chapter 7 Flashcards
(50 cards)
What is FRS 102, and when was it introduced?
FRS 102 is the UK GAAP accounting standard introduced in 2015, replacing 3,000 pages of old UK GAAP with a simplified 350-page version.
What is FRS 102 based on?
It is based on IFRS for SMEs but allows some old UK GAAP treatments not permitted under IFRS.
What is the role of the Financial Reporting Council (FRC)?
It is the UK’s independent regulator for corporate reporting and governance, ensuring compliance with financial reporting standards.
What is ARGA, and why is it replacing the FRC?
The Audit, Reporting and Governance Authority (ARGA) is the planned replacement for the FRC following corporate failures like Carillion. However, its introduction has been delayed.
What is the role of the Conduct Committee?
It reviews company reports for compliance with the Companies Act 2006 and investigates financial reporting errors.
What are the criteria for a small entity under FRS 102?
A company must meet two out of three:
Turnover < £10.2m
Assets < £5.1m
Employees < 50
What are the criteria for a micro entity under FRS 105?
A company must meet two out of three:
Turnover < £632k
Assets < £316k
Employees < 10
How do reporting requirements differ between small and micro entities?
Small entities must ensure accounts are “true and fair.”
Micro entities (FRS 105) have very limited disclosures, and their accounts are presumed legally true and fair.
Why don’t all companies use IFRS instead of UK GAAP?
IFRS has stricter disclosures and could negatively impact:
Tax liabilities
Distributable profits
Regulatory solvency
Debt covenants
In what situations might a company need to use multiple accounting standards?
A company may need to prepare:
UK GAAP accounts for UK regulatory filings.
IFRS accounts if part of an international group.
US GAAP accounts if the parent company follows US rules.
What is the standards-setting body called that is responsible for developing a single set of global accounting standards?
a.
The Financial Reporting Review Panel.
b.
The International Accounting Standards Board.
c.
The Financial Reporting Council.
d.
The IFRS Foundation.
d.
The IFRS Foundation.
Who is LEAST likely to be interested in the accounts of a regional insurance broker?
a.
The FCA.
b.
Tax authorities.
c.
The PRA.
d.
Financial analysts.
c.
The PRA.
A regional insurance broker is typically not regulated by the PRA because it does not carry insurance risk itself
Within this business, action is only taken where variations to budget are outside plus or minus 3% of target. What is this approach called?
a.
Top-down budgeting.
b.
Flexible budgeting.
c.
Management by exception.
d.
Management by objectives.
d.
Management by objectives.
Over an accounting period, a company has sales of £100,000 plus VAT and costs of £60,000. What is its gross profit?
a.
£65,000.
b.
£40,000.
c.
£15,000.
d.
£60,000.
b.
£40,000.
Mohammed works in a department that uses zero-based budgeting; Lynn in one that sets an annual budget. The approach to budgeting for Lynn is different in that:
a.
she will be assumed to have no budget and be expected to demonstrate how the budget will be spent.
b.
only Lynn will have to justify her expenditure.
c.
her budget is usually based on the current level of activity and adjusted to reflect changes in the business.
d.
senior managers are likely to be involved with Lynn setting her budgets whereas Mohammed is likely to agree his with his key customers.
c.
her budget is usually based on the current level of activity and adjusted to reflect changes in the business.
The ‘incurred but not reported’ test is important for insurers because it:
a.
calculates the potential investment returns obtainable by the insurer in a particular financial period.
b.
estimates future potential claims losses.
c.
estimates the rate of growth associated with particular business lines.
d.
calculates the likely claims costs in a particular financial reporting period.
d.
calculates the likely claims costs in a particular financial reporting period.
Data on claims is generally collected on a period known as an incident year. This is also known as a[n]:
a.
reporting period.
b.
claims year.
c.
financial year.
d.
accident year.
d.
accident year.
What would be an example of a ‘non-current liability’?
a.
A bank overdraft.
b.
A five-year bond issue.
c.
Trade creditors.
d.
Goodwill.
b.
A five-year bond issue.
non-current liability is a financial obligation that is not due within the next 12 months.
An insurer would use forecasting as a part of its budgeting process to:
a.
establish the level of risk associated with delivering the business plan.
b.
quantify future levels of profitability.
c.
plan its future need for capital resources.
d.
identify the differences between planned and actual income and expenditure.
c.
plan its future need for capital resources.
A company has long term borrowings of £600,000, shareholders’ equity of £2m and expenses of £1m. What is its gearing ratio?
a.
33%.
b.
50%.
c.
60%.
d.
30%.
d.
30%.
GearingRatio=( long term borrowing/ shareholders equity + long term borrowing) x 100
Long-term borrowings = £600,000
Shareholders’ equity = £2,000,000
GearingRatio=(600,000/2,000,000+600,000)
×100=(600,000/2,600,000)×100
≈23.08%
What is the IFRS Foundation?
A: A non-profit that creates global accounting standards to improve transparency, accountability, and efficiency.
Name the two standard-setting boards under the IFRS Foundation.
A: IASB (accounting) and ISSB (sustainability).
Who oversees the Trustees of the IFRS Foundation?
A: The Monitoring Board (public authorities).
What does the IFRS Interpretations Committee do?
A: Issues guidance when there are differences in applying IFRS standards.
