A conceptual and regulatory framework Flashcards
(39 cards)
1
Q
What are the influences affecting IFRS Standards?
A
- national company law
- EU directives
- security exchange rules
2
Q
What is the aim of regulation of accounting information?
A
- is aimed at ensuring that users of financial statements receive a minimum amount of information that will enable them to make meaningful decisions regarding their interest in a reporting entity
3
Q
Advantages of harmonisation:
A
- multinational entities: greater efficiency,a ccess to information
- investors: better comparison
- tax authorities: easier to calculate
- large international accounting firms
4
Q
Disadvantages of harmonisation:
A
- difficult to introduce, apply and maintain
- different legal systems
- different purposes of financial reporting between countries
- countries may be unwilling to accept another country’s standards
-costly to develop a fully detailed set of accounting standards
5
Q
What is the IFRS Foundation ?
A
-International Financial Reporting Standards
- is the supervisory body for the Board
- is responsible for governance issues and ensuring each body is properly funded
6
Q
Objectives of IFRS?
A
- developing a set of global accounting standards of high quality which are understandable and enforceable
- promoting the use and application of these standards
- bringing about the convergence of national and international accounting standards
7
Q
International Accounting Standards Board ( The Board)
A
- is solely responsible for issuing International Financial Reporting Standards
- intentions are to develop a single set of understandable and enforceable high quality worldwide accounting standards
8
Q
International Financial Reporting Interpretations Committee (IFRIC)
A
- issues rapid guidance on accounting matters where divergent interpretations of IFRS Standards have arisen
- these must be approved by the Board
9
Q
IFRIC , interpretations covers:
A
- newly identified financial reporting issues not specifically dealt with in IFRS Standards
- issues where unsatisfactory or conflicting interpretations have developed
10
Q
IFRS Advisory Council (IFRSAC)
A
- provides a forum for the Board to consult a wide range of interested parties affected by Board’s work, with the objectives of:
- advising the Board on agenda decisions and priorities in the Board’s work
- informing the Board of the view of the organisations and individuals
- giving other advice to the Board or to the Trustees
11
Q
Development of an IFRS Standard
A
- The Board identifies a subject and appoints and advisory committee to advise on the issues
- The Board may issue a discussion paper to encourage comment
- The Board publishes an exposure draft, being a draft version of the intended standard
- Following the consideration of comments received on the draft, the Board publishes the final text of the IFRS Standard
- The publication of an IFRS Standard, exposure draft or IFRIC Interpretation of an Interpretation requires the votes of at least eight of the 15 Board members
12
Q
What is a conceptual framework?
A
- a coherent system of interrelated objectives and fundamental principles
- a framework which prescribes the nature, function and limits of financial accounting and financial statements
13
Q
Advantages of a rules-based system
A
- increased accuracy of requirements
- increased comparability
- increased verifiability
- less scope for judgemental manipulation of figures
14
Q
What includes guidance of Conceptual Framework for Financial Reporting?
A
- the objective of financial reporting
- the qualitative characteristics of financial information
- the definition, recognition and measurement of the elements of financial statements
- concepts of capital and capital maintenance
15
Q
What is the purpose of Framework?
A
- assist the International Accounting Standards Board to develop IFRS Standards that are based on consistent concepts
- assist preparers to develop consistent accounting policies when no Standard applies to a particular transaction
- assist all parties to understand and interpret the Standards
16
Q
What is the objective of financial reporting?
A
- to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity
17
Q
What are qualitative characteristics?
A
- are the attributes that make information provided in financial statements useful to others
18
Q
What are 2 qualitative characteristics?
A
- Fundamental qualitative characteristics
- Enhancing qualitative characteristics
19
Q
What are fundamental qualitative characteristics?
A
- Relevance
- Faithful representantion
20
Q
What are enhancing qualitative characteristics?
A
- Comparability
- Verifiability
- Timeliness
- Understandability
21
Q
When information is relevant?
A
- it has the ability to influence the economic decisions of users
- is provided in time to influence those decisions
22
Q
Qualities of relevance
A
- Predictive value: enables users to evaluate or assess past, present or future events
- Confirmatory value: helps users to confirm or correct past evaluations and assessments.
23
Q
What is materiality?
A
- is an entity-specific aspect of relevance and depends on the size of the item or error judged in the particular circumstances of its omission or misstatement.
- is a threshold quality
24
Q
When is the information material?
A
- if omitting ,misstating or obscuring it would influence the economic decisions of users
25
Characteristics of faithful representation
- completeness: all necessary descriptions and explanations
- neutrality: free from bias
- free from error
26
Enhancing qualitative characteristics
- comparability
- verifiability
- timeliness
- understandability
27
Comparability
- must be there consistency and disclosure
- users must be able to:
- compare the financial statements of an entity over time to identify trends in its financial position and performance
- compare the financial statements of different entities to evaluate their relative financial performance and financial position
28
What does direct verification means?
- verifying an amount or other representation through direct observation, for example, by counting cash
29
What does indirect verification means?
Indirect verification means checking the inputs to a model, formula or other technique and recalculating the outputs using the same methodology
30
What does timeliness means?
- having information available to decision makers in time to be capable of influencing their decisions
31
What understandability depends on?
- the way in which information is presented
- the capabilities of users
- it assumed that users:
have a reasonable knowledge of business and economic activities
review and analyse the information diligently
32
What is an asset?
- a present economic resource controlled by the entity
- as a result of past events
33
What is an economic resource?
- is a right that has the potential to produce economic benefit
34
What is a liability?
- a present obligation of the entity
- to transfer an economic resource as a result of past events
35
What is equity interest?
- is the residual interest in the assets of the entity after deducting all its liabilities
36
What is income?
- is increases in asset or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims
37
What are expenses?
- decreases in assets or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims
38
What is derecognition?
- is the removal of some or all of an asset or liability form the statement of financial position
- occurs when: loses control of the asset
has no present obligation for the liability
39
Standard setting process
- public board meetings
- agenda papers
- agenda consultation
- discussion paper
- exposure draft
- revised exposure draft
- new IFRS issued
- new IFRS adopted
- post-implementation review
