1. Introduction to Financial Accounting

Question 1

What is Financial reporting?

Answer 1

Way of recording, analysing and summarising financial data

Question 2

Why do we need financial statements?

Answer 2

National laws, Bank, Tax authories, IASB, employee reports

Question 3

Users of financial statements

Answer 3

Managers
Shareholder
Trade contracts
Finacial providers
Tax authorities
Employees
Gov
Public
Competitors

Question 4

What is goverance?

Answer 4

System of rules, practices and processes by which a firm is directed and controlled

Question 5

What are the objectives of Audits?

Answer 5

1. Accurate, prepared under accrual concepts
2. Items exist
3. Presentation is complete

Question 6

What are the types of audits?

Answer 6

• Positive opinion
• Negative opinion

Question 7

Types of positive audits

Answer 7

Unmodified
Unqualified
Clean audit report

Question 8

Types of negative audits

Answer 8

Modified
- Adverse opinion - matters arise that don’t affect auditors opinion
- Qualified audit - matters arise that do affect auditors’ opinion

Question 9

What is an expectation gap?

Answer 9

Gap between auditors’ role and public perception of the role

Question 10

Is fraud and future success part of auditors role

Answer 10

No, that is the managers as auditors only check a sample

Question 11

Auditors should be …

Answer 11

• Independent
• Integrity
• Up to date
• Objective
• Able to defend their work
  they should be registered with the recognised supervisory board

Question 12

What comes under independence for an auditor?

Answer 12

• No links with client (family)
• Should be employed on part-time basis
• No management role
• Auditors should rotate to avoid close relationships
• Shouldn’t accept gifts from clients, unless very small

Question 13

IASB Framework 1

Answer 13

• Going concern - continue in operation for the foreseeable
• Accruals - recognised at transaction not paid

Question 14

IASB Framework 2

Answer 14

• Qualitative characteristics - makes info of financial statements useful for users

Question 15

IASB Framework 3

Answer 15

• Relevance
• Faithful representation - complete, neutral, free from error

Question 16

IASB Framework 4

Answer 16

Enhancing characteristics:
- Comparability
- Verifiability
- Timeliness
- Understandability

Question 17

What are the accounting concepts?

Answer 17

• Business entity - business separate from owners, their equity is business expess
• Fair presentation - Compliance with IFRS achieves this
• Consistency

Question 18

Methods to determine monetary value

Answer 18

• Historical costs
• Current value (fair value, current cost, present value)