Week 1

Question 1

Which companies in the UK have to follow IFRS?

Answer 1

• Listed companies MUST prepare consolidated financial statements in accordance with IFRS
• Other companies, private companies can choose if they want to

Question 2

What are the benefits of using global standards/IFRS in their financial statements?

Answer 2

• Transparency: prevents markets from breaking down due to lack of access to information (information assymetry)
• Accountability
• Efficiency

Question 3

What is the Conceptual Framework?

Answer 3

Describes the objectives and concepts for general purpose financial reporting

Question 4

What is the purpose of the Conceptual Framework?

Answer 4

• Assist the IASB to develop IFRS (standards) that are based on consistent concepts
• Develop consistent accounting policies when no standard applies to a particular transaction or event, or when a standard allows a choice of accounting policy
• Assist all parties to understand and interpret the standards

Question 5

Who are the users of finanical statements?

Answer 5

• Investors
• The public
• Government
• Employees
• Suppliers/customers
• Lenders

Question 6

What are the qualitative characteristics of useful information?

Answer 6

• Relevance: predictive value and confirmatory (feedback about predictions)
• Faithful Representation: completeness, neutrality (free from bias) and free from error

Question 7

What are enhancing characteristics of useful information?

Answer 7

• Comparability
• Verifiability: confirm accuracy and reliability of financial information
• Timeliness: financial information being in time to be capable of influencing decisions
• Understandability: assume users have reasonable knowledge of business

Question 8

What is the judgement-based approach of IFRS?

Answer 8

Interpreting financial statements is subjective

Question 9

What is the “substance over form” approach of IFRS?

Answer 9

Transactions are accounted reflecting their economic substance, rather than their legal form

Question 10

What is prudence?

Answer 10

Exercise of caution when making estimates/judgements in financial statements e.g not overstating an asset

Question 11

How is prudence significant for qualitative characteristics of useful information?

Answer 11

Prudence creates bias so it interferes with the neautrality characteristic