Podcast
Questions and Answers
What must be established for re-measurement to be recognized?
What must be established for re-measurement to be recognized?
- Only historical costs can be used as the basis.
- There must be sufficient evidence of a change in monetary value. (correct)
- A new accounting policy must be adopted.
- The asset must be revalued every year.
Which aspect should financial performance information focus on?
Which aspect should financial performance information focus on?
- Future projections of cash flows.
- The characteristics and components of the performance. (correct)
- The overall profitability of the company.
- Comparative performance against competitors.
What is required in the presentation of cash flow statements?
What is required in the presentation of cash flow statements?
- Cash flows from all activities should be combined.
- Cash flows should be presented based on the source of funds.
- All cash flows must be reported on an annual basis.
- Operating activities must be distinguished from non-operating activities. (correct)
What does FRS 18 ensure regarding accounting policies?
What does FRS 18 ensure regarding accounting policies?
Which of the following statements about changes in accounting policy is true?
Which of the following statements about changes in accounting policy is true?
How should a change in accounting policy be treated in financial statements?
How should a change in accounting policy be treated in financial statements?
What two concepts does FRS 18 recognize for their impact on financial statements?
What two concepts does FRS 18 recognize for their impact on financial statements?
What is necessary for sufficient disclosure of accounting policies in financial statements?
What is necessary for sufficient disclosure of accounting policies in financial statements?
What distinguishes a change in estimate from a change in accounting policy?
What distinguishes a change in estimate from a change in accounting policy?
What is the primary objective of an accounting regulatory framework?
What is the primary objective of an accounting regulatory framework?
Which entity is primarily responsible for ensuring greater harmony in the presentation of financial statements among member states?
Which entity is primarily responsible for ensuring greater harmony in the presentation of financial statements among member states?
What role does the Financial Reporting Committee (FRC) serve in accounting?
What role does the Financial Reporting Committee (FRC) serve in accounting?
Which legislative framework mandates that limited liability companies present their accounts for public inspection?
Which legislative framework mandates that limited liability companies present their accounts for public inspection?
What is the primary objective of financial statements according to the Statement of Principles for Financial Reporting?
What is the primary objective of financial statements according to the Statement of Principles for Financial Reporting?
What was the purpose of establishing the Accounting Standards Committee (ASC) in 1971?
What was the purpose of establishing the Accounting Standards Committee (ASC) in 1971?
Which of the following are considered qualitative characteristics of financial information?
Which of the following are considered qualitative characteristics of financial information?
Which of the following is a key requirement for publicly traded companies listed on the stock exchange?
Which of the following is a key requirement for publicly traded companies listed on the stock exchange?
What is a significant effect of stricter regulations in financial reporting?
What is a significant effect of stricter regulations in financial reporting?
What measurement basis refers to the original cost at which an asset was acquired?
What measurement basis refers to the original cost at which an asset was acquired?
For what reason should an entity prepare and publish financial statements?
For what reason should an entity prepare and publish financial statements?
Which organization is NOT mentioned as influencing accounting practices and standards?
Which organization is NOT mentioned as influencing accounting practices and standards?
The term 'limited liability companies (LLC)' refers to which type of business entities?
The term 'limited liability companies (LLC)' refers to which type of business entities?
Which characteristic of financial information is concerned with its usefulness for decision-making?
Which characteristic of financial information is concerned with its usefulness for decision-making?
Which of the following is NOT a purpose of accounting standards?
Which of the following is NOT a purpose of accounting standards?
Which of the following elements is NOT considered part of financial statements?
Which of the following elements is NOT considered part of financial statements?
What must occur for a transaction to be recognized in financial statements?
What must occur for a transaction to be recognized in financial statements?
Which of the following statements is true regarding the reporting entity concept?
Which of the following statements is true regarding the reporting entity concept?
What is the focus of the qualitative characteristic known as reliability?
What is the focus of the qualitative characteristic known as reliability?
In financial reporting, what term describes the total claims against the assets of an entity?
In financial reporting, what term describes the total claims against the assets of an entity?
What is the primary objective of financial statements according to the Companies Act?
What is the primary objective of financial statements according to the Companies Act?
Which board was established to harmonize accounting standards worldwide?
Which board was established to harmonize accounting standards worldwide?
What concept underpins the requirement for businesses to prepare financial statements?
What concept underpins the requirement for businesses to prepare financial statements?
Which of the following statements is true regarding the Financial Reporting Standards for Smaller Entities?
Which of the following statements is true regarding the Financial Reporting Standards for Smaller Entities?
According to the accounting standards, what does the term 'going concern' refer to?
According to the accounting standards, what does the term 'going concern' refer to?
Which fundamental accounting concept emphasizes the importance of recognizing and measuring financial information consistently over time?
Which fundamental accounting concept emphasizes the importance of recognizing and measuring financial information consistently over time?
What are International Financial Reporting Standards (IFRS) required for since 2005?
What are International Financial Reporting Standards (IFRS) required for since 2005?
What did the ASB establish in December 1999 that serves as an accounting framework?
What did the ASB establish in December 1999 that serves as an accounting framework?
Which accounting concept requires that financial statements reflect reasonable verifiable estimates and cautiousness?
Which accounting concept requires that financial statements reflect reasonable verifiable estimates and cautiousness?
Which organization replaced the ASC in 1990 and is responsible for issuing the Financial Reporting Standards (FRS)?
Which organization replaced the ASC in 1990 and is responsible for issuing the Financial Reporting Standards (FRS)?
The level of regulation in financial reporting solely affects sole proprietorships.
The level of regulation in financial reporting solely affects sole proprietorships.
The International Accounting Standards Board (IASB) is responsible for issuing accounting standards.
The International Accounting Standards Board (IASB) is responsible for issuing accounting standards.
The Accounting Standards Committee (ASC) issued a total of 30 Statements of Standard Accounting Practices.
The Accounting Standards Committee (ASC) issued a total of 30 Statements of Standard Accounting Practices.
The primary goal of the regulatory framework of accounting is to enhance subjective interpretation of accounting information.
The primary goal of the regulatory framework of accounting is to enhance subjective interpretation of accounting information.
Accounting standards were established to increase the variety in accounting practices.
Accounting standards were established to increase the variety in accounting practices.
Listed companies must adhere to stock exchange listing requirements when preparing financial statements.
Listed companies must adhere to stock exchange listing requirements when preparing financial statements.
The Companies Act requires corporations to submit their financial accounts for public inspection.
The Companies Act requires corporations to submit their financial accounts for public inspection.
The Financial Reporting Committee (FRC) is part of the government regulatory framework.
The Financial Reporting Committee (FRC) is part of the government regulatory framework.
Regulation of business practices in accounting emerged as a response to financial statement misuse in the early 21st century.
Regulation of business practices in accounting emerged as a response to financial statement misuse in the early 21st century.
The European Union (EU) does not influence accounting practices among its member states.
The European Union (EU) does not influence accounting practices among its member states.
The International Accounting Standards Board was established to create a uniform accounting framework only for the United States.
The International Accounting Standards Board was established to create a uniform accounting framework only for the United States.
All private companies in the UK were required to comply with International Financial Reporting Standards starting in 2005.
All private companies in the UK were required to comply with International Financial Reporting Standards starting in 2005.
The Financial Reporting Standards issued by the ASB are specific to large corporations only.
The Financial Reporting Standards issued by the ASB are specific to large corporations only.
The Statement of Principles, published by the ASB, is classified as an official accounting standard.
The Statement of Principles, published by the ASB, is classified as an official accounting standard.
In accounting, the concept of 'substance over legal form' ensures that the legal structure of transactions takes precedence over their economic reality.
In accounting, the concept of 'substance over legal form' ensures that the legal structure of transactions takes precedence over their economic reality.
The Companies Act mandates that financial statements must provide a 'true and fair view' for financial reporting.
The Companies Act mandates that financial statements must provide a 'true and fair view' for financial reporting.
The Accounting Standards Board (ASB) is responsible for enforcing International Financial Reporting Standards in all jurisdictions.
The Accounting Standards Board (ASB) is responsible for enforcing International Financial Reporting Standards in all jurisdictions.
The concept of 'going concern' assumes that a business will continue to operate indefinitely.
The concept of 'going concern' assumes that a business will continue to operate indefinitely.
The four qualitative characteristics of financial information include Relevance, Reliability, Comparability, and Understandability.
The four qualitative characteristics of financial information include Relevance, Reliability, Comparability, and Understandability.
Only listed companies are obligated to comply with the International Financial Reporting Standards (IFRS).
Only listed companies are obligated to comply with the International Financial Reporting Standards (IFRS).
The four fundamental accounting concepts identified by SSAP published in 1971 include revenue recognition and accruals.
The four fundamental accounting concepts identified by SSAP published in 1971 include revenue recognition and accruals.
Ownerships interests is considered one of the key elements of financial statements.
Ownerships interests is considered one of the key elements of financial statements.
Historic cost measurement reflects the market value of an asset at the time it is acquired.
Historic cost measurement reflects the market value of an asset at the time it is acquired.
Financial statements are required to be prepared only if there is public demand for that information.
Financial statements are required to be prepared only if there is public demand for that information.
The Statement of Principles for Financial Reporting was issued in 1998.
The Statement of Principles for Financial Reporting was issued in 1998.
Understanding the qualitative characteristics of financial information is essential for decision-making purposes.
Understanding the qualitative characteristics of financial information is essential for decision-making purposes.
There are a total of 10 chapters in the Statement of Principles for Financial Reporting.
There are a total of 10 chapters in the Statement of Principles for Financial Reporting.
An entity has to prepare and publish financial statements if it operates as a cohesive economic unit.
An entity has to prepare and publish financial statements if it operates as a cohesive economic unit.
Recognition in financial statements focuses exclusively on the profitability of an entity.
Recognition in financial statements focuses exclusively on the profitability of an entity.
The reliability of financial information measures whether it accurately reflects the substance of economic transactions.
The reliability of financial information measures whether it accurately reflects the substance of economic transactions.
Re-measurement can be recognized without sufficient evidence that the monetary value of the asset has changed.
Re-measurement can be recognized without sufficient evidence that the monetary value of the asset has changed.
The presentation of financial statements should only focus on the historic cost of assets and liabilities.
The presentation of financial statements should only focus on the historic cost of assets and liabilities.
FRS 18 ensures that accounting policies are selected with the least appropriate methods for an entity's circumstances.
FRS 18 ensures that accounting policies are selected with the least appropriate methods for an entity's circumstances.
Changes in accounting policy must be disclosed in the financial statements while changes in estimates do not require reporting.
Changes in accounting policy must be disclosed in the financial statements while changes in estimates do not require reporting.
FRS 18 recognizes three concepts that influence the persuasive impact on financial statements.
FRS 18 recognizes three concepts that influence the persuasive impact on financial statements.
Sufficient information about accounting policies must be disclosed to enable users to disregard the implementation methods.
Sufficient information about accounting policies must be disclosed to enable users to disregard the implementation methods.
Loan interest charged to the income statement is an example of a change in estimate.
Loan interest charged to the income statement is an example of a change in estimate.
Financial performance information should focus on the overall income generated rather than its individual components.
Financial performance information should focus on the overall income generated rather than its individual components.
Measurement in the financial statements must enable users to understand the accounting policies adopted and how they are used.
Measurement in the financial statements must enable users to understand the accounting policies adopted and how they are used.
FRS 18 recommends selecting a measurement basis based on either historic or market value as per the materiality of the transaction.
FRS 18 recommends selecting a measurement basis based on either historic or market value as per the materiality of the transaction.
Flashcards
Accounting Regulations
Accounting Regulations
Rules and standards that govern how financial information is reported.
Financial Reporting Framework
Financial Reporting Framework
The system of rules, standards, and principles for preparing financial statements.
Accounting Standards
Accounting Standards
Specific rules and guidelines for preparing financial statements.
Accounting Policies
Accounting Policies
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Statement of Principles (1999)
Statement of Principles (1999)
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Objectives of Financial Statements
Objectives of Financial Statements
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Reporting Entity
Reporting Entity
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Qualitative Characteristics
Qualitative Characteristics
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Elements of Financial Statements
Elements of Financial Statements
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Measurement
Measurement
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Dual Aspect Concept
Dual Aspect Concept
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Going Concern Concept
Going Concern Concept
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Accruals Concept
Accruals Concept
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Prudence Concept
Prudence Concept
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IFRS
IFRS
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IASB
IASB
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FRS
FRS
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ASC
ASC
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Business Entity Concept
Business Entity Concept
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Money Measurement Concept
Money Measurement Concept
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Realisation Concept
Realisation Concept
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Historic Cost Concept
Historic Cost Concept
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Consistency Concept
Consistency Concept
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Materiality Concept
Materiality Concept
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Substance Over Form Concept
Substance Over Form Concept
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Study Notes
Regulatory Framework of Accounting
- Abuse of financial reporting led to stricter regulations.
- Public companies are legally bound to present financial reports.
- Objective of the regulatory framework is to provide objective, comparable, and relevant accounting information for external users.
- Accounting Standards are established to minimize subjectivity in preparing financial statements.
Accounting Standards and Entities
- Accounting Policies are specific principles that a business applies when preparing and presenting financial statements.
- Statement of Principles for Financial Reporting (1999) lays out the principles for preparing financial statements that give a true and fair view.
- The Objectives of Financial Statements are to provide information about the financial performance and position of an enterprise to assess management stewardship and make economic decisions.
- The Reporting Entity identifies two main entities: single entity and group.
- Qualitative Characteristics of Financial Information include relevance, reliability, comparability, and understandability.
- Elements of Financial Statements include assets, liabilities, owners' interests, gains, and losses.
- Measurement involves selecting a basis (historic cost or current value) for each category of asset or liability.
- FRS replaced the ASC.
- International Financial Reporting Standards (IFRSs) replaced International Accounting Standards (IASs) to harmonize standards globally.
Accounting Concepts and Their Role
- Modern accounting relies on concepts that developed over time.
- These concepts are broad assumptions forming the basis of financial accounting.
- Dual aspect concept emphasizes every transaction affecting at least two accounts.
- Going concern concept assumes a business will continue operating indefinitely.
- Accruals concept recognizes revenue and expenses in the period they are earned or incurred, not when cash is received or paid.
- Prudence concept calls for cautious estimation and recognizing losses immediately, but delaying gains.
- The statement of principles (1999) is not an accounting standard but underpins all subsequent standards.
Introduction
- The need for stricter financial reporting regulations arose from the misuse of financial statements in the late 20th century.
- Regulation ensures transparency and accountability for businesses, particularly limited liability companies (LLCs), who are legally obligated to file their accounts with authorities for public inspection.
- Accounting regulatory frameworks aim to ensure that financial information presented is accurate, relevant, objective, and comparable for external users.
Accounting Regulation
- Accounting regulations are established through various bodies and institutions:
- Government: Through legislation like the Companies Act.
- European Union (EU): Issues directives to ensure consistent financial statement presentation.
- Stock Exchanges (BISX): Set listing requirements for publicly traded companies.
- Professional Accounting Bodies: Such as the Financial Reporting Committee (FRC), the International Accounting Standards Board (IASB), and the Financial Accounting Standards Board (FASB).
Accounting Standards
- Accounting standards were introduced to mitigate subjectivity in financial statement preparation.
- Accounting Standards Committee (ASC): Established in 1971, the ASC aimed to reduce variations in accounting practices through issuing 25 Statements of Standard Accounting Practices.
- Accounting Standards Board (ASB): Replaced the ASC in 1990 and issued Financial Reporting Standards (FRS) to promote uniformity.
- Financial Reporting Standards for Smaller Entities: Introduced in 1997 to provide specific guidance for smaller businesses.
International Financial Reporting Standards (IFRS)
- The International Accounting Standards Board (IASB) was established to harmonize accounting standards globally.
- IFRS replaced the earlier International Accounting Standards (IAS).
- Since 2005, all listed companies are required to comply with IFRS, and since 2007, all private companies are required to comply.
Accounting Concepts and Their Role
- The foundation of modern accounting rests upon concepts and conventions that have evolved over time.
- These concepts are underlying assumptions serving as the bedrock of financial accounting.
- Key Accounting Concepts:
- Business Entity Concept
- Dual Aspect Concept
- Money Measurement Concept
- Realization Concept
- Historic Cost Concept
- Going Concern Concept
- Accruals Concept
- Prudence Concept
- Consistency Concept
- Materiality Concept
- Substance over Legal Form Concept
Statement of Principles for Financial Reporting
- The Statement of Principles, issued in 1999, outlines the principles that underpin the preparation and presentation of financial statements, ensuring a true and fair view.
- Key Elements of the Statement:
- Objectives of Financial Statements: Providing information on financial performance and position for decision-making and evaluating management stewardship.
- The Reporting Entity: Identifying reporting requirements for single entities and entities within a group.
- Qualitative Characteristics of Financial Information:
- Relevance
- Reliability
- Comparability
- Understandability
- Elements of Financial Statements:
- Assets
- Liabilities
- Ownerships interests
- Gains
- Losses
- Recognition in Financial Statements: Criteria for recognizing transactions affecting assets, liabilities, gains, and losses.
- Measurement: Methods for valuing transactions, including using historic cost or current value.
- Presentation of Financial Statements: Guidelines for presenting financial information on performance and the composition of assets and liabilities.
- Accounting for Interests in Other Entities: Procedures for presenting interests held in other entities.
FRS 18: Accounting Policies
- FRS 18 addresses the selection, application, and disclosure of accounting policies.
- It ensures that:
- Entities adopt policies appropriate to their circumstances.
- Policies are reviewed regularly to ensure continued applicability.
- Financial statements provide sufficient information for users to understand the policies adopted and their implementation.
FRS 18 Key Points
- All material items must be recognized in the financial statements with a chosen measurement basis (historic or current value).
- Changes in accounting policies require adjustments to financial statements, while changes in estimates or estimation techniques do not.
- FRS 18 prioritizes the accruals and going concern concepts as crucial influences on financial statements.
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Description
This quiz explores the regulatory framework of accounting, including the principles and standards that govern financial reporting. Learn about the importance of accurate reports for public companies and the roles of accounting policies and objectives. Understand how regulations are designed to enhance the reliability and comparability of financial statements.
