Module 2: The Accounting Theory Flashcards
(128 cards)
1
Q
- A basic principle of accounting is that transactions are normally stated at their _________ cost
- H________ c___ is the most c______ a_______ measurement basis, but this is often combined with other bases, such as n__ r_________ v____ or f___ v____
- H_______ c___ is ________
A
historical;
Historical cost; commonly adopted;
net realisable value; fair value;
Historical cost; objective;
2
Q
Measurement basis
- Elements recognised in financial statements are quantified in _________ terms.
- This requires a selection of a _________ basis; which includes:
– H_________ c___
– F___ v____
– F_______ v____
A
monetary;
measurement;
Historical cost;
Fair value;
Fulfilment value;
3
Q
The two categories of measurement basis are:
- H__________ c___
- C______ v_____
A
Historical cost;
Current value;
4
Q
Historical cost
- For an asset: The cost incurred in _______/_______ the asset
- For a liability: The value of consideration received to _____/____ __ the liability
Updated over time to reflect the _________ of the asset, or __________ of the liability
A
acquiring/creating;
incur/take on;
consumption; fulfilment;
5
Q
Current Value measures provide monetary information about ______, _________ and related income and expenses, using information updated to reflect conditions at the ____________ ____
A
assets, liabilities;
measurement date;
6
Q
Current value includes:
- F___ v_____
- V___ i_ u__ for a_____ and f________ v____ for l________
- C______ c___
A
Fair value;
Value in use; assets; fulfilment value; liabilities;
Current cost;
7
Q
The historical cost convention has a number of implications:
- Transactions are recorded at _______ cost. Eg. the cost of goods sold is not suddenly increased at the end of the year.
- A_____ and l__________ are stated at their __________ cost
A
original;
Assets; liabilities; historical;
8
Q
- The historical cost of an asset when it is acquired or created is the value of the cost incurred in _________ or _______ the asset, comprising:
- C_________ paid to acquire or create the asset, plus
- T_________ costs
A
acquiring; creating;
Consideration;
Transaction;
9
Q
The historical cost of a liability when it is incurred or taken on is the value of the consideration received to _____ or ____ __ the liability minus transaction costs
A
incur; take on;
10
Q
An important advantage of the historical cost convention is:
- There is usually _________, documentary evidence to prove the p_______ p____ of an asset, or amounts paid as expenses
A
objective; purchase price;
11
Q
- In general, accountants prefer to deal with _________ costs, rather than with _________ values
- This is because v________ tend to be s________ and vary according to the ________ of valuation
A
objective; estimated;
valuations; subjective; purpose;
12
Q
Disadvantages of historical cost:
- The _______ ___ of assets over time
- The ________ in m______ v____ of property; and
- I_______
A
wearing out;
increase; market value;
Inflation;
13
Q
Fair value is the _____ that would be received to ____ an asset or ____ to transfer a liability in an _______ transaction between m_____ participants at the measurement date
A
price; sell; paid; orderly; market;
14
Q
Current cost definition of: Asset
- The cost of an ___________ asset at the measurement date, comprising the ___________ that would be ____ at the measurement date plus the ___________ costs that would be incurred at that date
A
equivalent; consideration; paid; transaction;
15
Q
Current cost definition of: Liability
- The consideration that would be _________ for an e__________ l_______ at the measurement date minus the __________ costs that would be incurred at that date
A
received; equivalent liability; transaction;
16
Q
AB Co. purchased a machine three years ago for $75,000. Its useful life is expected to be 15 years. An identical new machine can now be purchased for $80,000.
Calculate the historic and current cost of the machine.
A
Historic cost: $60,000
Current cost: $64,000
17
Q
Value in Use
The p______ v____ of the estimated ____ _____ from the use of an ______ and from its ultimate ________
A
present value; cash flows; asset; disposal;
18
Q
Suppose XY Co. purchases a new machine for $20,000. It is estimated that the new machine will generate profits of $4,000 per year for its useful life of 8 years and then will be sold for $5,000. What is its value in use?
A
$37,000
19
Q
Advantages of historical cost accounting:
- It is o________
- It is e______ u_________
- It is e___ to a_____
- It provides u_____ i__________ to users
- It is p_______
- It has stood the t___ of t___
A
objective;
easily understood;
easy; apply;
useful information;
prudent;
test; time;
20
Q
Disadvantages of current value or fair value accounting:
- Can encourage management to m________ the a_______ in the financial statements, because c______ v_____ can only be an estimate
- It anticipates ______ which may never be _________
- Because market values can fluctuate, using fair value can cause ________ in the financial statements
A
manipulate; amounts;
current value;
profits; realised;
volatility;
21
Q
When inflation is ___, historical cost accounting is usually ___________.
However when inflation is _____, problems may arise using historical cost accounting.
A
low; satisfactory;
high;
22
Q
Disadvantages of historical cost accounting:
- Non-current asset values are ___________, since u________ h______ g____ are not recognised until the asset is ________
- Depreciation is i_______ to f______ the r__________ of non-current assets
- Holding gains on i_________ are included in p____
- Profits (or losses) on holdings of n__ m_______ items are not shown
- The true effect of _______ on c______ m_________ is not shown
- Comparisons over time are __________
A
unrealistic; unrealised holding gains; realised;
inadequate; finance; replacement;
inventories; profits;
net monetary;
inflation; capital maintenance;
unrealistic;
23
Q
What can help overcome criticisms arising from inventory appreciation?
A
The Capital Maintenance Concept
24
Q
Issues with historical cost accounting:
“Historical cost no longer reflects economic reality”
1) Historical cost does not ______ any ________ that does not have a m_______ i_____
– Particularly relevant where an entity holds d________, which can expose an entity to significant u_______ and r___, which can impact financial performance
– Because a d________ may have little to no initial cost, under traditional accounting it may not be _________ in the f_______ s_________ at all.
– As a result this leaves users unaware of the ______ of ____ that the company faces
A
record; transaction; monetary impact;
derivatives; uncertainty; risk; derivative; recognised; financial statements;
level; risk;
25
Historical cost provided relevant information when the main purpose of financial statements was to enable owners to assess the __________ of __________.
stewardship; management;
26
Issues with historical cost accounting:
"Historical cost no longer reflects economic reality"
2) Emphasis is now on financial statements as a means to help users make ___, _____ or _____ decisions.
- Many believe that f___ v_____ provides these users with more r_______ information than historical cost because:
-- F___ v_____ have more p________ value
-- Some assets are traded on an a_____ m______ or held for their i_________ p______
-- F___ v______ often reflects the way _____ are _________ (for financial instruments)
buy, hold; sell;
fair value; relevant;
fair value; predictive;
active market; investment potential;
Fair values; risks; managed;
27
The Conceptual Framework explains that users need information to help them assess the ________ for future net cash _______ to an entity; this is unlikely to be provided by historical cost information alone
prospects; inflows;
28
Of the various possible systems of accounting for price changes, most fall into one of three categories:
1) General price change bases and in particular, c_____ p_________ p____ (CPP)
2) C_____ v_____ bases
3) A _________ of the two systems
current purchasing power;
current value;
combination;
29
Modified historical cost accounting refers to the method of accounting whereby _____ and _________ are measured at _________ cost with the exception of certain ______ which may be revalued to c______ v_____ (fair value).
This is the type of accounting prescribed by _ _ _ _
assets; liabilities; historical; values; current value;
IFRS;
30
- Many entities prepare m_______ _________ cost accounts: Some assets (normally ___-______ t______ ______ and f________ i__________ ) are measured at fair value or current/deprival value while the remainder continue to be measured at historical cost.
- M________ ________ cost accounts are ____ to prepare
modified historical;
non-current tangible;
financial instruments;
Modified historical; easy;
31
Positive accounting theory ______ and attempts to ______ actual ________ _______
explains; predict; accounting practice;
32
Normative accounting theory describes what ______ occur rather than predicting what ________ _____ occur
should;
actually does;
33
Accounting theories should provide ________ to accounting ________ and a ______ for the _______ development of accounting standards
guidance; practice; basis; future;
34
One example of a positive accounting theory is the _______ ________ __________ ( _ _ _ )
Efficient Market Hypothesis (EMH)
35
Examples of normative accounting theory:
- The use of a c_______ f________ and accounting ________ based on that framework
- C_______ c___ a________ ( _ _ _ )
- C______ p_________ p____ ( _ _ _ )
conceptual framework; standards;
Current cost accounting (CCA);
Current purchasing power (CPP);
36
Two main systems that have been developed as possible alternatives to historical cost accounting:
- C______ c___ a__________ (CCA)
- C______ p_________ p____ (CPP)
Current cost accounting;
Current purchasing power;
37
Under Current Value Accounting (CVA), the o_______ cost of an ______ would be replaced with its _________ p_____ v_____, that is, the p______ v_____ of its _______ cash flows
original; asset; discounted present value; present value; future;
38
Most entities use a _______ _______ of ______ when preparing their financial statements
financial concept; capital;
39
Financial capital maintenance
- Under this concept a profit is earned only if the _________ amount of the net ______ at the e__ of the period exceeds the _________ amount of net _____ at the b________ of the period
(after excluding any distributions to, and contributions from, owners during the period)
financial; assets; end;
financial; assets; beginning;
40
Financial capital maintenance can be measured in either nominal ________ units or units of constant __________ power
monetary; purchasing;
41
Physical capital maintenance (operating concept of capital)
- A profit is earned only if the p______ p__________ c_______ (or operating capability) of the entity at the ___ of the period exceeds the p______ p_________ c_______ at the ___________ of the period
(after excluding any distributions to, and contributions from, owners during the period)
physical productive capacity; end; physical productive capacity; beginning;
42
The main difference between the two concepts of capital maintenance is the treatment of the _______ of ______ in the prices of _______ and __________ of the entity.
effects; changes; assets; liabilities;
43
Financial Capital Maintenance:
- Profit is the _______ in nominal money capital over the period.
- This is the concept used under __________ cost accounting
increase;
historical;
44
Physical (or Operating) capital maintenance:
- Profit is the ________ in the physical productive capacity over the period.
- This is the concept used in _ _ _
increase;
CCA;
45
- Current Purchasing Power (CPP) measures profits as the ______ in the c_____ p________ p____ of _____
- Profits are therefore stated after allowing for the d_______ purchasing power of ______ due to price ________
increase; current purchasing power; equity;
declining; money; inflation;
46
Profit can be measured as the difference between how ________ a company is at the ________ and ___ of an accounting period
- Once _______ has been maintained, anything achieved in excess represents ______
wealthy; beginning; end;
capital; profit;
47
Capital is simply the difference between ______ and __________
assets; liabilities;
48
- A major issue with conventional accounting is that it assumes monetary values are _____
- This causes issues in times of rising _____; because in this case, $1 at the ___ of the ____ has less value (less p_________ p____ ) than it had ___ year previously
stable;
prices;
end; year;
purchasing power;
one;
49
- The ___-______ asset figure in a h________ c___ statement of financial position is an _________ of a number of items expressed in different _____
- It could be argued that such a figure is ___________
non-current;
historical cost;
aggregate; units;
meaningless;
50
When prices are rising, it is likely that the c______ v____ of ______ will also rise, but not necessarily by the general rate of inflation
current value; assets;
51
Specific price inflation measures the _____ changes over ____ for a specific _____ or group of ______
price; time; asset; assets;
52
General price inflation is the ______ rate of _______, which reduces the general purchasing power of _____
general; inflation; money;
53
- Current purchasing power (CPP) measures profits as the _______ in the c_____ p________ p____ of ______.
- Profits are therefore stated after allowing for the d_______ purchasing power of ______ due to ______ inflation.
increase; current purchasing power; equity;
declining; money; price;
54
When applied to historical cost accounting, CPP is a system of accounting which makes adjustments to ______ and _______ values to allow for the general rate of p_____ i________
income; capital; price inflation;
55
Q3) CPP Profits p129 of study guide
see textbook
56
Advantages of CPP accounting:
- Restatement of asset values provides a s____ m______ v_____, and hence a more meaningful _____ of comparison
- Profit is measured in '____' terms and excludes i________ v____ increments
- Avoids s________ v_______ of current value accounting
- Provides a s______ m_______ unit with which to value p_____ and c______
- Raw data is easily ________
stable money value; basis;
real; inflationary value;
subjective valuations;
stable monetary; profit; capital;
verified;
57
Disadvantages of CPP accounting:
- Measuring price by index has no p______ s___________
- Involves a___________ in measurement of value and hence may be deemed _________
- The value of assets in a _ _ _ statement of financial position has ____ ________ than a c______ v____ statement of financial position
practical significance;
approximations; inaccurate;
CPP; less meaning; current value;
58
In Current Cost Accounting, assets ________ or ____, and assets in the statement of financial position, are measured at their _____ to the business (d______ v____)
consumed; sold; value;
deprival value;
59
Deprival value is the lower of __________ ____ and ___________ ______
replacement cost; recoverable amount;
60
If the _____ is worth replacing, its d_______ v_____ will always be ___ ___________ cost
asset; deprival value; net replacement;
61
Many assets will not be replaced either because:
- The asset is t__________ o______, and has been superseded by more m_____ equipment
- Because the business is changing the ______ of its ________ and will not want to continue in the same line of business once the asset has been used up
Such assets would still be valued at n__ r__________ c___, because this 'deprival value' still provides an estimate of the o_________ c________ of the business.
technologically obsolete; modern;
nature; operations;
net replacement cost;
operating capability;
62
The deprival value of assets is reflected in the CCA statement of profit or loss by the following means:
- Depreciation is charged on non-current assets on the basis of g______ r____________ cost of the asset (where NRC = deprival value)
- Where _ _ _ or _ _ is the deprival value, the charge against CCA profits will be the loss in _____ of the asset during the accounting period
- G____ s___ are charged at their r__________ cost
gross replacement;
NRV; EV;
value;
Goods sold; replacement;
63
WEx: CCA v Accounting for inflation P131 study guide
see textbook
64
CCA accounts include the following adjustments:
- D________ adjustment
- C___ of s_____ adjustment
- W______ c______ adjustment
Depreciation;
Cost; sales;
Working capital;
65
Advantages of Current Cost Accounting (1):
- Can indicate whether _________ paid to s________ will reduce the operating capability of the business
- Assets are valued after management has considered the o________ c___ of holding them - therefore it is a useful guide for management in deciding whether to ____ or ____ assets
dividends; shareholders;
opportunity cost; hold; sell;
66
Advantages of Current Cost Accounting (2):
- Helps information users assess business s______, v_________, performance of m__________ and for judging f______ p_______
- Can be implemented fairly e_____
stability, vulnerability; management; future prospects;
easily;
67
Disadvantages of current cost accounting:
- Impossible to make valuations of _ _ or _ _ _ without s________ j________
- Several problems occur in deciding how to provide an estimate of r_________ c____ for n__-c______ a_____
- Valuation of assets may include a m______ of different measurement bases
- It can be argued that 'deprival value' is an ___________ concept
EV; NRV; subjective judgement;
replacement cost; non-current assets;
mixture;
unrealistic;
68
The historical cost convention fails to take account of ________ ______ levels over _____
changing price; time;
69
In times of rising prices, the historical cost concept causes asset values to be __________ and profit ___________
understated; overstated;
70
The development of alternatives to _________ cost is an example of __________ accounting theory
historic; normative;
71
- Capital maintenance is the point of reference by which ______ is measured
- It is a prerequisite for distinguishing between an entity's ______ on _______ and its _______ of _______
return; capital; return; capital;
72
Current purchasing power (CPP):
- Measures ______ as the difference between ______ and ________ after allowing for the effect of _______
profit; income; expenses; inflation;
73
QRQ1 Question 13, p135 of study guide
Historical cost: $320,000
Current cost: $384,000
74
- Corporate governance frameworks aim to ensure directors/managers ______ their ____________ as agents by requiring ________ and suggesting they be rewarded on the _____ of ___________.
fulfil; responsibilities; disclosure; basis; performance;
75
Agency relationship is a contract under which one or more persons (the __________ ) engage another person (the _____ ) to perform some _______ on their behalf that involves delegating some decision-making authority to the _____.
principals; agent; service; agent;
76
In the context of agency, _____________ means that the _____ is ___________ under the contract to the p_______ and must account for the r________ of the principal and the m____ gained working on the principal's behalf.
accountability; agent; answerable; principal; resources; money;
77
Two problems with agency theory:
1) How does the p_______ enforce a___________ ? (the agency problem)
2) What if the a____ is a___________ to parties other than their p______ ?
principal; accountability;
agent; accountable; principal;
78
Fiduciary duty is:
- Where company directors must exercise their _______ in what they honestly consider to be the ____ _________ of the company.
- This duty is owed to the _________ and not generally to individual ___________.
powers; best interests;
company; shareholders;
79
Characteristics of Agency:
- Agent has a c_________ o_________ to perform a task
- Agent must act in accordance with p________ i____________
- Agent must show s_____ and c____
- Agent must p______ their t___ themselves
- Agent's i_______ must not conflict with the p________
- Agent must keep c_______ in what they know of the principal's affairs
- Any benefit must be handed over to the p_______ unless they agree the agent may r______ it
contractual obligation;
principal's instructions;
skill; care;
perform; task;
interests; principal's;
confidence;
principal;
retain;
80
Agency in the context of the Director-Shareholder relationship
- Agency is a significant issue in corporate governance because of the dominance of the l______ l_______ c_________
- For larger companies this has led to the s________ of o_________ of the _______ from its ___________.
- The owners (shareholders) can be seen as the ________, the management of the company as the ______.
limited liability company;
separation; ownership; company; management;
principal; agents;
81
The Agency Problem (1):
- The agency problem in limited liability companies derives from the principals (owners) not being able to ___ the business themselves and therefore having to rely on agents (directors) to do so for them.
The Agency Problem (2):
- This s________ of o________ from ___________ can cause issues if there is a breach of _____ by directors through intentional action, omission, neglect or incompetence.
- This breach may arise because directors are p_______ their ___ i_______ rather than those of the s_________ or because they have d_______ a________ to risk taking than the shareholders.
82
One power that the shareholders possess is the right to ______ the _________ from office
remove; directors;
83
Agency theory assumes that it will be ________ and _______ to:
- Verify what the agent is _____, partly because the agent has more information about their ________ than the p______ does
- Introduce mechanisms to ______ the _________ of the a_____
expensive; difficult;
doing; activities; principal;
control; activities; agent;
84
Agency costs arise from attempts by _________ to monitor the ________ of a______
principals; activities; agents;
85
Types of agency costs:
- Salaries paid to d_______ in their role as a_____ running the company on shareholder's behalf.
- M________ costs to ensure that the agent is doing what they should be
- Can also include the shareholder's personal cost of accepting h______ r____ than they would wish to
directors; agents;
Monitoring;
higher risks;
86
Alignment of interests
- The agreement between the o________ of a_____ acting within an organisation and the o_______ of the __________ as a whole.
- Sometimes referred to as g___ c_________
objectives; agents; objectives; organisation; goal congruence;
87
Alignment of interests may be better achieved by allowing for the following incentives:
- P____-r_______/e________ v_____-added pay
- Rewarding m_______ with s______
- E________ S_____ O______ P____ (ESOPs)
This may encourage management to adopt 'c______ a_________' methods
Profit-related/economic value;
managers; shares;
Executive Share Option Plans;
'creative accounting';
88
Alignment of interests: Alternative approaches
- Monitor m_______ b__________ by establishing m_________ a____ procedures
- Introduce a__________ r_______ requirements
- Seek a_________ from ________ that s_________ interests will be foremost in their priorities
managers behaviour; management audit;
additional reporting;
assurances; managers; shareholders;
89
Transparency means ____ discussions and a default position of information ________ rather than _____________
open; provision; concealment;
90
Information Asymmetry is where the company's _________ and f________ s______ is weighted towards _________
Avoidance of this requires effective d________ r_____ and strong i______ c______ to ensure that the information disclosed is r________.
activities; financial situation; managers;
disclosure rules; internal controls; reliable;
91
Publication of r______ and r______ information underpins ______ _______ confidence in how companies are being governed and therefore significantly influences m_____ p______.
relevant; reliable; stock market; market prices;
92
- International accounting standards and s_____ m_______ ___________ based on corporate governance codes requires information published to be ____ and ____
stock market regulations; true; fair;
93
Circumstances where concealment may be justified:
- Discussions about f_____ s______
- C________ issues relating to individuals and discussions leading to an agreed ________ that is then to be made ______
future strategy;
Confidential; position; public;
94
A key agency relationship on which c_______ g________ g________ is focussed is the s_________-a_____ relationship
corporate governance guidance;
shareholder-auditor;
95
The director - managers/employees agency relationship works by establishing systems of p__________ m_________ and m_________
performance measurement; monitoring;
96
Good _________ helps reduce the gap between the information available to ________ and the information available to ___________.
disclosure;
directors;
shareholders;
97
Mandatory information as per IAS1:
- Statement of ________ _________
- Statement of ______ or _____ and ______ ______________ _______
- Statement of ______ in ______
- Statement of _____ _____
- Accounting ________ and ___________ notes; and
- C_________ information in respect of the __________ period
financial position;
profit; loss; other comprehensive income;
changes; equity;
policies; explanatory;
Comparative; preceding;
98
The preparation of financial statements is the responsibility of the _______ of ________
Board; Directors;
99
IAS1 also encourages a ________ review by ____________ and the production of any other reports and statements which may aid users.
financial; management;
100
The ______ _______ must also be disclosed with the financial statements as it provides an ___________ opinion as to whether the financial statements show a ____ and ____ view of the performance and position of the entity.
auditor's report;
independent;
true; fair;
101
Reporting requirements are also found in the _______ requirements of ______ _________
listing; stock exchanges;
102
Corporate governance disclosure helps the ___________ understand the way the company is being ___ and ensures that the ________ have proper procedures in place to deal with a__________, a_____, d_________ roles and responsibilities, internal ________ and relations with _____________
shareholders; run; directors; accountability, audits, directors'; control; shareholders;
103
Non-mandatory information:
- S_____ and e__________ reporting or ____________ reporting
- A M__________ C__________
- R___ information
Social; environmental; sustainability;
Management Commentary;
Risk;
104
Management commentaries set out the ________ analysis of the ________ and proposed ________ risks and prospects of the company.
director's; current; future;
105
Advantages of disclosing non-mandatory information:
- W____ i___________ provided
- Different _____ of i_________
- A________ about ____________
Wider information;
focus; information;
Assurances; management;
106
Disadvantages of disclosing non-mandatory information:
- Some shareholders may experience i_________ o________
- C____ of p__________
- Loss of c__________ a________
- U_________ of i__________
information overload;
Costs; preparation;
competitive advantage;
Usefulness; information;
107
Information available to shareholders may come from:
- F_______ s________
- The f_______ p_____
- The i________
Financial statements;
Financial press;
Internet;
108
Information provided by a company may include:
- A_____ f_______ r_____
- C________ statement
- D_______ r_____
- C________ g________ s________
- C________ s_____ r_________ r______
- A______ r______
- M________ c___________
Annual financial report;
Chairman's;
Director's report;
Corporate governance statement;
Corporate social responsibility report;
Auditor's report;
Management commentary;
109
Benefits of providing company information to shareholders:
- C________ financial statements have _________
- C_______ and u________
- O________ and t_________
Conventional; limitations;
Complexity; uncertainty;
Openness; transparency;
110
IAS1 explains that the notes are presented in the following order:
1) A statement of ___________ with _ _ _ _
2) A summary of significant _________ _____ adopted
3) S________ i_________ for items presented in primary statements
4) O_____ d_______, including details of the company's ________ liabilities not recognised in the financial statements
compliance; IFRS;
accounting policies;
Supporting information;
Other disclosures;
111
Disclosures relating to accounting policies should include details of:
- s_______ j________ that management made in applying the chosen _______
- Assumptions it has made about the future and other m_____ s______ of e_________ u________ at the end of the reporting period.
significant judgements; policies;
major sources; estimation uncertainty;
112
Chairman's statement:
- V_______
- Brief overview of the key ________ of the _______ in the period
- Includes information on the f_____ _______ of the company
- Normally emphasises the ________ aspects of the company's ___________ in the past year
Voluntary;
achievements; company;
future strategy;
positive; performance;
113
Directors' report must include:
- A review of its ________ and the results of these _________
- Details of significant ______ in state of affairs
- The entity's p______ a________ during the year and changes to these
- Details of any matter that has arisen since the ____ of the ____ that has/may affect the entity's _________ in f_____ years
- Details of l_____ d_________ in the entity's o_________ in f______ financial years, and the expected results of those operations
operations; operations;
changes;
principal activities;
end; year; operations; future;
likely developments; operations; future;
114
Directors' report must also include:
- D_______ p___ during the year; and
- The name of each ______ who has been a d______ of the company during the year
Dividends paid;
person; director;
115
In many jurisdictions, including Australia, the director's report must also include detailed disclosures about ________ ___________, including p________-r______ r___________
director's remuneration;
performance-related remuneration;
116
Corporate governance is the system by which companies are _________ and __________
directed; controlled;
117
A code of corporate governance requires the ________ to set up a system of ______ and ________ to ensure that the company is being run _________ for the benefit of the ___________
directors; controls; procedures; effectively; shareholders;
118
Listed companies must include a _______ ___________ statement in their annual report
corporate governance;
119
ASX eight fundamental principles of corporate governance:
1. Lay _____ __________ for m________ and o______
2. Structure the ______ to add _______
3. Act e______ and r_________
4. Safeguard _______ in c______ r_________
5. Make ______ and ________ disclosure
6. Respect the ______ of s_______ h_______
7. R______ and m______ risk
8. Remunerate ______ and r__________
solid foundations; management; oversight;
board; value;
ethically; responsibly;
integrity; corporate reporting;
timely; balanced;
rights; security holders;
Recognise; manage;
fairly; responsibly;
120
Corporate Social Responsibility Report (1):
- Can be presented as part of the ______ report or as a _____-_____ report
- Provides information about how a company's activities have affected the n_____ e__________ and the c________ in which it ________
- Describes actions it has taken to s________ the e_________
annual; stand-alone;
natural environment; community; operates;
safeguard; environment;
121
Corporate social responsibility report (2):
- May be called e_________, s______ or s__________ reports
- May be included in the d_______ r______ or in the m__________ c________
- No disclosure or reporting requirements within _ _ _ _
- Therefore companies can disclose w_______ information they _____
environmental; social; sustainability;
director's report; management commentary;
IFRS;
whatever; wish;
122
An auditor's report includes:
- O_______
- B____ for o______
- Key A____ matters
- Responsibilities of m________ and those charged with g________ for the financial statements
- A_____ responsibilities for the a____ of financial statements
- Report on other l____ and r_________ requirements
Opinion;
Basis; opinion;
Audit;
management; governance;
Audit; audit;
legal; regulatory;
123
- Most listed companies present a m________ c__________ of some kind.
- It is ___ required by _ _ _ _ or by companies l_________, however it may be required by listing _________ and is generally regarded as b___ p_______
management commentary;
not; IFRS; legislation; authorities; best practice;
124
A management commentary is sometimes called an:
- O________ and F_______ R_____, or a
- M_________ D_______ and A_____
Operating; Financial Review;
Management Discussion; Analysis;
125
- The purpose of a management commentary is to provide _____ with information that helps them _____ the related financial statements in ______.
- It explains management's view on not only ____ has happened, but ___ management believe it has happened, and
- What management believes the __________ are for the entity's ______
users; place; context;
what; why;
implications; future;
126
The principles of a management commentary is that it should:
- Provide management's view of the entity's _________, _______ and _______
- S________ and c________ the information in the financial statements; and
- Include f______-l______ information
performance, position; progress;
Supplement; complement;
forward-looking;
127
A management commentary should include information that is essential to an understanding of:
- The n_____ of the business
- Management's o_______ and s______ for meeting those o_______
- The entity's most significant r_______, r____ and r________
- The results of o________ and p______
- The c_____ p_________ measures and indicators that management uses to evaluate the entity's performance against stated objectives
nature;
objectives; strategies; objectives;
resources; risks; relationships;
operations; prospects;
critical performance;
128
CCA uses ________ ______ inflation
CPP uses ________ inflation
specific price; general;
