Module 1: The Financial Reporting Environment (Part 1) Flashcards by Oliver Casey

Accounting is the process of __________, __________ and _____________ transactions of a business and communicating that information to _________ __________

recording, analysing; summarising; decision makers;

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Financial Reporting is a method of __________ the _________ and _________ __________ of a business.

reporting; results; financial position;

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Financial accounting is:
- Not primarily concerned with providing information towards the more ________ __________ of the _________.
- The principal function is to satisfy the ____________ needs of ________ not involved in _________ the ___________, in particular _______________

efficient running; business;
information; persons; running; business; shareholders;

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Financial accounts provide ___________ information

historical;

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The information needs of ____________ go far beyond those of _____ _______ ______

management; other account users;

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Managers also need to ____ for the ________, for example, budgets, which predict ________ _________ and __________

plan; future; future revenue; expenditure;

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Management accounting is sometimes known as ____ accounting.
- It is a management information system which analyses ____ to provide information as a basis for __________ action.
- A management accountant should present accounting information in the form most helpful to _____________

cost; data; managerial; management;

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A business is an integrated set of _________ and _____ that is capable of being conducted and managed for the purpose of providing a ________ in the form of:
- ________
- ______ ______
- Other ________ _______
directly to _________ or other ________, members or participants.

activities; assets; return;
dividends; lower costs; economic benefits; investors; owners;

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Businesses of whatever ____ or _______ exist to make a _______

size; nature; profit;

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Different ways of looking at a business:
1) A business is a _________ or _________ concern which exists to deal in the manufacture, re-sale or supply of _____ and _________
2) A business is an ___________ that uses __________ __________ to create goods or services which customers will ___.

commercial; industrial; goods; services;
organisation; economic resources; buy;

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Different ways of looking at a business:
3) A business is an _________ providing ____ for _______
4) A business invests ______ in _________ for example, buildings, machinery, employees in order to make even more ______ for its ________.

organisation; jobs; people;
money; resources; money; owners;

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Profit is the excess of ________ (_______) over _________

revenue (income); expenses;

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When expenses exceed revenue, the business is running at a ____

loss;

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Three main types of business entity:
- ____ _______
- ___________
- ________ _________ _________

Sole traders;
Partnerships;
Limited Liability Companies;

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Sole traders are:
- People who work for _____________
- Examples may include the local __________, a ______ and a __________
- The term sole trader refers to the ___________ of the business
- Sole traders can have __________

themselves;
shopkeeper; plumber; hairdresser;
ownership; employees;

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Partnerships occur when:
- ___ or _____ people decide to run a business together.
- Examples may include an __________ practice, a _______ practice and a _____ practice

Two; more;
accountancy; medical; legal;

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Limited Liability Companies are incorporated to take advantage of ‘______ ______’ for their _______ (shareholders).
- This means that unlike sole traders and partners, who are ________ __________ for the _______ ____ by their business, the shareholders of a limited liability company are only responsible for the ______ _______ on their _______.

limited liability; owners;
personally responsible;
amounts owed;
amount unpaid; shares;

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For shareholders of a Limited Liability Company:

If shareholders have purchased shares costing $100 but have only paid $40 to date, they would have to contribute the remaining $60 towards paying the company’s _____

debts;

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Generally, in ___, sole traders and partnerships are not ________ _________ from their _______.

law; separate entities; owners;

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In the US, however, _________ do have _______ _____ _________ but the partners are wholly liable for the _____ of the partnership

partnerships; separate legal personality; debts;

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In all cases, a limited liability company is legally a ________ _____ from its ______ and it can issue contracts in the company’s name

separate entity; owners;

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For accounting purposes, all three entities are treated as ________ from their ______

This is called the _______ ______ _______

separate; owners;
business entity concept;

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The methods of accounting used in all three types of business entities will be very similar, although will tend to become more ______ the ______ the entity

complex; larger;

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It is not only businesses that need to prepare _________ __________
Charities and clubs, may need to prepare _________ _________ every year
________ _________ also need to be prepared for ___________ organisations (public sector organisations such as hospitals and local councils)

financial statements;
financial statements;
financial statements; government;

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Financial reporting is the process of _________, __________ and _________ financial data in accordance with generally established _______ and _________.

classifying, recording; presenting; concepts; principles;

Financial Data is the name given to the record of _____ transactions carried out by a _______ eg. sales of goods, purchases of goods, payments of expenses. These transactions are analysed according to ____, recorded in ______ _______ and summarised in the _________ __________

actual; business; type; ledger accounts; financial statements;

Financial reporting is the process of reporting the _______ and _______ ________ of an entity

results; financial position;

Although financial accounts are of interest to management, their principal function is to: - Provide ________ information in order to satisfy the information needs of _______ users such as ___________

historical; external; shareholders;

The Conceptual Framework prescribe that: - A company should produce _________ information about the reporting entity's ____, _______, _____, ______ and ________ that is useful to the users of _________ statements in assessing: - Prospects for future net cash ______ to the reporting entity; and - In assessing management's _________ of the entity's _________ resources

financial; assets, liabilities, equity, income; expenses; financial; inflows; stewardship; economic;

In Australia, the form and content of company financial statements is regulated by: - The ___________ ___ 2001; and by - A________ A_________ S_______

Corporations Act; Australian Accounting Standards;

The A_________ A_________ S_________ B_____ adopted the IFRSs for Australian entities required to report under the ___________ ___ 2001 for annual reporting periods beginning on or after _ January _ _ _ _

Australian Accounting Standards Board; Corporations Act; 1; 2005;

Large listed companies (sometimes known as public companies) are required to _______ their annual financial statements A listed company is a company whose ______ or ____ instruments are publicly traded on a _____ ________

publish; shares; debt; stock exchange;

Published financial statements may be ______ or made available on the ________ _________

printed; company's website;

In the UK, all limited companies must publish their annual accounts by filing them with the R_______ of C________ They are then available to members of the _______

Registrar; Companies; public;

'Published' annual financial statements are _______ _________ _______ ________, or ________ _________ ________ _______

general purpose financial statements; general purpose financial reports;

General purpose financial reports include: - Statement of _____ or ____ and other ___________ ______ - Statement of ________ ______ - Statement of changes in ______ - Statement of _____ _____ - N____ to the financial statements

profit; loss; comprehensive income; financial position; equity; cash flows; Notes;

General purpose financial reports: - Contain information which may be useful to a ____ ______ of users _______ to the company - They are distinct from ___-______ ________ __________ __________, commonly known as special purpose financial reports which are prepared for a particular group of _____ and for a particular _________

wide range; external; non-general purpose financial reports; users; purpose;

Special purpose financial reports include: - T__ computations - B___ reporting - Fulfilment of _______ reporting responsibilities

Tax; Bank; members;

Generally, most external users have to rely on the ______ _______ __________ as their major source of financial information

annual financial statements;

Financial statements do not include: - D_______ _______ - Statements by the ________ - M_________ c___________ - E_________ or s______ reports Although these may be included in the published ______ report of a large listed company

Director's reports; chairman; Management commentaries; Economic; social; annual;

Limitations of financial reporting: Users may need to consider information from other sources, such as: - G_______ _______ conditions - P________ situation - C_______ in the ________ in which the business operates

General economic; Political; Conditions; industry;

Other limitations of financial accounting and reporting: - Financial statements are based on ________ and _________ - Financial statements are based on _________ information; they do not reflect _______ events or transactions - Shows financial effects only; it does not consider ___-_________ ___________ such as discussions of risks and uncertainties facing the business

estimates; judgements; historical; future; non-financial information;

The purpose of financial statements is to provide useful information about the _________ position, ___________ and changes in _________ position of an entity to a wide range of _____

financial; performance; financial; users;

Users need information for two reasons: 1) To make ________ ___________ 2) To assess the ___________ of _____________

economic decisions; stewardship; management;

1. The types of economic decisions for which financial statements are likely to be used include: - Decisions to ___, _____ or ____ equity ___________ - Assessment of management __________ and ____________ - Assessment of the entity's ability to ___ __________ - Assessment of the ________ of _______ lent to the ______

buy, hold; sell; investments; stewardship; accountability; pay employees; security; amounts; entity;

2. The types of economic decisions for which financial statements are likely to be used include: - Determination of __________ policies - Determination of ___________ profits and _________ - Inclusion in ________ ________ statistics; and - Regulation of the _________ of ________

taxation; distributable; dividends; national income; activities; entities;

Stewardship is relevant where an organisation is managed by _______ other than its ______

people; owners;

People interested in financial information about a listed company: - M_______ of the company - S__________ of the company - T_____ c_______ - P_______ of ________ to the company - The t_________ authorities - E________ of the company - Financial _______ and _______ - G_________ and their _______ The ______

Managers; Shareholders; Trade contacts; Providers; finance; taxation; Employees; analysts; advisers; Governments; agencies; public;

Accounting information is summarised in financial statements to satisfy the information _____ of users interested in them.

needs;

Managers of a business need financial information to help them make their _______ and _____ decisions

planning; control;

Shareholders, providers of finance and financial analysts and advisers need information that helps them to make decisions on whether to ___, ____ or ___ their investment. These users must rely on the __________ financial statements to provide them with the information that they need

buy, hold; sell; published;

In most developed countries, including Australia, published financial statements are primarily prepared to meet the information needs of existing and potential __________ and ________ and their ________

investors; lenders; advisors;

Which of the following items in the financial statements of a company would be of particular interest to a customer? A) Operating profit B) Retained earnings C) Dividend payments D) Directors' remuneration

A) Operating profit Customers need to know that the company is operating profitably

The regulatory framework ensures that general purpose financial reporting produces _______ and _______ information and therefore meets the needs of: - ___________ - _______ - other _____

relevant; reliable; shareholders; lenders; users;

GAAP includes: - Accounting ________ (_ _ _ _ and national ________) - National company ___ - Local _____ _________ requirements

standards; IFRS; standards; law; stock exchange;

The regulatory framework consists of: - Accounting _____ - Company ___

rules; law;

- The International Accounting Standards Board (IASB) ______ and ______ International Financial Reporting Standards (IFRS). - As IFRS have no ___________, and the IASB has no _________ to impose accounting standards, individual countries draw up their own accounting ____________ - In practice, national governments often adopt _ _ _ _ and then adapt them to operate together with local ____ and __________ as necessary

develops; issues; jurisdiction; authority; regulations; IFRS; laws; regulations;

In individual countries, GAAP is seen primarily as a combination of: - National _______ ___ - National a________ _________ - Local s____ e_______ requirements Although these sources are the basis for the GAAP of individual countries, the concept also includes sources such as: - _ _ _ _ - accounting requirements of _____ ________

company law; accounting standards; stock exchange; IFRS; other countries;

In many countries, GAAP does not have any ________ or _________ authority or definition. There are different views on GAAP in different countries. The _ _ _ _ ___________ program seeks to reduce these differences

statutory; regulatory; IASB convergence;

GAAP can be based on legislation and accounting standards that are either: - p__________ / ______- based - P__________ - based

Prescriptive/rules; Principles;

The US operates a ___________ system, where standards are very detailed, attempting to cover all eventualities. - Removes any element of ___________

prescriptive; judgement;

- IFRS are _________-based. - This leaves room for some element of professional __________ - It also makes it harder for entities to avoid applying a standard as the terms of reference are ________

principles; judgement; broader;

Financial statements are prepared on the basis of a number of ___________ accounting ___________ and ___________

fundamental; assumptions; conventions;

The key benefit of accounting regulation is that it requires organisations to prepare the financial statements on a _________ basis.

consistent;

Advantages of accounting regulation: - Reduces __________ in the way financial statements are prepared - Provides rules as to what should be disclosed, which improves the _______ of ___________ produced. - Regulation ensures companies disclose ____ ___________ about their business than they may have otherwise - I_______ p____ c_________ in published financial statements - Regulation protects smaller investors and hence can be seen as a ______ _____.

variations; quality; information; more information; Increased public confidence; social good;

Disadvantages of accounting regulation: - Lack of _________ for some businesses - Companies may incur ____ _____ in complying with rules - It is ____-_________ and may require companies to do a lot of ___-_______ - May lead to financial statements containing too much ____________

flexibility; high costs; time-consuming; box-ticking; information;

Types of creative accounting: - O__ _______ _______ financing - W______ d________ - P_____ s________ - A___________ e_______ management

Off balance sheet; Window dressing; Profit smoothing; Aggressive earnings;

VARIATIONS IN REGULATORY REGIMES Company Structure and Ownership A country where the majority of companies are _______ owned with few ________ ___________ will need far less ___________ than a country which is dominated by large ______________ corporations with large numbers of ____________, who have no connection to the business. Much of the regulation in the latter case would be to ensure that companies are acting in the best interests of ______________

family; external shareholders; regulation; multinational; shareholders; shareholders;

VARIATIONS IN REGULATORY REGIMES Level of Development The level of development of a nation also has an impact on its level of __________. D_________ countries are further behind in the process of ________ _________ and establishing regulatory regimes than industrialised nations.

regulation; Developing; setting standards;

VARIATIONS IN REGULATORY REGIMES Different purposes of financial reporting In some countries the purpose of preparing financial statements is solely for ___ assessment, and therefore the accounting rules are often the same as the ___ rules. In other countries, financial statements exist to provide information for ________ ________-______. This will have an impact on the type of regulatory system in place.

tax; tax; investor decision-making;

VARIATIONS IN REGULATORY REGIMES Different user groups User groups may include ________, _________, _______, _______, ________, _________, the government and the general public. In some countries _______ and ________ groups are given prominence, while in others ________ enjoy a higher profile.

financiers, management, investors, creditors, customers, employees; investor; creditor; employees;

The International regulatory framework consists of the following: - The I_________ F________ R________ S_________ F________ (_ _ _ _ ___________) - The I_________ A________ S_______ B_____ (_ _ _ _) - The I_________ F________ R________ S_______ A______ C_____; and - The I_________ F________ R______ S________ I__________ C________

International Financial Reporting Standards Foundation (IFRS Foundation); International Accounting Standards Board (IASB); International Financial Reporting Standards Advisory Council; International Financial Reporting Standards Interpretations Committee;

IFRS are developed through a formal system of due process and broad international consultation involving _________, _______ analysts, and other users and __________ bodies from around the world.

accountants, financial; regulatory;

The IFRS Foundation: - Independent, ___-___-____ private sector organisation working in the public ______. - Founded in ______ _ _ _ _ as the I________ A________ S________ C_______ F_________ - Is the parent entity to the _ _ _ _ - P_______ and p_______ IFRS

not-for-profit; interest; March 2001; International Accounting Standards Committee Foundation; IASB; Publishes; promotes;

The mission of the IFRS Foundation is: - To _______ IFRS Standards that bring ________, __________ and ________ to financial markets around the world

develop; accountability, transparency; efficiency;

The governance and oversight of the IFRS Foundation and its standard-setting bodies rests with the _______. They are also responsible for _________ IFRS and securing the organisation's _______. They are appointed for a renewable term of _ years

Trustees; promoting; funding; 3;

A Monitoring Board (established in 2009) provides a ______ ____ between the _______ and ______ _______ _______ authorities The Monitoring Board participates in the process for _________ Trustees and ______ their appointment

formal link; Trustees; public capital market; appointing; approves;

The International Accounting Standards Board is the ________-______ body and is an independent, privately funded accounting standard setter based in _______. It is a part of the International _________ __________, reporting to the _ _ _ _ ____________

standard-setting; London; regulatory framework; IFRS Foundation

From _____ _ _ _ _ the IASB assumed accounting standard setting responsibilities from its predecessor body, the _ _ _ _

April 2001; IASC;

The IASB members are selected so that there is a mix of ______, ________, _____ and __________

auditors, preparers, users; academics;

Objectives of the IFRS Foundation and the IASB: - To develop a single set of high quality, understandable, enforceable _________ _________ __________ __________ standards based upon clearly articulated principles - To promote the ___ and _________ __________ of those standards - To take account of the needs of a range of ____ and ______ of entities in diverse economic settings - To _______ and ________ adoption of IFRS

globally accepted financial reporting; use; rigorous application; sizes; types; promote; facilitate;

The IFRS Foundation oversees two main areas: - The ______-________ process, and - The _ _ _ _ A______ C_____

standard-setting; IFRS Advisory Council;

Structure of the IFRS Foundation: The standard-setting process consists of two bodies: - The _ _ _ _ - The _ _ _ _ ____________ _________ - The _ _ _ _ has the sole responsibility for setting international financial reporting standards

IASB; IFRS Interpretations Committee; IASB;

Structure of the IFRS Foundation The IFRS Interpretations Committee: - Provides timely guidance on the _________ and ____________ of IFRS. - Deals with newly identified _________ _________ issues not specifically addressed in _ _ _ _; or - Issues where unsatisfactory or conflicting __________ have developed, or seem likely to develop

application; interpretation; financial reporting; IFRS; interpretations;

Structure of the IFRS Foundation The IFRS Advisory Council: - The formal advisory body to the _ _ _ _ and _______ of the IFRS Foundation. - Members of the Advisory Council are appointed by the ________

IASB; Trustees; Trustees;

Structure of the IFRS Foundation (high-level overview): - _ _ _ _ - _ _ _ _ I________ C________ - _ _ _ _ A______ C_______

IASB; IFRS Interpretations Committee; IFRS Advisory Council;

Steps in the Standard Setting process: 1) S______ the _______ 2) P_______ the _________ 3) D________ and p________ the _________ paper 4) D________ and p________ the _________ draft 5) D________ and p________ the ________ 6) After the standard is issued, ____-_________ reviews are carried out after the requirements have been applied for ___ years internationally.

Setting; agenda; Planning; project; Developing; publishing; discussion; Developing; publishing; exposure; Developing; publishing; standard; post-implementation; two;

Standard-setting process Step 1) Setting the Agenda IASB considers: - The ________ to users of the information and _______ of information that could be provided - Whether _______ _________ is available - The possibility of increasing __________ - The quality of standard to be __________; and - R_______ c_______

relevance; reliability; existing guidance; convergence; developed; Resource constraints;

Standard-setting process Step 2) Planning the Project - IASB considers whether to conduct the project ______ or _______ with another standard setter - A _______ ______ is usually formed at this stage and the project plan is developed

alone; jointly; working group;

Standard-setting process Step 3) Developing and publishing the discussion paper - Not ____________ Includes: - A __________ ________ of the issue - Possible ________ in addressing the issue - The preliminary views of its ______ or the _ _ _ _, and - An invitation to ________

mandatory; comprehensive overview; approaches; authors; IASB; comment;

Standard setting process Step 4) Developing and publishing the exposure draft - M_________ step in the ___ process - The exposure draft is the IASB's main means of _________ the _____ on the proposed standard Considers: - Issues on the basis of staff _______ and ___________ - Comments received on the __________ paper - Suggestions made by _ _ _ _ A_______ C______, working groups, other standard-setters etc. Once the exposure draft has been _________ the IASB again invites comments

Mandatory; due; consulting; public; research; recommendations; discussion; IFRS Advisory Council; published;

Standard setting process Step 5) Developing and publishing the standard - IASB considers whether a second _______ _____ should be published. The IASB needs to: - Identify substantial issues emerged during the ________ period on the ________ _____ that it had not previously considered - Assess the ________ that has been considered - Evaluate whether it has sufficiently understood the ______ - Make sure all views were _________ in developing the ________ _____

exposure draft; comment; exposure draft; evidence; issues; considered; exposure draft;

The development of an IFRS involves an ____, ______ process of _________ ________ _______ and evaluating input sought through several mechanisms

open, public; debating technical issues;

Opportunities for interested parties to participate in the development of an IFRS would include: - Participation in the development of views as a member of the _ _ _ _ _________ _______ - Participating in _______ groups - Submission of a _______ letter in response to a __________ document - Submission of a ________ letter in response to an __________ Draft - Participation in ______ hearings; and/or - Participation in _____ visits and ______ tests

IFRS Advisory Council; advisory; comment; discussion; comment; Exposure; public; field; field;

The IASB undertakes a public consultation on its future technical agenda every _ years

- The IASB reports on its _______ projects on its _______ - It also publishes a report on IASB decisions immediately after each IASB _______ in its newsletter _ _ _ _ _______

technical; website; meeting; IASB Update;

From the 1990s onwards it became increasingly clear that the original IAS's were not enough to have a set of international standards with which most countries could comply. These standards had to be sufficiently ________ to be ___________ to all ______ _________, including those in the US.

rigorous; acceptable; stock exchanges;

The starting point for the rapid change of the last few years was the acceptance of international accounting standards for _____-______ ________ by the I___________ O_________ of S_______ C__________ (IOSCO).

cross-border listings; International Organisation; Securities Commissions;

International standards gained more prominence when the E_______ U_____ decided that from _ _ _ _, the consolidated financial statements of companies in the member states would be prepared under __________ ________

European Union; 2005; international standards;

Benefits of harmonisation: - I______ and l_______, both individual and corporate, need to be able to ________ the _________ ______ of different companies ___________ as well as _________ in making investment decisions. - Provides ______ _______ information on which to base economic decisions - Benefits the _____ _______, because it makes it easier to remove _______ to the flow of _______ between countries. - Easier for businesses to _____ into and raise _______ in countries other than their own. - Protects _______ and helps restore _____ _________ in financial reporting following major economic events (GFC 2008).

Investors; lenders; compare; financial results; internationally; nationally; better quality; global economy; barriers; capital; expand; finance; investors; public confidence;

Barriers to harmonisation: - Different purposes of __________ reporting - Different _____ systems - Different ____ groups - Needs of __________ countries - N________ - C________ ___________ - U_____ c__________ - Lack of strong __________ bodies

financial; legal; user; developing; Nationalism; Cultural differences; Unique circumstances; accountancy;

IFRS benefits national jurisdictions by making it possible to ______ the __________ ________ of an ______ in one country with those of an ______ in another country, making it easier to do business with overseas companies. - This benefits _________ __________, as well as the ______ __________

compare; financial statements; entity; entity; national economies; global economy;

In its 2002 policy statement International Convergence and Harmonisation Policy the Australian Accounting Standards Board listed the following additional benefits of adopting IFRS: - Increasing understanding by ________ _________ of Australian financial reports - Reducing financial reporting _____ - Facilitating more _________ ________ of financial performance and financial position of Aus and foreign ______ ______ reporting entities - Improved ________ of financial reporting

foreign investors; costs; meaningful comparisons; public sector; quality;

Further benefits to national jurisdictions of IFRS: - Developing nations can _____ IFRS as a full set of ________ - Easier for national governments to control the _________ of ______ ____________ companies that carry out operations within their territory - T__ authorities may find it easier to calculate the ___ liability of investors

adopt; standards; activities; foreign multinational; Tax; tax;

From _ _ _ _, all listed entities in member states have been required to use _ _ _ _ in their ___________ _________ statements

2005; IFRS; consolidated financial;

Other international bodies involved with the recent trend of moving to IFRS: - _ _ _ _ and the E________ C________ - U_______ N_____ (UN) - I__________ F_________ of A__________ (_ _ _ _) - Organisation for E_________ C_-________ and D_________ (OECD) - A________ A________ S________ B______ (AASB)

IASB; European Commission; United Nations; International Federation; Accountants (IFAC); Economic Co-operation; development; Australian Accounting Standards Board;

The EC has set up a committee to investigate where there are _______ between E________ U_____ norms and I_________ S_______ so that compatibility can be achieved.

conflicts; European Union; International Standards;

The UN processes are highly _______ and probably reflect the attitudes of the __________ of developing countries towards multinationals.

political; governments;

The IFAC's main objective is to _________ the accounting profession on a ______ scale by _________ and __________ International Standards on auditing, management accounting, public sector accounting, ethics, education and training.

coordinate; global; issuing; establishing;

The IFAC also organises the W_____ C_______ of A_________, which is held every _ years

World Congress; Accountants; 4;

The OECD's aim is to bring together the governments of countries committed to democracy and the market economy from around the world to: - Support __________ ________ ______ - Boost ___________ - Raise _______ standards - Maintain _________ stability - Assist other countries' _________ development - Contribute to growth in _____ ______

sustainable economic growth; employment; living; financial; economic; world trade;

The OECD undertakes its ___ ________ into accounting standards via ad hoc working groups

own research;

Functions of the AASB under the Australian Securities and Investments Commission (ASIC) 2001 Act are: - To develop a _________ ________ for the purpose of evaluating proposed __________ standards and __________ standards - To make _________ standards under section 334 of the Corporations Act 2001 for the purposes of the ___________ legislation - To formulate ___________ standards for other purposes - Participate in and contribute to the development of a single set of ____________ standards for worldwide use - Advance and promote the main objects of Part _ _ of the Australian Securities and Investments Commission Act

conceptual framework; accounting; international; accounting; corporations; accounting; accounting; 12;

Mission of the AASB: - Develop and maintain a high-quality _________ __________ for all sectors of the A________ economy - Develop and maintain high quality __________ standards for reporting entities in those sectors - Contribute, through thought leadership and participation, in the development of g_____ f_________ r________ standards and standard ________

conceptual framework; Australian; accounting; global financial reporting; setting;

The Australian process of harmonisation with _ _ _ _ has been to issue IFRS-equivalent standards; that is, adopt the content of _ _ _ _ with minor changes made to refer to the Australian ___________ environment.

IFRS; IFRS; legislative;

In some jurisdictions a company's managers may depart from any of the provisions of accounting standards if these are inconsistent with the requirement to give a ____ and ____ view. This is commonly referred to as the '____ and ____ override'. It has been treated as an important ________ in the ___ in different countries and has been the cause of much argument and dissatisfaction within the accounting profession.

true; fair; true; fair; loophole; law;

How many standards did the IASC have? How many IFRS's have been issued by the IASB?

41 IAS's; 17 IFRS's;

The _ _ _ _ and the US F________ A________ S_______ B_____ (_ _ _ _) have been working together since _ _ _ _ to achieve convergence of _ _ _ _ and US _ _ _ _ Both parties set out their agreement in a Memorandum of Understanding known as the ________ agreement

IASB; Financial Accounting Standards Board (FASB); 2002; IFRS; GAAP; Norwalk;

In _ _ _ _, the US S________ and E________ C_________ removed the necessity for a reconciliation between _ _ _ _ and US _ _ _ _ for non-US companies that were listed in the US providing their financial statements complied with _ _ _ _.

2007; Securities; Exchange Commission; IFRS; GAAP; IFRS;

In June 2011, the following projects were completed: - B______ c___________ - C___________ - D_________ of f________ i________ - F___ v_____ m___________ - Financial statement ____________ - J____ ____________; and - P___- e___________ benefits

Business combinations; Consolidation; Derecognition; financial instruments; Fair value measurement; presentation; Joint arrangements; Post-employment;

Since 2013, the IASB and FASB have worked together on the following projects: - F_______ i__________ - R______ - L_____; and - I________ contracts (these projects have now been completed)

Financial Instruments; Revenue; Leases; Insurance;

The main aim of accounting is to provide _________ information to _____ of such information

financial; users;

Both shareholders and suppliers require an indication of _______ and _______ progress of an organisation.

current; future;

- The _ _ _ _ _________ appoints the members of the IASB. - The _ _ _ _ ___________ _________ issues interpretations - The _ _ _ _ _________ oversees the work of the _ _ _ _ ___________ ___________ - The _ _ _ _ _________ ________ assists and advises the _ _ _ _ in the process of developing IFRSs

IFRS Foundation; IFRS Interpretations Committee; IFRS Foundation; IFRS Interpretations Committee; IFRS Advisory Council; IASB;

UK GAAP believes that GAAP goes far beyond mere _____ and ________, and encompasses contemporary permissible __________ _________

rules; principles; accounting practice;

The UK view of GAAP is ___ ____ in all countries (particularly in the _ _ _ ) In Australia, there does not seem to be any strong body of opinion on _ _ _ _

not held; USA; GAAP;

The Conceptual Framework provides the __________ framework for the development of _ _ _ _

theoretical; IFRS;

A conceptual framework is a statement of generally accepted __________ __________ which form the frame of reference for __________ _________

theoretical principles; financial reporting;

A conceptual framework forms the _________ _____ for determining: - Which events should be _________ for - How they should be _________ - How they should be ____________ to the ____

theoretical basis; accounted; measured; communicated; user;

Conceptual Framework (FASB) A coherent system of interrelated objectives and fundamental concepts that prescribes the ______, ________ and ______ of financial accounting and reporting

nature, function; limits;

Conceptual framework (IASB) A coherent system of concepts that flow from an ________ The objective of financial reporting is the ________ of the ________

objective; foundation; framework;

Further, a conceptual framework: - Sets out the basis of recognition of items in financial statements such as ______, _________, ______ and _______ - It provides the basis for the development of ___ _________ _________; and - The evaluation of those already in __________

assets, liabilities, income; expenses; new accounting standards; existence;

Advantages of a Conceptual Framework: - Standards developed on a _________ basis as a reaction to a particular __________ problem -- Standards developed in this way may be __________ with basic concepts and with each other - Less likelihood of p______ i_________ - Rules may be avoided, but preparers _____ apply the '______' and reasoning behind standards based on principles - Standard setters may become more __________ to users of financial statements - Developing standards should be ______ and less ______ - Provides principles that can be applied where there is no ________ ___________ standard or other guidance - Contributes to general _________ and increases _____ confidence in financial statements

piecemeal; accounting; inconsistent; political interference; must; spirit; accountable; easier; costly; relevant accounting; credibility; public;

Disadvantages of Conceptual Framework: - May not suit all ________ of _____ - May lead to a lot of standards being produced for _________ purposes - P_______ and i_________ standards may not be easier - May lead to standards which are very ________ and _________, increasing _________ - Nothing to help users understand the __________ of management - Accounting principles focus only on _________ phenomena (_____ terms)

varieties; users; different; Preparing; implementing; theoretical; academic; complexity; stewardship; economic; money;

According to the Conceptual Framework, the fundamental reason why financial statements are produced is to satisfy the ___________ of ________ users

requirements; external;

The Conceptual Framework was revised in ______ _ _ _ _ and is effective for periods commencing on or after _ _______ _ _ _ _

March 2018; 1 January 2020;

Chapters of the Conceptual Framework: - Chapter 1: The _________ of _______ ________ financial reporting - Chapter 2: Q_________ c__________ of _______ financial information - Chapter 3: Financial statements and the ________ ______

objective; general purpose; Qualitative characteristics; useful; reporting entity;

Chapters of the Conceptual Framework: - Chapter 4: The _______ of the financial statements - Chapter 5: R________ and d_________ of the ________ of the financial statements - Chapter 6: Measurement of the _________ of the financial statements

elements; Recognition; derecognition; elements; elements;

Chapters of the Conceptual Framework: - Chapter 7: P________ and d______ - Chapter 8: Concepts of c______ and c_______ maintenance

Presentation; disclosure; capital; capital;

Purpose of the Conceptual Framework: - Assist the IASB to ______ IFRS Standards that are based on _________ concepts - Assist preparers to _______ ________ accounting _______ where no standard applies to a particular transaction or other event - Assist all parties to _________ and _______ the Standards

develop; consistent; develop consistent; policies; understand; interpret;

What is the theoretical framework upon which all IFRS are based?

The IASB's Conceptual Framework for Financial Reporting

In rare cases of conflict between an IFRS and the Conceptual Framework, the _ _ _ _ will prevail.

IFRS;

The Conceptual Framework is concerned with ________ __________ _________ ________

general purpose financial reporting;

The Conceptual Framework explains that: - Existing and potential investors, lenders and other creditors must normally rely on _______ ________ ________ _______ for most of the financial information that they need. - Therefore they are the ________ _____ to which ______ _______ _______ ______ are directed. - They may also need to consider relevant information from ______ _______, such as general economic conditions and expectations or political events.

general purpose financial reports; primary users; general purpose financial reports; other sources;

The Conceptual Framework states that financial information should be prepared using _______ accounting

accrual;

Financial reports provide information about the ________ position of an entity: - Its _________ resources; and - The _______ against it; - The _______ in an entity's economic resources and claims

financial; economic; claims; changes;

Information about the entity's economic resources and the claims against it helps users to: - Assess _______ and ________; and - Needs for __________ _________ and how successful it is likely to be in obtaining it

liquidity; solvency; additional finance;

Liquidity is the availability of sufficient ____ to meet _____-____ financial commitments as they fall ___

funds; short-term; due;

Solvency is the availability of ____ over the _______ ____ to meet financial commitments as they fall ___

cash; longer term; due;

Information about a reporting entity's __________ performance helps users to understand the ______ that the entity has produced on its ________ resources. This is an indicator of how _________ and _________ management has used the _________ of the entity and is helpful in predicting _______ returns;

financial; return; economic; efficiently; effectively; resources; future;

Information about an entity's financial performance helps users to assess the entity's ____ and ______ ability to generate net cash _______ from its operations.

past; future; inflows;

Information about a reporting entity's ____ _____ during a period also helps users assess the ability to generate _______ net cash _______ and provides information about factors that may affect its ________ or __________

cash flows; future; inflows; liquidity; solvency;

For-profit private sector entities in Australia must prepare _______ ________ ________ statements when they have both _____ accountability and they are required by __________ to comply with Australian Accounting Standards

general purpose financial; public; legislation;

Public accountability arises when an entity has or is in the process of: - Issuing ____ or _____ instruments (eg. securities) that are traded in a _____ market; or - It holds assets in a ________ capacity for a broad group of _________ as one of its primary businesses - eg. insurance companies, banks and mutual funds

debt; equity; public; fiduciary; outsiders;

Non-general purpose financial statements are prepared in accordance with the ______ __________ needs of the entity's financial statement _____

specific information; users;

Accounting regulation is necessary to reduce __________ in producing financial reports and to increase ____________

subjectivity; comparability;

The C________ F________ serves as a useful basis for accountants to refer to when dealing with ___________ not covered by an accounting ________

Conceptual Framework; transactions; standard;

Accounting policies are defined in which IAS?

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Accounting policies are the specific _________, _____, __________, _____ and ________ adopted by an entity in preparing and presenting financial statements

principles, bases, conventions, rules; practices;

Policies should be chosen to comply with _ _ _ _ , but with the overriding need for ____ presentation

IFRS; fair;

Accounting estimates involve the use of _________ when applying accounting policies. Eg. the decision regarding the length of an asset's useful life is a matter of ___________ The decision regarding ______ of depreciation is also a matter of __________, rather than accounting policy.

judgement; estimation; method; estimation;

Measurement bases is stated in the accounting ______ Any change in ___________ ______ is regarded as a change of accounting ______ Any change in _________ technique is not a change of accounting ______, however the effects of such a change on the current and future periods should be _________.

policy; measurement basis; policy; estimation; policy; disclosed;

Characteristics of useful financial information (as per the IASB's Conceptual Framework) - R_______ - F______ ___________

Relevance; Faithful Representation;

Financial information is relevant if it is: - Capable of influencing the _______ _________ of users; and - Provided in time to ________ those decisions Relevant information possesses either _________ value, __________ value, or both.

economic decisions; influence; predictive; confirmatory;

Financial information meets the needs of faithful representation if it: - Reflects the _________ of ___________ - Is free from ____, or is ______ - Is free from ________ _____ - Is _______; and - P______ has been applied where there is any uncertainty

substance; transactions; bias; neutral; material error; complete; Prudence;

Retrospective application is applying a new accounting ______ to __________, other ______ and _________ as if that ______ had always been applied

policy; transactions; events; conditions; policy;

Retrospective restatement is correcting the __________, _____________ and _________ of amounts of elements of financial statements as if a prior period error had never occurred.

recognition, measurement; disclosure;

It is impracticable to apply a change in an accounting policy retrospectively or to make a retrospective restatement to correct an error if one of the following apply: - The effects of the retrospective application or retrospective restatement _______ be _________ - The retrospective application or retrospective restatement requires ____________ about what management's ______ would have been in that period. - The retrospective application or retrospective restatement requires significant _________ of _______ and it is impossible to distinguish information about those _________

cannot; determined; assumptions; intent; estimates; amounts; estimates;

Accounting policies are determined by: - A________ the ________ _ _ _ _; and - Considering any relevant I__________ G_______ issued by the _ _ _ _ for that _ _ _ _.

Applying; relevant IFRS; Implementation Guidance; IASB; IFRS;

Where there is no applicable IFRS, management should use its ________ in developing and applying an accounting ______ that results in information that is _______ and ________.

judgement; policy; relevant; reliable;

Determining accounting policies: Management should refer to: 1) The requirements of IFRS dealing with _______ and _______ _______ 2) The definitions, recognition criteria and measurement concepts for _____, __________ and ________ in the C_______ F________ 3) Other s_______-s______ b_____ that use a similar conceptual framework to develop Standards.

similar; related issues; assets; liabilities; expenses; Conceptual Framework;

Changes in accounting policy are normally applied ____________

retrospectively;

Changes in accounting policy are ______ and should be made only if: - The change is required by an _ _ _ _ - The change will result in a more ________ and _______ presentation of the financial statements of the entity

unusual; IFRS; relevant; reliable;

Where a new IFRS is adopted, IAS 8 requires any ___________ _________ in the new IFRS to be followed

transitional provisions

Other changes in accounting policy (1) - IAS 8 requires ___________ application, unless it is ____________ to determine the cumulative amount of ______ - Any resulting adjustment should be reported as an adjustment to the _______ balance of ________ ________ - Comparative information should be ________ unless it is ____________ to do so

retrospective; impracticable; change; opening; retained earnings; restated; impracticable;

Other changes in accounting policy (2) - This means all comparative information must be restated as if the new policy had ______ _____ in _____, with - the amounts relating to earlier periods reflected in an adjustment to _______ ________ of the _________ period presented

always been; force; opening reserves; earliest;

Other changes in accounting policy (3) There is one important exception: - When an entity revalues ______ for the first time, this is treated as a __________ under _ _ _ __ P______, P____ and E_________, not as a change of accounting policy under IAS8

assets; revaluation; IAS 16 Property, Plant; Equipment;

Other changes in accounting policy (4) - If at the beginning of the current period it is impracticable to determine the cumulative effect of applying a new accounting policy to _____ periods, the entity should adjust the comparative information to apply the new accounting policy ____________ only

prior; prospectively;

Disclosures required when changing an accounting policy: - The _______ for the ______ - Amount of the _________ for the _______ period and for each period __________ - Amount of the __________ relating to periods _____ to those included in the comparative information - The fact that comparative information has been _______ or that it is ____________ to do so

reasons; change; adjustment; current; presented; adjustment; prior; restated; impracticable;

An entity should also disclose information relevant to assessing the ______ of ___ _ _ _ _ on the financial statements where these have not yet come into _____

impact; new IFRS; force;

An increase in inventory is an __________ to the cost of goods sold. A decrease in inventory is a ___________ to the cost of goods sold.

increase; reduction;

Material prior period errors must be corrected ___________ This may occur through: - mathematical ________ - Mistakes in the application of ___________ policies - Misinterpretation of _____ - O_________, and/or - F____ Most of the time these errors can be corrected through profit before ___ or ____ for the current period. Where there are _________ prior period ______, however, this is not appropriate.

retrospectively; mistakes; accounting; facts; oversights; fraud; tax; loss; material; errors;

Correcting material prior period errors involves: a) Either restating the ___________ amounts for the ______ periods in which the error occurred; or b) When the error occurred before the earliest prior period presented, _________ the ________ balance of ______, __________ and ______ for that period. so that the financial statements are presented as if the _____ had never _________

comparative; prior; restating; opening; assets, liabilities; equity; error; occurred;

Disclosures for correcting material prior period errors: - The ______ of the prior period error - For _____ prior period, the ______ of the correction: i) for each financial statement ____ ____ affected ii) for _____ and _______ earnings per share - The amount of the correction at the __________ of the earliest prior period presented; and - If retrospective restatement is ____________, the ___________ that led to the existence of that condition and a description of how and when the error has been corrected.

nature; each; amount; line item; basic; diluted; beginning; impracticable; circumstances;

Question 10 (Error) page 58 of textbook

see textbook

- Estimates arise in relation to business activities because of the ___________ inherent within them. Some examples of estimates include: - A necessary ____________ ____ ___________ - Useful lives of ___________ _____ - Provision for ___________ of __________

uncertainties; irrecoverable debt allowance; depreciable assets; obsolescence; inventory;

Changes in accounting estimates: A change in accounting estimate should be accounted for __________; that is, it should be included in profit before ta or loss in either: - The _______ of the _______, if the change affects that period only - The _______ of the _______ and ________ periods, if the change affects both

prospectively; period; change; period; change; future;

- An example of a change in accounting estimate which affects only the current period is the _________ ______ _______

irrecoverable debt estimate;

Changes in accounting estimates A revision in the life over which an asset is depreciated would affect both the ______ and _______ periods, in the amount of the depreciation ________ The effect of a change in accounting estimate should be included in the same _______ _____________ as was used previously. This helps to ensure _________.

current; future; expense; expense classification; consistency;

Changes in accounting estimates The _________ of the change is also relevant. The _______ and _______ of a change in accounting estimate that has a material effect in the _______ period should be disclosed.

materiality; nature; amount; current;

Module 1: The Financial Reporting Environment (Part 1) Flashcards

(190 cards)