Chapter 6 - A conceptual and regulatory framework

Question 1

Who is the International Financial Reporting Standards Foundation (the foundation)?

Answer 1

responsible for governance of the IFRS standard Setting process

Question 2

Who are the international financial reporting standards board (the board)?

Answer 2

responsible for setting IFRS Standards

Question 3

Who is the IFRS Interpretations committee (IFRIC)?

Answer 3

Issue guidance where divergent interpretations have arisen

Question 4

Who is the IFRS Advisory Council?

Answer 4

forum for experts to offer advice to the board

Question 5

who are the International sustainability standards board (ISSB)?

Answer 5

established with the objective of delivering global guidance on sustainability-related disclosure

Question 6

what are “the boards” objectives?

Answer 6

• develop a single set of high quality, global accounting standards that require transparent and comparable info
• promote use and rigorous application of those standards
• work actively with national standard setters to bring about convergence of national accounting standards and IFRS standards

Question 7

All companies listed on a stock exchange within the EU must prepare their consolidated annual financial statements in accordance with what?

Answer 7

the international financial reporting standards

Question 8

What is the procedure for the development of an IFRS Standard?

Answer 8

1. Set the agenda
2. Establish an advisory committee
3. Publish a discussion paper
4. Publish an exposure draft
5. Publish the standard

Question 9

How many board members are required to vote to publish the standard?

Answer 9

8/15 board members

Question 10

why is framework needed?

Answer 10

to ensure the achievement of relevant and reliable financial reporting in order to meet the needs of users

Question 11

What is principles-based accounting?

Answer 11

• follows a conceptual framework, such as the boards framework

Question 12

What is rules based accounting?

Answer 12

accounting standards are a set of rules to be followed

Question 13

What is the principles-based accounting standards based on?

Answer 13

created based on the conceptual framework

Question 14

What are the 4 steps in setting a standard process?

Answer 14

• board identifies a subject requiring a new standard
• board establishes advisory committee
• exposure draft issued for public commment
• comments received, board publishes the standard

Question 15

what is the conceptual framework?

Answer 15

outlines the principles and concepts that should be used when developing or applying IFRS accounting standards and IAS accounting standards

Question 16

What are some benefits of conceptual framework?

Answer 16

• common basis
• avoid fire fighting
• address critical issues
• deal with complex issues
• hard to circumvent
• increase credibility of financial statements

Question 17

What are the fundamental characteristics of conceptual framework?

Answer 17

• relevance
• faithful representation

Question 18

What is relevance?

Answer 18

• predictive value
• confirmatory value

Question 19

What is faithful representation?

Answer 19

• complete
• neutral
• free from error

Question 20

What are the enhancing characteristics of conceptual framework?

Answer 20

• comparability
• verifiability
• timeliness
• understandability

Question 21

What is the going concern basis?

Answer 21

assumes that the entity will continue in operational existence for the foreseeable future

Question 22

What is the foreseeable future?

Answer 22

usually 12 months from the date the directors sign the financial statements

Question 23

what other method would directors use if not a going concern?

Answer 23

Break up basis

Question 24

How are financial statements prepared on a break up basis?

Answer 24

• no non-current assets or liabilities
• assets measure at realisable value

Question 25

What is the accruals basis?

Answer 25

means that the effect of transactions and other events are recognised when they occur, and not as cash is received or paid (cash basis).

Question 26

What is a prepayment?

Answer 26

an expense that has been paid in a financial year but some or all of it belongs to the next year.

Question 27

what is an accrual?

Answer 27

- an expense that hasn't been paid for the current financial year but relates to this year

Question 28

What are the 5 elements that the framework identifies that financial statements are composed of?

Answer 28

- assets - liabilities - equity - income -expenses

Question 29

What are assets?

Answer 29

an asset is a present economic resource controlled by the entity as a result of past events

Question 30

What are liabilities?

Answer 30

A liability is a present obligation of the entity to transfer an economic resource as a result of past events

Question 31

What is equity?

Answer 31

Equity is the residual interest in the assets of the entity after deducting all its liabilities

Question 32

What is income?

Answer 32

income increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims

Question 33

What are expenses?

Answer 33

Expenses are decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims