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Business and Technology > 7. Accountancy, Accounts and Auditors > Flashcards

7. Accountancy, Accounts and Auditors Flashcards

1
Q

What is the range of influence of the accounting profession?

A
  • Financial accounting
  • Auditing
  • Management accounting
  • Consulting
  • Taxation
  • Government
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2
Q

What are the fundamental principles of the ACCA Code of Ethics and Conduct?

A
  • Integrity
  • Objectivity
  • Professional competence and due care
  • Confidentiality
  • Professional behaviour
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3
Q

Who are the potential users of accounting information?

A
  • Managers
  • Shareholders
  • Suppliers and customers
  • Providers of finance
  • Tax authorities (Inland Revenue)
  • Employees
  • Financial analysts and advisers
  • Government
  • Public
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4
Q

What are some traits of management accounts?

A
  • Internal
  • Can be in any format
  • Looks forward (setting budgets) and backward (performance to date)
  • May contain non-routine special reports
  • Form and content not governed by statute
  • Not subject to audit or any independent checks
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5
Q

What are variances?

A

The difference between budget and actual result.

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6
Q

What are some traits of financial accounts?

A
  • Published
  • Typically for members or shareholders of the company
  • Format and content regulated by statute
  • Look backwards
  • Routine (usually annual)
  • Often subject to audit
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7
Q

What do financial statements consist of?

A
  • Statement of financial position
  • Statement of profit or loss
  • Statement of cash flows
  • Notes to the financial statements
  • Statement of changes in equity
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8
Q

What is the aim of external audit?

A

To ensure the financial statements are true and fair

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9
Q

What are the consequences of failing to file annual accounts?

A
  • This is a criminal offense
  • Director may be fined personally
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10
Q

What do the financial statements comprise of?

A
  • Statement of profit or loss
  • Statement of financial position
  • Cash flow statement
  • Notes to these documents
  • Statement of reserves
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11
Q

What is another role of auditors?

A
  • Examine the system of internal control
  • Report to management about the company’s accounting procedures
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12
Q

What do auditors NOT do?

A
  • Prepare financial statements (management does this)
  • Check every transaction (look at a sample instead)
  • Guarantee the financial statements are correct
  • Specifically look for fraud
  • Give guidance as to whether the company is good to invest in
  • Establish the system of internal control
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13
Q

How are financial statements regulated in the UK?

A

Via:
- Company law
- Accounting standards
- Auditing standards
- IESBA
- Financial Reporting Review Panel
- Public Interest Oversight Board
- EU Law
- GAAP

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14
Q

What does IESBA stand for?

A

International Ethical Standards Board for Accountants

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15
Q

What does GAAP stand for?

A

Generally Accepted Accounting Practice (UK)
or
Generally Accepted Accounting Principles (rest of world)

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16
Q

What does IFRSs stand for?

A

International Financial Reporting Standards

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17
Q

Who issues IFRSs?

A

The IASB

18
Q

What does IFAC stand for?

A

International Federation of Accountants

19
Q

What is the IAASB a subcommittee of?

A

The IFAC

20
Q

What does IAASB stand for?

A

International Auditing and Assurance Standards Board

21
Q

What is the role of accounting standards?

A

To provide detailed regulations about disclosure and presentation of accounts.

Established by
- Financial Reporting Council (UK)
- IASB (International)

22
Q

What is the role of Auditing standards?

A

Set out how audits should be conducted and how audit evidence should be obtained
- Governed by IFAC and it’s subcommittee: IAASB

23
Q

What is the role of the Financial Reporting Review Panel?

A

To examine and question why a deviation from financial reporting standards have taken place.

May conclude the deviation is justified, but this is relatively rare.

24
Q

What is the role of the Public Interest Oversight Board?

A
  • Oversees IFAC
  • Concentrates on audit, education and ethics
  • Widens range of opinions taken into account when formulating accounting and Auditing standards
25
Q

What is GAAP?

A

A common set of accounting principles, standards and procedures companies use to compile financial statements.

  • Combination of statute, accounting standards, international accounting standards, stock exchange rules and convention.
  • Provides consistency between financial statements for investors
26
Q

What is the role of internal audit?

A

To provide independent assurance that an organisation’s risk management, governance and internal control processes are operating effectively.

27
Q

What are internal auditors independent from?

A

Company’s operations, in particular the accounting operations

28
Q

What should internal auditors have access to?

A

The board, usually through the audit committee

29
Q

Are internal auditors responsible for the opinion expressed in the audit report attached to financial statements?

A

No, the external auditor is solely responsible for this

30
Q

Who are internal auditors appointed by?

A

Management

31
Q

Who are external auditors appointed by?

A

Shareholders (members)

32
Q

Who do internal auditors report to?

A

Management

33
Q

Who do external auditors report to?

A

Shareholders (members)

34
Q

Who are internal auditors employed by?

A

The company

35
Q

Who are external auditors employed by?

A

An independent firm, separate from the company being audited

36
Q

What is the scope of work for an internal audit?

A
  • Potentially very wide
  • Whatever is required by management
  • Often to assess the operation of the company’s internal control
  • Sometimes look into fraud or a departments value for money
37
Q

What is the scope of work for an external audit?

A

To report on whether the financial statements show a true and fair view

38
Q

Who are the internal auditors work governed by?

A

Company’s management

39
Q

Who are the external auditors work governed by?

A
  • The law
  • Auditing and accounting standards
40
Q

What do external auditors have a legal right to?

A

To see all company documents they require and to receive all explanations they ask for.

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