Financial Reporting ACCA

Ordinary shares are a type of security that represents ownership in a company.

Owners of ordinary shares have voting rights and receive annual reports.

Debentures are like IOUs issued by companies to lenders.

Debentures typically have a fixed interest rate, meaning the lender receives regular payments.

Preference shares do not give owners the right to vote in company decisions.

In the event of a company being wound up, preference shareholders receive their share before ordinary shareholders.

Preference shares usually pay a fixed dividend, meaning owners receive regular payments.

Preference shares are not issued to existing owners of the company.

Consolidated accounts combine the financial results of all companies within a group.

Consolidated accounts aim to provide greater transparency and understanding of a group's financial position.

Consolidated accounts include the results of all companies within a group, but exclude transactions between those companies.

IFRS (International Financial Reporting Standards) aim to standardize accounting practices globally.

Prudence in accounting means exercising caution when making financial judgments, especially in uncertain situations.

Prudence ensures that assets are not overstated and liabilities are not understated.

Asymmetric prudence refers to the need to record losses sooner than gains, promoting a conservative financial view.

Relevance and faithful representation are the two fundamental qualitative characteristics of financial information.

Faithful representation means that financial information is complete, neutral, and error-free.

Relevant information is capable of influencing users' decisions. It's important for making wise choices.

The Financial Services Authority regulates the UK's stock exchange, enforcing compliance with standards.

The Companies Act requires companies to present financial statements that show a true and fair view of their financial position.

Profitability ratios measure a company's ability to generate profit from its operations.

Efficiency ratios assess a company's effectiveness in managing its working capital components.

Liquidity ratios indicate a company's ability to meet its short-term debts, ensuring enough cash flow.

Gearing ratios reflect a company's leverage, or the use of debt relative to equity.

Investment ratios evaluate the overall performance of the company, considering profitability and growth potential.

When reviewing trends in exams, it's recommended to use at least two years of data for a comprehensive understanding.

A potential limitation of ratio analysis is that financial statements are based on historical cost, which may not reflect current market values.