Chapter 1 - Conceptual Framework

Question 1

Transactions are recorded on an accrual basis, meaning?

Answer 1

Transactions are recognised as they occur, not when the cash is received

Question 2

Conceptual framework states the primary users of financial statements to be?

Answer 2

existing and potential investors, lenders and creditors

Question 3

Qualitative characteristics of FS, according to the conceptual framework are relevance and faithful representation. These mean?

Answer 3

Relevance - material. i.e capable to influence decision making of users

Faithful representation - complete, neutral (judgments made without bias) and free from error

Question 4

Where we have to estimate and exercise judgement, we must be?

Answer 4

Prudent

Question 5

Enhancing qualitative characteristics of FS are?

Answer 5

Comparability, understandability (to those with reasonable knowledge of business activities), timeliness and verifiability

Question 6

Define asset

Answer 6

A present economic resource controlled by the entity, as a result of past events, with a right that has the potential to produce economic benefits

Question 7

Define liability

Answer 7

A present obligation to transfer economic resource as a result of past events, of which the entity has no ability to avoid.

Question 8

Define equity

Answer 8

The residual interest in the assets of an entity after deducting its liabilities

Question 9

What is the fair value of an asset?

Answer 9

This is the market value, i.e price you would receive to sell the asset

Question 10

Value in use of asset?

Answer 10

Present value of future cash inflows expected to be generated

Question 11

What sustainability reporting is currently required?

Answer 11

• All companies in UK, despite small and micro entities, must prepare an annual strategic report. Within this non financial and sustainability info is to be defined
• Task Force on Climate related Financial Disclosures ; the largest UK companies must provide disclosures focussed on governance, strategy, risk management, and metrics. Climate related risks include transition (associated with moving to a lower carbon economy) and physical risks.

Question 12

IFRS Sustainability Disclosure standards were created in June 2023. What does this require?

Answer 12

Requires disclosure of material info about sustainability risks and opportunities that arise to the entity, arising from dependencies on relationships and its impact on relationships.

Dependencies - how ESGs ability affects the organisation - e.g employee welfare

Impact - how the decisions of the org impact ESG, e.g human rights, health and safety.

Question 13

What is IFRS S1 and IFRS S2

Answer 13

IFRS S1 - General requirements for disclosure of sustainability related financial info. Identify a set of sust related risks and opps for effective monitoring and reportig.

IFRS S2 - Climate related disclosures. Disclosure of physical and transition risks moving to a low carbon economy.

Question 14

Inherent limitations of FS include?

Answer 14

Agregation of information, backward looking, exclusion of non financial info

Question 15

A professional accountant should always do the third party test. What is this?

Answer 15

Would a reasonable and informed third party reach the same decision

Question 16

Define advocacy threat and the ethical principle it affects?

Answer 16

Where the accountant promotes a clients position to the point that the accountant’s objectivity becomes comprimised.

Question 17

Self interest threat affects what principles?

Answer 17

Objectivity, prof behaviour, prof competence and due care

Question 18

Self review threat affects?

Answer 18

Objectivity and confidentiality

Question 19

Familiarity threat (too sympathetic to clients interests or too accepting, affects?

Answer 19

Objectivity, integrity, prof comp and due care

Question 20

Intimidation threat (attempts to excersize undue influence over the accountant) affects ?

Answer 20

Objectivity, prof behaviour, integrity

Question 21

Define self interest threat

Answer 21

Where a financial interest, or a family member, will inappropriately influence the prof judgement or behaviour

Question 22

Define self review threat

Answer 22

Accountant may not appropriately examine results of a previous judgement

Question 22

Process for escalation in terms of actions based on an identified ethical threat include?

Answer 22

• Gather facts to ensure a full understanding of the situation
• Discuss with individual affected
• Escalate internally e.g senior level of management or audit comitee.
• Take ext advice from ICAEW TEAS helpline
• If matter cant be resolved, consider resignation.
  Once correct course of action is decided, ensure monitoring of this.