Ch 1: Introduction to Financial Reporting Frameworks Flashcards
(27 cards)
What is the definition of accounting according to Lo & Fisher?
Accounting is the production of information about an enterprise and the transmission of that information from those who have it to those who need it.
What is information asymmetry?
A situation where one party has more or better information than the other, which can lead to imbalanced decisions.
What is the purpose of accounting in relation to information asymmetry?
To reduce information asymmetry by producing and sharing relevant and reliable financial information.
Who are the target users of financial statements under IFRS?
Existing and potential investors, lenders, and other creditors.
Who are the target users of financial statements under ASPE?
Investors, creditors, and other users.
What decisions are financial statement users trying to make under IFRS?
Decisions about resource allocation such as buying, selling, lending, or voting.
What decisions are financial statement users trying to make under ASPE?
Resource allocation and assessing management stewardship.
What is the ‘What’ that users want from financial statements?
Information about the amount, timing, and risk of future cash flows.
What are the fundamental qualitative characteristics under IFRS?
Relevance and faithful representation.
What are the fundamental qualitative characteristics under ASPE?
Relevance and reliability.
What are some enhancing qualitative characteristics under IFRS?
Comparability, verifiability, timeliness, and understandability.
What are some enhancing characteristics under ASPE?
Comparability and understandability.
What is the IFRS definition of an asset?
A present economic resource controlled by the entity as a result of past events.
What is the ASPE definition of an asset?
A future economic benefit that contributes to future net cash flows and is controlled due to past events.
What are the recognition criteria for an asset under IFRS?
It must provide relevant information and be a faithful representation of the asset.
What are the recognition criteria for an asset under ASPE?
It must be measurable and the future economic benefit must be probable.
What are Non-GAAP financial measures?
Financial metrics not defined by GAAP, such as EBITDA or Adjusted EBIT.
Where are management-defined performance measures now disclosed under IFRS 18?
In the notes to the financial statements of publicly traded companies.
Are management-defined performance measures under IFRS 18 audited?
Yes, if they are in the notes, they are now part of the audited financial statements.
What does reconciliation mean in the context of non-GAAP measures?
It means explaining and mathematically connecting a non-GAAP metric to a GAAP subtotal.
Why are reconciliations required for non-GAAP metrics?
To help users understand how the non-GAAP figure was derived and why it’s useful.
What major new line is required under IFRS 18 for income statements?
An operating profit line.
What is the reason behind IFRS 18 changes?
To respond to user feedback and improve the usefulness of financial statements.
What types of activities do users want to distinguish in financial statements?
Operating, investing, and financing activities.