Chapter 17 Financial Reporting Framework

Question 1

Objective of Financial Reporting

Answer 1

Provide information about the firm to current and potential investors/ creditors that is useful for making decisions.

Question 2

Standard setting bodies

Answer 2

professional organizations of accountants and auditors that establish financial reporting standards.

Question 3

Regulatory authorities

Answer 3

Government agencies that have the legal authority to enforce compliance with financial reporting standards.

Question 4

Two primary standard setting bodies

Answer 4

Financial accounting standards board (FASB) and International accounting standards board (IASB)

Question 5

International Organization of Securities Commissions (IOSCO)

Answer 5

They regulate more than 95% of the world’s financial markets.

Question 6

IASB coneptual framework for accounting - qualitative characteristics

Answer 6

Relevance and Faithful Representation. 1. - Info in them can influence users’ economic decisions or affect users’ evaluations of past events. 2. - Complete, neutral and error free.

Question 7

IASB conceptual framework - four characteristics that enhance Relevance and Faithful Representation

Answer 7

Comparability - consistent across firms, Verifiability - Use the same methods, Timeliness - Information is not stale, Understandability - Users with a basic knowledge of accounting/business could understand it.

Question 8

Elements of financial statements

Answer 8

Asset, liabilities, Equity, Income and Expenses

Question 9

Two underlying assumptions of financial statements

Answer 9

Accrual accounting (statements reflect transactions at the time they occurred) Going concern (assumes company will continue to exist for foreseeable future).

Question 10

IAS No 1 - Required financial statements

Answer 10

Balance sheet (statement of financial position), statement of comprehensive income, cash flow statement, statement of changes in owners’ equity, explanatory notes with summary of accounting policies

Question 11

IAS No. 1 Features for preparing financial statements

Answer 11

Fair presentation, Going concern basis (firm will continue), Accrual basis, Consistency, Materiality (no omissions), Aggregation of similar items, No offsetting (assets against liabilities), Reporting frequency annual, Comparative information

Question 12

IAS no 1 - structure and content of financial statements

Answer 12

Classified balance sheet, Minimum information is required on financial statement/notes, Comparative information for prior periods should be included