Acca f3 Financial Accounting (int) Study Text
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- Prudence, substance over form and materiality
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22 2: The regulatory framework Part A The context and purpose of financial reporting Answers to Quick Quiz 1 B The IASB has no powers of enforcement. 2 The International Financial Reporting Interpretations Committee (IFRIC). 3 D The other arguments are all in favour of accounting standards. 4 B IFRSs to be used in consolidated financial statements. 5 True. The IASB is responsible for the standard setting process. Now try the question below from the Exam Question Bank Number
Level Marks
Time Q2 Examination 1 1 min
23 The qualitative characteristics of financial information and the fundamental bases of accounting P A R T B 24 25 Accounting conventions Introduction The purpose of this chapter is to encourage you to think more deeply about the
This chapter deals with the accounting conventions which lie behind accounts preparation and which you will meet in Part C in the chapters on bookkeeping. In Part D, you will see how conventions and assumptions are put into practice. You will also deal with certain items which are the subject of accounting standards. The first part of this chapter deals with two important standards: IAS 1 and the
basic ideas which underlie the whole of accounting. In the second half of this chapter, you will consider the bases of valuation of items in the financial statements and IAS 8 on changes in accounting policies. Topic list Syllabus reference 1 Background B1(a)
2 IAS 1 Presentation of financial statements B1(a)
3 The IASB's Framework B1(a) – (b) 4 Criticisms of accounting conventions B1(b)
5 Bases of valuation B2(a) – (b) 6 IAS 8 Accounting policies, changes in accounting
B2(c) – (d) 26 3: Accounting conventions Part B The qualitative characteristics of financial information and the fundamental bases of accounting Study guide Intellectual level B1 The qualitative characteristics of financial reporting (a)
Define, understand and apply accounting concepts and qualitative characteristics: 1 (i) Fair presentation (ii) Going concern (iii) Accruals (iv) Consistency (v) Materiality (vi) Relevance (vii) Reliability (viii) Faithful representation (ix) Substance over form (x) Neutrality (xi) Prudence (xii) Completeness (xiii) Comparability (xiv) Understandability (xv)
Business entity concept (b)
Understand the balance between qualitative characteristics. 1
Alternative bases used in the preparation of financial information (a)
Identify and explain the main characteristics of alternative valuation bases eg historical cost, replacement cost, net realisable value, economic value. 1 (b)
Understand the advantages and disadvantages of historical cost accounting. 1 (c) Understand the provision of International Financial Reporting Standards governing financial statements regarding changes in accounting policies. 1 (d)
Identify the appropriate accounting treatment if a company changes a material accounting policy. 1 Exam guide This is a very important chapter, which set the basis of accounting ideas and conventions. Expect questions on all aspects, including the Framework. Accounting conventions have been called into question and you may be asked to
chapter.
Always read the question carefully before answering. Make sure that you understand the requirement and have picked out the main points of the question. Remember that the distracters (wrong options) will include common errors made by students, so always
Exam focus point
Part B The qualitative characteristics of financial information and the fundamental bases of accounting 3: Accounting conventions 27 1 Background In preparing financial statements, accountants follow certain fundamental assumptions. Accounting practice has developed gradually over a matter of centuries. Many of its procedures are operated automatically by people who have never questioned whether alternative methods exist which have equal validity. However, the procedures in common use imply the acceptance of certain concepts which are by no means self-evident; nor are they the only possible concepts which could be used to build up an accounting framework. Our next step is to look at some of the more important concepts which are taken for granted in preparing accounts. In this chapter we shall single out the following assumptions and concepts for discussion. (a) Fair presentation (b) Going concern
(c) Accruals or matching (d) Consistency concept
(e) Prudence (f) Materiality
(g)
Substance over form (h) Relevance (i) Reliability (j) Faithful representation (k) Neutrality (l) Completeness (m) Comparability (n) Understandability (o)
Business entity concept. We begin by considering accounting policies and those fundamental assumptions which are the subject of IAS 1 Presentation of financial statements (items (a) – (g) of the above list). 2 IAS 1 Presentation of financial statements IAS 1 identifies four fundamental assumptions that must be taken into account when preparing statements: Fair presentation Going concern
Accruals Consistency IAS 1 also considers three other concepts extremely important.
IAS 1 Presentation of financial statements was published in 1997 and revised in 2004 and again in 2007. Here we will look at the general requirements of IAS 1 and what it says about
be covered in Chapter 21 . 2.1 Objectives and scope The main objective of IAS 1 is: 'To prescribe the basis for presentation of general purpose financial statements, to ensure comparability both with the entity's financial statements of previous periods and with the financial statements of other entities.' FAST FORWARD FAST FORWARD Yüklə 3,78 Mb. Dostları ilə paylaş:
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