Accounting Chapter 13: Regulatory Framework

Accounting standards issued by the Accounting Standards Board (ASB).

A specific category of accounting standards for smaller businesses, issued by the ASB in 1997.

Accounting standards issued by the International Accounting Standards Board (IASB) to harmonize worldwide standards.

The organization that creates/issues IFRS (International Financial Reporting Standards).

The requirement for financial statements to accurately reflect the financial position of a company (international basis).

The requirement for financial statements to accurately reflect the financial position of a company (US standards).

Organization responsible for creating and issuing accounting standards in a specific region (e.g., before IASB/IFRS).

Broad assumptions forming the basis of financial accounting.

ASB document outlining objectives and qualitative characteristics of financial statements.

Requirement for companies to follow IFRS's (International Financial Reporting Standards).

Specific principles, bases, conventions, rules, and practices used by an entity to prepare financial statements.

Sets out the principles for preparing and presenting financial statements to give a true and fair view.

Provide information about an entity's financial performance and position enabling users to assess management and make economic decisions.

Identifies whether an entity (single or group) should prepare and publish financial statements.

Four characteristics used to ensure high-quality financial reporting: relevance, reliability, comparability, and understandability.

Financial information is useful for making economic decisions.

Financial information is trustworthy and reflects the substance of transactions.

Financial information should be presented so it can be compared to other periods and similar entities.

Financial information is easily comprehensible to users.

Assets, liabilities, ownerships interests, gains, and losses.

Rules and guidelines that govern how companies prepare and present their financial statements.

Business structures where owners have limited personal liability for company debts. They are subject to accounting regulations.

Rules issued by the European Union to harmonize financial reporting practices among its member states.

Rules set by stock exchanges for companies seeking to be publicly traded. They include financial reporting obligations.

To reduce subjectivity in financial reporting, ensuring consistency and comparability across companies.

To ensure financial reports are: accurate, relevant, objective, and comparable for external users.

A committee formed to create and issue accounting standards in an effort to reduce subjectivity and inconsistency.

A series of accounting standards issued by the ASC to address various accounting issues.

An organization responsible for developing and issuing accounting standards, often in collaboration with other international bodies.

Adjusting the value of an asset or liability in financial statements when sufficient evidence shows a change in its monetary value and the new value can be reliably measured.

Presenting financial performance information by focusing on its components and their characteristics, such as revenue, expenses, and profits.

Financial statement presentation should clearly show types and functions of assets and liabilities held, and their relationships.

Presenting cash flow information in a way that distinguishes between cash flows from operating activities and other activities like investing or financing.

Accounting rules for how a company should present its investments in other companies, such as subsidiaries, associates, and joint ventures.

This standard sets out the rules for selecting, applying, and disclosing accounting policies. It ensures appropriate policies are used and reviewed regularly, and sufficient information is provided to users of financial statements.

Any significant item or transaction that could influence financial statement users' decisions and needs to be recognized, measured, and disclosed.

Choosing the appropriate method to measure items in financial statements, such as historical cost or fair value.

A change in accounting policy is a significant change in how an item is recorded and reported, while a change in estimate is an adjustment based on new information, not a systemic change in the accounting method itself.

Two key accounting principles highlighted by FRS 18: accruals recognize revenues and expenses when they are earned/incurred regardless of cash flow, and going concern assumes the business will continue operating in the foreseeable future.

A set of rules and principles that govern how financial transactions are recorded and reported. They aim to reduce subjectivity and make accounting information more consistent and comparable across companies.

The International Accounting Standards Board is an independent organization that sets global accounting standards. Its aim is to create high-quality, internationally recognized accounting standards for companies.

To ensure financial reports are: accurate, relevant, objective, and comparable for external users. This ensures that the information is trustworthy and useful for making informed decisions.

A requirement in the Companies Act for financial statements to accurately and completely reflect a company's financial position.

The Accounting Standards Board, which replaced the Accounting Standards Committee (ASC) in 1990 and issued accounting standards called Financial Reporting Standards (FRS).

The International Accounting Standards Board, a global organization that develops and issues International Financial Reporting Standards (IFRS).

International Financial Reporting Standards, a set of accounting standards that replace the earlier International Accounting Standards (IAS).

A concept in accounting that states that a business is considered separate from its owners and is treated as an independent entity.

A concept that states every transaction affects at least two accounts, with one account increasing and the other decreasing by the same amount.

This concept states that only transactions that can be expressed in monetary terms are recorded in the financial statements.

This concept states that revenue is recognized when it is earned, not when cash is received.

This concept states that assets are recorded at their original purchase price, regardless of any changes in their market value.

This concept assumes that a business will continue to operate in the foreseeable future, not be liquidated.

Financial information is useful for making economic decisions.

Financial information is trustworthy and reflects the substance of transactions.

Financial information should be presented so it can be compared to other periods and similar entities.

Financial information is easily comprehensible to users.

Focuses on what is required to recognize a transaction that creates or increases assets and liabilities, gains and losses.

Adjusting the value of an asset or liability in financial statements when there's sufficient evidence of a change in its monetary value and the new value can be measured reliably.

Clearly showing the types and functions of assets and liabilities a company has, and how they are related.

A significant item or transaction in financial statements that could influence decision-making by users.

A significant change in how an item is recorded and reported in financial statements.

A business owned and run by one person, where the owner has unlimited liability for all debts.

A business formed by two or more individuals who share profits and losses, and have unlimited liability.

A legal entity where owners have limited liability for company debts, meaning their personal assets are protected.

Simple and easy to set up, minimal legal controls, privacy, and no need to publish financial statements.

Unlimited liability for debts (personal assets at risk), financing may be difficult, higher taxes.

A legal document that outlines the terms of a partnership, including profit sharing, responsibilities, and dispute resolution.

Shared expertise and resources, potential for greater financial capacity, and more flexibility than larger companies.

Unlimited liability for all partners, potential for disagreements, and difficulty in exiting the partnership.

A type of company that can raise capital by issuing shares to the public and is listed on a stock exchange. It has limited liability, meaning shareholders' personal assets are protected.

Benefits include limited liability for investors, easier access to capital, continuity despite ownership changes, and taxation at corporate rates.

In a partnership, each partner is personally liable for the full amount of the partnership's debts, even if they were not directly involved in incurring those debts.

Drawbacks include increased regulation, restrictions on withdrawing funds, and a lack of privacy as financial details are disclosed.

A legal document for a company that defines its purpose, its name, registered office, and the authorized share capital.

A type of company where members guarantee payment of debts up to a certain limit if the company goes bankrupt. Commonly used by non-profit organizations.

A legal document for a company that sets out the internal rules and regulations governing its operations, including shareholder rights and director responsibilities.

A company where members have unlimited personal liability for the company's debts, meaning their personal assets are at risk.

The total amount of money invested in a company by its shareholders, represented by the shares they own.

A document issued by the Registrar of Companies that allows a public limited company to begin trading its shares on the stock exchange.

A legal document issued by the Registrar of Companies, signifying that a company has been officially registered and is legally authorized to operate.

Financial statements that are reviewed by an independent auditor to verify their accuracy and compliance with accounting standards.

A characteristic of a company, meaning it can continue to exist indefinitely, even if ownership changes.

Financial statements of public limited companies that are made available to the public through online searches with the Registrar of Companies.

Shares in a company that can be bought, sold, or traded freely in the market, allowing for easy transfer of ownership.

Public limited companies can raise capital by issuing shares and loan notes publicly. This offers more options than private companies.

The process of creating a company, involving legal procedures, document filings, and registration with the Registrar of Companies.

A legal document that outlines the terms of a partnership, including profit sharing, responsibilities, and dispute resolution.

A type of partnership where each partner contributes capital and has full liability for all debts of the partnership.

A partnership where there's at least one general partner with full liability and one or more limited partners with liability limited to their investment.

Partners have a blend of skills and expertise, greater access to capital, and less legal restrictions compared to corporations.

Limited partners in a limited partnership cannot actively participate in managing the business.

Limited partners have limited liability, meaning their personal assets are safe from business debt.

General partners have full liability for the partnership's debts, while limited partners' liability is limited to their investment.

The primary difference lies in the liability of the partners. General partners have unlimited liability, while limited partners' liability is limited to their capital contribution.

Specific records a limited company must keep by law, documenting information like shareholder details, director interests, and meeting minutes

A mandatory meeting for shareholders of a limited company held once a year, where they review financial statements, vote on directors, and decide on dividends

A not-for-profit organization owned and controlled by its members, who benefit from its services or products

A not-for-profit organization that helps others by providing services, funds, or advocacy, and is exempt from some taxes

Benefits include combined expertise, easier access to funding, and less legal red tape compared to corporations.

Benefits include limited liability for investors (their personal assets are safe), which attracts more people to invest.

The main difference is liability. General partners have full responsibility for debts, while limited partners only risk their investment.

General partners are fully responsible for all debts, while limited partners' liability is limited to their investment.

A company that can raise capital by issuing shares to the public and is listed on a stock exchange. It has limited liability, meaning shareholders' personal assets are protected.

A PLC has several advantages, including limited liability for investors, easier access to capital, continuity despite ownership changes, and taxation at corporate rates.

While a PLC has advantages, it comes with some disadvantages, including increased regulation, restrictions on withdrawing funds, and a lack of privacy as financial details are disclosed.

A type of company where members guarantee payment of debts up to a certain limit if the company goes bankrupt. Commonly used by non-profit organizations.

A company structure where members have unlimited personal liability for the company's debts, meaning their personal assets are at risk.

A company with between two and fifty shareholders (minimum of two), with restricted transfer of shares and no public fundraising. It offers limited liability for its owners.

A clause in a company's Memorandum of Association stating that shareholders are only liable for the amount they invested in the company, protecting their personal assets.

The maximum amount of money a company can raise by issuing shares. It's a limit set in the company's Memorandum of Association.

A private company has limited shareholders, restricted share transfer, and no public fundraising, while a public company has a minimum of seven shareholders, freely transferable shares, and can raise capital publicly. Private companies are typically smaller and family-owned, while public companies are larger and open to public investment.

Limited liability means shareholders are only responsible for the amount they invested in the company. This protects their personal assets from any company debts or losses.

The Memorandum of Association acts as a foundational document for a company, defining its core identity and purpose. It includes crucial details such as the company's name, registered office, authorized share capital, and objectives.

The Articles of Association govern the internal workings of a company, outlining rules for shareholder rights, director responsibilities, and procedures for meetings and decision-making. It forms a kind of 'constitution' for the company.

A legal protection where a company's owners are only responsible for the amount they invested. Their personal assets are safe from business debts.