IFRS aims to provide information to the financial markets, whereas GAAP serves as a historical record of the company. (correct)

What principle is unique to IFRS in comparison to French GAAP?

Incorporation of fair value measurements. Signup and view all the answers

Which entity is responsible for issuing standards for IFRS?

International Accounting Standards Board (IASB) Signup and view all the answers

Which statement accurately describes the primary role of financial accounting?

To provide historical financial information for decision-making. Signup and view all the answers

Which of the following best differentiates GAAP from IFRS?

IFRS requires comprehensive disclosure compared to GAAP. Signup and view all the answers

What is the basis of accrual accounting?

Transactions are recognized when they occur, regardless of cash flow. Signup and view all the answers

Which of the following is a primary objective of preparing consolidated financial statements?

To reflect the financial results of a group of companies as a single entity. Signup and view all the answers

Which principle is fundamental to all accounting practices?

All of these principles are fundamental. Signup and view all the answers

What governs accounting regulations in France?

French Accounting Standards and the Plan Comptable Général (PCG). Signup and view all the answers

What is one of the basic functions of financial accounting?

Interpretation and recording of financial data. Signup and view all the answers

Which financial statement reflects a company’s financial position at a specific point in time?

Balance Sheet. Signup and view all the answers

What is a key feature of accrual based accounting?

It records revenue and expenses as they occur. Signup and view all the answers

Which of the following best describes the principle of separate economic entity?

The company is regarded as a distinct entity from its owners. Signup and view all the answers

Which accounting principle anticipates potential losses while not recognizing potential gains?

Principle of conservatism Signup and view all the answers

What does the historical cost principle state regarding asset valuation?

Assets are recorded at their acquisition cost. Signup and view all the answers

During which accounting period are revenues and expenses recognized according to the matching principle?

In the period when the transactions occur. Signup and view all the answers

According to the conservative accounting principle, how should companies treat potential gains and losses?

Losses should be anticipated while gains are not recognized. Signup and view all the answers

What is a primary requirement for companies regarding the publication of financial statements?

Annual reports must be published and filed for listed companies. Signup and view all the answers

What distinguishes accrual based accounting from cash basis accounting?

Accrual accounting recognizes impacts when revenues and expenses occur. Signup and view all the answers

What type of decision makers primarily use management accounting?

Internal decision makers Signup and view all the answers

Which of the following is a primary financial information provided to creditors?

Cash flows Signup and view all the answers

What is one key focus of financial accounting based on the accounting process described?

Summary financial statements Signup and view all the answers

What type of information is NOT typically provided to government authorities by businesses?

Cash flows Signup and view all the answers

Which aspect differentiates financial accounting from management accounting?

External vs internal focus Signup and view all the answers

What is the primary difference in the mission of accounting between French GAAP and IFRS?

French GAAP serves as a memory of the company, while IFRS aims for market transparency. Signup and view all the answers

Which accounting standards must consolidated financial statements of listed groups on European Stock Exchanges comply with?

IFRS Signup and view all the answers

What is a requirement for individual financial statements of companies in France?

They must publish according to the French GAAP. Signup and view all the answers

Which of the following principles is unique to IFRS when comparing it to French GAAP?

Fair value measurement Signup and view all the answers

What choice do consolidated statements of non-listed groups in France have regarding accounting principles?

They may choose to comply with IFRS or French GAAP. Signup and view all the answers

What is the primary purpose of financial accounting?

To present financial statements reflecting the entity's financial situation Signup and view all the answers

Which of the following is included in the basic functions of financial accounting?

Classifying financial data Signup and view all the answers

Which part of the course focuses on the preparation of a financial statement that shows the profitability of the entity?

Part 3: Preparing an Income Statement Signup and view all the answers

What is the assessment method for this course?

100% final exam consisting of MCQs, open questions, and exercises Signup and view all the answers

Who is the course responsible for this accounting information course?

Dr. Anouar Kahloul Signup and view all the answers

What does the organization system in accounting primarily facilitate?

Recording and presenting financial statements Signup and view all the answers

Which of these stakeholders is specifically mentioned as a key audience for accounting information?

Shareholders Signup and view all the answers

Which statement correctly describes the function of closing entries in accounting?

They summarize the financial data for the period Signup and view all the answers

What does the balance sheet primarily show?

The company's financial position at a specific date Signup and view all the answers

What does an income statement describe?

Revenues and expenses over a designated period Signup and view all the answers

Which financial statement helps to explain irregularities in financial figures?

Note disclosures Signup and view all the answers

What does the statement of cash flows primarily detail?

The sources and uses of cash during a specific period Signup and view all the answers

How do revenues impact owner's equity according to the income statement?

They increase owner's equity Signup and view all the answers

What is the purpose of notes in financial statements?

To provide additional context and explanations Signup and view all the answers

What is the equation for determining income on the income statement?

Income = Revenues - Expenses Signup and view all the answers

Which financial statement provides a snapshot of a company’s financial health at one point in time?

Balance sheet Signup and view all the answers

What is the primary focus of accrual-based accounting?

Recognizes the impact of transactions based on when revenues and expenses occur Signup and view all the answers

Which principle requires companies to prepare accounts with caution and verify high levels of uncertainty?

Conservatism principle Signup and view all the answers

Under the principle of separate economic entity, which statement is true?

The company operates independently of its owners and economic partners Signup and view all the answers

What does the principle of historical cost stipulate regarding asset valuation?

Assets are recorded based on their acquisition or production cost Signup and view all the answers

What is the purpose of the matching principle in accounting?

To assign revenues and expenses to the accounting period in which they occur Signup and view all the answers

Which statement about the principle of separate accounting periods is correct?

The company’s activities must be divided into successive periods for reporting Signup and view all the answers

What distinguishes accrual accounting from cash basis accounting?

Accrual accounting recognizes revenues when earned and expenses when incurred Signup and view all the answers

When should potential losses be recorded according to the conservatism principle?

When probable and can be reasonably estimated Signup and view all the answers

Study Notes

Course Details

Course Title: 4H1CIC - Understanding accounting information and data
Academic Year: 2024-2025
Course Instructor: Dr. Anouar Kahlolul, Associate Professor - emlyon
Contact Email: [email protected]

Course Modalities

Total Contact Hours: 12 hours
Number of parts: 4
Assessment: 100% final exam (multiple choice questions, open-ended questions, exercises)
In-class activities: Lectures and exercises
Out-of-class activities: Reading, replicating in-class exercises, practicing with suggested exercises

Course Objectives

Develop the student's ability to understand and use accounting information
Enable students to make economic decisions
Equip students in communicating with company stakeholders (investors, shareholders, suppliers, customers, banks, tax authorities)

Bibliography

Stolowy, Hervé, and Ding Yuan (2017 or later editions). Financial Accounting and Reporting: A Global Perspective (Part 1 only)
Link to the book: https://library.em-lyon.com/Default/doc/SYRACUSE/543377/financial-accounting-and-reporting-a-global-perspect -ive-herve-stolowy-yuan-ding-luc-paugam

Pedagogical Team

Course Responsible: Anouar Kahlolul
Teachers:
- Edwige Nortier: [email protected]
- Xavier Neyrand: [email protected]
- Ines Gaddour: [email protected]
- Yan Bertrand: [email protected]
Department Instructor: Thomas Delpech: [email protected]

Course Summary

Part 1: Introduction to Financial Accounting
Part 2: Preparing a Balance Sheet
Part 3: Preparing an Income Statement
Part 4: Closing entries

Financial Accounting - Definitions

Accounting is a system to record, classify, and present basic data in financial statements, reflecting the financial position and performance of a company at a specific date. (PCG - Article 121-1)

Basic Accounting Functions

Interpret and record
Classify
Summarize and communicate

Users of Financial Information, and Information Provided

Users: Investors, Creditors, Managers, Owners, Customers, Employees, Competitors, Government authorities
Information Provided: Profitability, Financial position, Cash flows, Performance evaluations, Stock investments, Tax strategies, Labor relations, Resource allocations, Investing, Borrowing

Financial vs. Management Accounting

Financial Accounting: Used by external decision-makers, uses strict methods, mandatory, regulated by accounting standards
Management Accounting: Used by internal decision-makers, free choice of methods, not regulated

The Accounting Process

An information system that records financial transactions based on supporting documents and follows accounting principles to generate summarized financial statements, reviewed by auditors

Information Asymmetry

A framework showing the relationship between directors, shareholders, and auditors in financial statements

Accounting Standards

GAAP (Generally Accepted Accounting Principles)
Examples of GAAP: French GAAP (PCG), International GAAP (IFRS), US GAAP (FASB)

Divergent Conceptions of Accounting - French GAAP vs. IFRS

French GAAP: Focus on reflecting the company's memory, using conservatism and historical cost, monetary and nominalism, connection between taxation and accounting
IFRS: focuses on providing information to markets, using fair value, and actualization. IFRS is stateless and independent from legal and tax constraints

Accounting Regulation in France

Individual financial statements for all French companies must comply with French GAAP (PGC, Plan Comptable Général)
Consolidated statements for listed groups on European stock exchanges must comply with IFRS
Consolidated statements for non-listed companies can choose between IFRS and French GAAP

Main Accounting Principles

Accrual-based accounting
Separate economic entity/Going concern
Conservatism/Prudence
Historical cost
Separate accounting periods

Accrual-based Accounting

Recognizes the impact of transactions in financial statements based on the time period revenues and expenses occur
All companies, French and international GAAP use this approach
Opposite to the cash-basis approach.

The Principles of Separate Economic Entity and Ongoing Concern

The company is separate from its owners and its economic partners
The accounts are prepared, assuming continues operation of the company in future

The Principle of Prudence (Conservatism)

Company accounts are prepared with caution, high degrees of verification, and yield to asymmetric treatment of uncertainty.
Anticipating probable losses
Do not recognize potential gains until certain

Measurement - Historical Cost

Assets are recorded at their acquisition or production cost.
Modifications in value (reductions/impairments) may occur during the accounting period

The Principle of Separate Accounting Periods

The company's life is divided into successive accounting periods (years), and the financial data resulting from these periods needs to be assigned to each period.
Matching revenues and expenses to the period in which they occur provides better financial statements

Examples

Look for the financial statements of L'Oreal as of 31 December 2023.
Annual reports are mandatory for listed companies, easy to find, and a key communication tool to other stakeholders.
Annual reports contain the financial statements of the parent company and consolidated financial statements of affiliates

Financial Statements

Balance Sheet: Statement of financial position
Income Statement: Activity Statement
Statement of Cash Flows: Details company's cash sources and use
Statement of Changes in Equity: Shows equity changes (opening equity + Share Capital Increase(Decrease) + Profits(Loss) - Dividends

Goal of the Financial Statements

Balance sheet - Summary of financial situation
Income statement - Summary of profitability
Statement of Cash Flow - Summary of cash situation.

Studying That Suits You

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Description

This quiz assesses your understanding of accounting principles as outlined in the course '4H1CIC - Understanding Accounting Information and Data'. You'll encounter multiple-choice questions, open-ended questions, and exercises to evaluate your ability to apply accounting information for economic decision-making. Prepare to communicate effectively with stakeholders based on your knowledge from the course material.