Exam Flash Cards

Question 1

(R. Ball) IFRS wants? 3 Answers

Answer 1

Lower cost of capital, Information Transparency, More efficient cross-boarding transactions

Question 2

(R. Ball) Example of cost reduction by adapting IFRS?

Answer 2

Less analytical costs, less cost of creating standardized international financial databases

Question 3

(R. Ball) Less risky for the investors mean?

Answer 3

Lower required return on equity.

Question 4

(R. Ball) From a Social Welfare perspective?

Answer 4

The anticipated outcome would be increased wealth, due to increased valuation of existing capital and increased capital creation.

Question 5

(R. Ball) Adaption of IFRS: Corporate governance?

Answer 5

Improve corporate governance via several channels. More transparent could enhance monitoring by boards, investors, analysts, rating agencies, press, etc.

Question 6

(R.Ball) Mergers crossboard?

Answer 6

Enhance mergers with the higher information transparency.

Question 7

Conclusion of (R.Ball)?

Answer 7

For IFRS to work, it has to be adapted in many countries. Many countries still stay with their local GAAP, which makes it hard. US and China is two key countries that need to adapt before IFRS really will work.

Question 8

(Cormona and Trombetta) “Consequences” of IFRS/IAS? 2 answers. (Principle-based)

Answer 8

Accountants and auditors needs to have more knowledge(good knowledge), Only Big 4 auditors (costly)

Question 9

Label users? (Cormona and Trombetta)

Answer 9

Label users = uses the flexibility of IAS/IFRS standards to keep on using their usual financial reporting strategy under the new international label

Question 10

Label users good or bad? (Cormona and Trombetta)

Answer 10

The positive effects of adoption are more pronounced for serious adopters than label adopters.

Question 11

Mandatory vs voluntary? (Cormona and Trombetta)

Answer 11

It’s shown that voluntary adaption to IFRS/IAS is better than mandatory.

Question 12

Mandatory vs voluntary, why? (Cormona and Trombetta)

Answer 12

Higher accounting quality. (Small companies maybe don’t have the resources to adopt IFRS because of higher educational costs?)

Question 13

Harmonisation process? (Read only) (Cormona and Trombetta)

Answer 13

The harmonization process will also benefit from the ‘‘global” nature of both auditors and their clients. Arguably, auditors and clients will drive forward common interpretations and practices around the world. Global clients willing to reduce the steps needed to unify the accounting information produced by local subsidiaries will promote this process. Consequently, global auditors may push forward harmonization through consistent interpretation to accommodate the needs of global clients. In this manner, auditors will also be facilitating the global character of business. In turn, the number of global clients in favor of globally harmonized interpretations will arguably increase and this will enhance the comparability of financial statements across countries.

Question 14

Consequences with “combining” IFRS and local GAAPs (Cormona & Trombetta)

Answer 14

Different views on accounting standards and practices could result in difficulties.

Question 15

Emerging Markets? (Cormona)

Answer 15

Lobbying is a problem with big emerging countries who wants to influence IFRS/IAS

Question 16

Result from Bessemir, (2018)?

Answer 16

Benefits more than costs.

Question 17

Private companies who adapts IFRS, pros? Bessemir, (2018)

Answer 17

Higher growth rate, higher leverage alternatives, higher capital raise in public debt and equity markets

Question 18

Private companies who adapts IFRS, pros continue? Bessemir, (2018)

Answer 18

Companies adopt to IFRS to lower the risk of asymmetric information and avoid adverse selection and moral hazard problems

Question 19

Important factors as legal form and ownership type? (Bessemir)

Answer 19

Public companies and PE companies are more likely to adopt to IFRS for lower their potential agency costs arising from the separation of ownership and control.

Question 20

Differences between a public market and privat market? (Bessemir)

Answer 20

Transparency and high-quality financial reporting in the private market is relatively low, because information asymmetries between the firm and the key contracting parties are typically resolved via private information channels.

Question 21

Economic Theory suggets what for PE companies vs. IFRS/IAS? (Bessemir)

Answer 21

PE companies only adopts IFRS/IAS if the benefits are higher than the costs

Question 22

Big Multinational PE companies should adopt IFRS because? (Bessemir)

Answer 22

Information transparency for investors and other international stakeholders

Question 23

Costs of IFRS adoption? (Bessemir)

Answer 23

Transition costs (educate employees, new research team), Big 4 auditor because of their higher knowledge

Question 24

High Tech industry and IFRS? (Bessemir)

Answer 24

Higher adoption because of information complexity and wants to lower their information asymmetry towards stakeholders

Question 25

Percentage of German PE companies who adapts IFRS?

Answer 25

10%

Question 26

Sustainability reporting needs from its writer? (La Torre)

Answer 26

More education

Question 27

One important factor from the article between stakeholder and the company? (La Torre)

Answer 27

Trust

Question 28

Accountability ? (La Torré)

Answer 28

Ansvarsskyldighet

Question 29

La Torre wants for NFR?

Answer 29

NFR regulation in Europe needs to move towards an accountability-based reform of accounting and reporting.

Question 30

How do you achieve higher accountability in the report? (La Torre)

Answer 30

Intern auditing, a good dialog with the stakeholders, adopting of other non-accounting tools (social media etc).

Question 31

Dialogical accountability? (La Torré)

Answer 31

Dialogic accounting stands for the legitimacy of the political in accounting; the need for systems that are responsive to the diversity of stakeholders' values and interests. As such, it is receptive to the needs of a plural society. They talked with their most important stakeholders and discussed NFI.

Question 32

Materiality ? (La Torré)

Answer 32

Key factor for the NFI. But it might be hard to know what recognizes as materiality in the report. (Non-financial information)

Question 33

Double- Materiality? (La Torré)

Answer 33

Both investors and other stakeholders’ interests in what information that’s materially.

Question 34

Double-Materiality Risks? (La Torré)

Answer 34

You involve all stakeholders, but prioritise the financial sustainability aspect over social and environmental sustainability. (Managers have different rankings for their stakeholders, some more important than others and could choose to pick the interest of the more important stakeholders over the others.)

Question 35

How to solve the Double - Materiality risk? (La Torre)

Answer 35

Monitoring

Question 36

Results of La Torré

Answer 36

EU needs to give firm directions on not only what to report, but how to report and how to produce NFI

Question 37

Bradbury (2012) is about?

Answer 37

Principle vs. Rule-based Accounting-standards

Question 38

(Bradbury, 2012) American accounting standards is? And International accounting standard is?

Answer 38

US = Rule IAS = Principle

Question 39

(Bradbury,2012) Proposition 1 (Rules (proposition 1 more rules for rule-based standards than principal standards) True or false?

Answer 39

False, weak evidence. (NOTE: FAS 34 has 2x more rules principle based standards)

Question 40

(Bradbury, 2012) - Justification (proposition 2 is that principles-based standards will have relatively more references to conceptual framework qualitative characteristics.)

Answer 40

Not supported, but AS 34 contains more "justification" phrases than FAS 34R and IASB Standards

Question 41

(Bradbury, 2012) Judgement (Proposition 3 is that principles-based standards will require relatively more judgements.),

Answer 41

Supported. FAS 34R contains less judgement phrases than IAS. (NOTE: could be fundamental difference between FASB and IASB standards rather than a difference between principles based versus rules-based standards.)

Question 42

(Bradbury, 2012) Bright-line thresholds (proposition 4 s that principles-based standards will contain relatively fewer bright-line thresholds.)

Answer 42

Supported. Principle-based standards contain fewer bright-lines compared to Rule-based.

Question 43

(Bradbury, 2012) Exceptions (proposition 5s that principles-based standards have relatively fewer exceptions.)

Answer 43

Supported. Exceptions are used more in rule-based standards than principle-based standards.

Question 44

(Bradbury, 2012) Complexity and verbosity (proposition 6 is that principles-based standards are relatively less complex and verbose).

Answer 44

Hard to know. (NOTE:FAS 34 contains more specific references to other paragraphs within the standard and more references to other accounting standards. FAS 34 has more definitions than IAS 23AT. Under IFRS, definitions are reported in a separate section, whereas in FAS 34 the definitions are scattered throughout the text and in footnotes)

Question 45

Conclusion of (Bradbury, 2012)

Answer 45

1. Rule-based are more complex and verbose. 2.The drafted definitions between Rule-based and Principle-based standards. 3. This suggests the IASB will need to consider drafting issues to maintain the appearance of being more principles-based. 4. For judgement phrases and the use of exceptions, there are significant differences between IASB standards (IAS 23AT and IAS 23R) and the FASB standard (FAS 34).

Question 46

Management Control System Framework from Malmi, T contains?

Answer 46

Planning - Cybernetic Controls - Reward and Compensation (Outside the box: Cultural Controls and Administrative Controls)

Question 47

(Malmi, T) Cultural Controls and Adminstrative Controls contains?

Answer 47

Cultural Controls - Clans, Values and Symbols Administrative Control - Governance structure, organisation structure and Policies and Procedures.

Question 48

(Malmi T) Planning stage contains?

Answer 48

Long-range and Action planning (ex ante)

Question 49

(Malmi T) Cybernetic control contains?

Answer 49

Budgets, Financial Measurements systems, N-FMS, Hybrid measurement systems (Plan, do, check, ACT!)

Question 49

(Malmi, T) Hybrid measurement system?

Answer 49

It's a balanced score card that involves financial and non-financial measures

Question 50

(Malmi, T) What is adminstrative control system?

Answer 50

Control systems that direct employees behaviour through the organising of individuals

Question 51

(Malmi, T) Culture Control System is what?

Answer 51

Values, beliefs and norms that are implanted into the company. Influence employee behavior. It grows and creates.

Question 52

Levers of control (Simons) is? (Ferreira and Otley)

Answer 52

Beliefs and Diagnostic. Strategy Level.

Question 53

Criticism for Simons from Ferreria and Otley?

Answer 53

It’s too little focusing on informal control. Things that are not stated formalized (not included). To little focus on social-ideological control.

Question 54

Performance Management Systems (PMSs) contains? (Ferreira)

Answer 54

Internal: Vision & Mission, Key Success Factors, Organisational structures, Strategies & Plans, Key Performance Measures, Target Setting, Performance evaluation, Reward system External: (Information flows, Systems & Networks) (PMSs use) (PMSs Change) (Strength and Coherence)

Question 55

Vision and Mission? (Ferreira)

Answer 55

What is your mission in “life”? Mechanisms, processes and so on.

Question 56

Key success factors in PMSs? (Ferreira)

Answer 56

What do we need? Essential for the overall future success for the company. How do we spread the information to our employees and managers and make them understand it?

Question 57

Organizational Structure in PMSs (ferreira)

Answer 57

The structure, processes, relationships, responsibilities accountability within the organization. Connected to the “outside” with networks as well. We build organizational charts vertically and horizontal (structures). Organizational charts = we build relationships. Responsibility accountant. Structuring your organization, centralized, decentralized etc.

Question 58

Strategies and plans in PMSs (Ferreira)

Answer 58

You need to know what strategy to adopt and remember to evaluate the strategies time to time

Question 59

Key Performance Measures (for PMSs) (Ferreira)

Answer 59

Either you measure performance (profit) or you look at for example efficiency. You can measure a lot of different areas. Financial outcome vs. measurement of processes.

Question 60

Target settings for PMSs (Ferreira)

Answer 60

Benchmarking, fixed targets? What level du you want to achieve?

Question 61

Performance evaluation for PMSs (Ferreira)

Answer 61

The processes a organisation follows to evaluate individual, group and organisational performance.

Question 62

Reward system for PMSs (Ferreira)

Answer 62

What you will get by reaching the set targets. Could be both financial and non-financial rewards

Question 63

Information flows, systems and networks in PMS (Ferreira)

Answer 63

External. Important is that the information is delivered at the correct spot at the correct time and in the right format and for the right purpose.

Question 64

Single and double loop learning? (Ferreira)

Answer 64

Single loop: Basic, one tells you what to do and one who receives the information has to learn what to do. Double Loop: More advanced, The one who is supposed to (receiver) learn has the ability to question and interfere. Receive, learn, adopt and changing the frame. Becoming a different person afterwards. Reframing.

Question 65

PMS Change- from PMSs (Ferreira)

Answer 65

The system most fit the environment - more global = higher complexity.

Question 66

Strength and coherence from PMSs (Ferreira)

Answer 66

Shows how strong the links are between all components in the PMS

Question 67

What is the two basic rules from Kaplan and Norton?

Answer 67

Understand the management cycle that links strategy and operations and know what tools to apply at each stage of the cycle.

Question 68

What is a management system, according to Kaplan and Norton?

Answer 68

Management system is a integrated set of processes and tools that a company uses to develop its strategy, translate in into operational action and monitor and improve the effectiveness of both

Question 69

Closed Loop Management, what are the stages? (Kaplan & Norton)

Answer 69

Develop a strategy, Translate the strategy, Plan Operations, Monitor & Learn, Test & Adapt the strategy

Question 70

In the Closed Looped Management - what happens in Stage 2 (Translate the strategy)? (Kaplan & Norton)

Answer 70

You create a strategy map (Balanced Score Card)

Question 71

In Stage 3 - Plan Operation, what do you have to think about? (Kaplan & Norton)

Answer 71

It doesn't just have to be finance and money. Apply the balanced score card (Balance between Financial and Non-financial activities and processes)

Question 72

In Stage 4 - Monitor and Learn, what do you have to think about? (Kaplan & Norton)

Answer 72

Review meetings is important.

Question 73

Stage 5 - Test and adapt the strategy, what do you have to think about? (Kaplan & Norton)

Answer 73

Does it work? You have to balance, short term, midterm and long term. Key issue is to find the balance.

Question 74

Major take aways from Kaplan and Norton?

Answer 74

-Operational level and strategic levels have to link(connect). -With the help of the loop system maybe? -It’s a dynamic model.

Question 75

What is the transparency perspective? (Maas)

Answer 75

Provide information that is transparent for other companies. (Outside-in Perspective)

Question 76

The performance improvement perspective? (Maas)

Answer 76

It's all about decision making. (Inside-out)

Question 77

What is management accounting and management control (egentligen)? (Maas)

Answer 77

A toolbox

Question 78

Which are the stages in the framework from (Maas)

Answer 78

Performance improvement perspective - Sustainability Strategy - Sustainability Management accounting - Sustainability Management Control - Sustainability Reporting - Transparency perspective (Sustainability Assessment)

Question 79

Criticism for budgeting? (Libby and Lindsey)

Answer 79

Time - consuming, budget gaming, Principle-Agent problem etc.

Question 80

Major take-aways from Libby and Lindsey?

Answer 80

-Budgeting not too time consuming - Companies does not want to abandon traditional budgets, rather renew and improve the existing one. -In unpredictable environments, traditional budgets works worse than Beyond budgeting e.g. - Budget gaming is a problem with traditional budgeting. - Budgets that is not in-line with the strategy is a problem.

Question 81

Critics for budgeting from (Østergren) (Just read)

Answer 81

Are too time consuming, impose a vertical command-and-control structure, create centralized decision-making, stifle initiative, and focus on cost reduction rather than value creation. In addition, budgets creating vertical, command-and-control, and responsibility centre-focused budgetary controls are incompatible with flat, network, or value chain-based organizational designs and impede empowered employees from making the best decisions

Question 82

Good phrase from the Article of Østergren about budgeting

Answer 82

“However, studies have shown that the critique is more relevant for organisations in a rapidly changing environment (Bescos et al, 2003). A high level of autonomy for the company and low degree of predictability in forecasting (for example the bank sector) increase the need for a more dynamic form of planning such as rolling forecast etc., while for organisations with a low degree of autonomy and high degree of predictability in forecast (for example the public sector) the critique is less relevant. As a consequence of the critique, alternative ways of budgeting have emerged such as activity-based budgeting (Hansen et al, 2003). In addition, new forms of planning devices have been developed such as “beyond budgeting principles” that can be understood as a new form of budgeting. BB contains of all budgeting activities, but it is divided in time.”

Question 83

What happens if you remove budgeting? (Østergren)

Answer 83

- Solve conflict between setting target and making forecasts. -Removes wrong incentives from managers (higher budgets than needed) -Removes the beliefs from managers that the future is manageable. -Removes a time-consuming process

Question 84

Beyond Budgeting has three "stages", what are they? (Østergren)

Answer 84

Target Setting and Planning and Resource Allocation

Question 85

What are the differences between target setting and planning? (Østergren)

Answer 85

See picture.

Question 86

Major take-aways from Beyond Budgeting?(Østergren)

Answer 86

-From cost reduction to value-creation -Performance based = Centralised power, decentralised action -From controlling costs to controlling action -From reactive to proactive planning -Focus on big numbers rather than nitty-gritty details has thereby been eased into the mind-set of people. -Empowerment for the employees! More creativeness and responsibilities for the lower level employees. - More horizontal interaction between sub-managers. -Holistic overview of the company

Question 87

Consequences of BB? (Østergren)

Answer 87

-Not everyone likes the more competitive environment.

Question 88

Public Interest Theory and Regulation?

Answer 88

See PIC

Question 89

Capture Theory and Economic interest group theory of regulation?

Answer 89

2) The market will be efficient. If you produce a lot of accounting rules there will be regulations that are not necessary for the stakeholders and create costs for companies that are not useful for any stakeholder. Instead, we should rely on principal-agency theory. a. The free market perspective: There will not be any demand for a company if they do not provide the necessary information that the market demands. b. Capture theory: Even though a regulation is put in place for the public interest it will eventually be captured (controlled) by the parties that it is supposed to control. i.Private/Economic Interest theory: It can be captured since the regulators are not independent. They can be affected through lobbying. They act in order to increase their own wealth. And the regulators may focus on their own re-election.

Question 90

Some benefits with conceptual framework ?

Answer 90

* Accounting standards should be more consistent and logical * Standard-setters should be more accountable for their decisions * Enhanced communication between standard- setters and preparers/auditors * Economic benefit * Reduced need for additional accounting standards * Focus decision-usefulness rather than control * Legitimizing standard-setting bodies

Question 91

Some disadvantages with Conceptual Framework?

Answer 91

Based on lobbying and political actions * Burden, Cost vs Benefit * Focus on economic performance - less focus on non financial transaction * Codification of existing practice * Codification of existing profession * Legitimizing standard-setting bodies

Question 92

A asset is recognised as?

Answer 92

"a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity”

Question 92

A asset is recognised as?

Answer 92

"a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity”

Question 92

A asset is recognised as?

Answer 92

"a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity”

Question 92

A asset is recognised as?

Answer 92

"a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity”

Question 92

A asset is recognised as?

Answer 92

"a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity”

Question 92

A liability is recognised as?

Answer 92

”a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits”

Question 93

Recognition criteria?

Answer 93

- it is probable that any future ecoomic benefit associated with the item will flow to or from the entity - and - - the item has a cost or value that can be measured with reliability (faithful)

Question 94

Asset/liability approach ?

Answer 94

Links profit to changes that have occurred in the assets and liabilities of the reporting entity. Considers how transactions affected assets or liabilities. The Balance sheet is the most important part of the financial report.

Question 95

Revenue/expense approach?

Answer 95

Rely on concepts such as matching principle, which more focus on actual transactions. Reads the income statement as the principal financial statement. Considering how much of a transaction that should be treated as income or expenses. Any amount not treated as either of these are then put in the statement of financial position, asset or liability.