Bsns107 - Accounting Concepts

Front 1

Who is the annual report distributed to?

Back 1

Shareholders and other external users

Front 2

What does the annual report mainly contain?

Back 2

- Financial Statements and notes
- Report of the external auditor's examination of the financial statements

Front 3

What may an annual report also contain?

Back 3

- Highlights for the year (net revenue, earnings per share, return on average shareholders equity)
- Historical Summary of some financial data for the last five years
- Other non-financial information

Front 4

What are the four financial statements included in the Financial Report?

Back 4

- Income Statement (Financial Performance)
- Balance Sheet (Financial Position)
- Statement of Changes in Equity
- Cash Flow Statement

Front 5

What is added to help people understand the 4 main statements?

Back 5

--> Notes to the accounts
- statement of accounting policies
- material information not provided elsewhere
- relevant information not provided elsewhere

Front 6

What are the limitations of Financial Statements? (x4)

Back 6

- Not adjusted to show impact of inflation
- Do not reflect opportunity costs
- Only report quantitative economic data ($)
- Do not reflect qualitative economic variables (non-financial info)

Front 7

What do external users have access to?

Back 7

Only the General Purpose Financial Statements, not the internal business records

Front 8

What are the objectives of the General Purpose Financial Statement? (x5)

Back 8

- To provide timely information about earnings and cash flow
- To assess relative strengths and weaknesses of financial position
- To make and evaluate decisions concerning scarce resources
- To help stakeholders assess the accountability of directors/management
- To provide information to interested stakeholders to help them in decision-making

Front 9

What must the financial statement comply with?

Back 9

GAAP - Generally Accepted Accounting Principles and Financial reporting standards

Front 10

Financial Reporting Standards

Back 10

Establish requirements for recognising, measuring and disclosing transactions and other events in general purpose financial statements
- Form part of GAAP and MUST be met

Front 11

What is the act created to control financial reporting?

Back 11

Financial Reporting Act (FRA) - a993

Front 12

What is the NZ Framework?

Back 12

- The objectives of the financial Statement
- The qualitative characteristics that determine the usefulness of information in financial statements
- The definition, recognition and measurement of the elements from which financial statements are constructed

Front 13

What do the NZ Framework statements do?

Back 13

- Encourage internal users to be honest and not decieptful

Front 14

Money Measurement Convention

Back 14

Holds that accounting should only deal with those items which are expressed in monetary terms and currency should be the same

Front 15

Historic Cost Convention

Back 15

Holds that assets should be recorded at their historic (transaction) cost

Front 16

Going Concern (or Continuity) Convention

Back 16

Holds that the business will continue operations for the forseeable future and has no intention or need to liquidate the business

Front 17

Dual Aspect Convention (Double Entry Accounting)

Back 17

Holds that each transaction has two aspects (buy and sell) and that each aspect must be recorded in the financial statements (i.e. there will be two entries for the one transaction)

Front 18

Conservation/Prudence Convention

Back 18

Holds that financial statements should err on the side of caution (i.e. not making business look better than it is). Losses should be anticipated and only realised profits recognised

Front 19

Stable Monetary Unit Convention

Back 19

Holds that money, the unit of measurement in accounting, will not change in value over time. The same currency should be used each period

Front 20

Objectivity/reliability Convention

Back 20

Holds that financial statements should be based on objective, verifiable evidence (facts), rather than on matters of opinion

Front 21

Accounting Period Convention

Back 21

Holds that the life of the business is divided into given periods of time (usually one year) for the purpose of collecting financial information

Front 22

Accounting Entity Convention

Back 22

Holds that financial statements should be based on the transactions of a specific delineated entity

Front 23

Realisation (Revenue Recognition) Convention

Back 23

Holds that revenue (income) will only be recognised when it is realised; usually when the transaction is substantially complete, can be objectively measured and it is reasonably certain that the money will be received

Front 24

Matching Convention

Back 24

Holds that in measuring income, expenses should be matched to the revenues they helped generate. Costs should be brought forward to match revenue

Front 25

Qualitative Characteristics

Back 25

The attributes that make the information provided in financial statements useful to other users

Front 26

Understandability

Back 26

Should make sense to users and be easily understood

Front 27

Relevance

Back 27

Information should be meaningful/ up-to-date
- Affected by nature and materiality

Front 28

Reliability

Back 28

Information should be verified
- Trustworthy

Front 29

Comparability

Back 29

Reporting practices among different companies should comply with GAAP in a standardised manner and practices should be consistent (same from year to year)

Front 30

Materiality

Back 30

If an item is significant or not
- If it is significant in size, it should be included in the annual report

Front 31

When is information material?

Back 31

If its omission or misstatement could influence the economic decisions of users take on the basis of the financial statements

Front 32

Cost vs. Benefit

Back 32

Improving the quality of information can be costly and it is unreasonable to expect such expenditure if benefits do not outweigh costs