Subsistema Administración

Chapter 1

1 Knowledge of the main user groups of financial statements is important for any accountant:

x Shareholders and investors want to know how profitable their investment is.

x Management need financial information in order to run the company and make decisions.

x Suppliers want to know whether they will be paid and whether custom will continue into the future.

x Customers want to know whether they will have a continued supply.

x Lenders wish to know whether they will be repaid.

x Employees are interested in job security and whether they will be paid.

x The tax authorities are interested in profits for the purpose of calculating tax.

x The government is interested in companies' financial position from the perspective of the economy and national statistics.

x The public is interested in how companies affect the environment in which they operate.

2 Differences include:

Financial accounts Management accounts

Prepared annually (although quarterly in some

jurisdictions) Normally prepared monthly or quarterly, often

on a rolling basis

Provide historic information Provide historic information and future budgets / forecasts

Are prepared in accordance with accounting regulations

Are not governed by any regulations

Contain summarised information Contain detailed information Prepared for external use Prepared for internal use

3 Credit sales are recorded in the receivables ledger and in due course, in the general ledger.

4 Financial control procedures are required in a number of areas including:

x The authorisation of payroll

x The authorisation of purchases, including non-current assets x Dual signatories for cheques

x Physical controls over petty cash

x The authorisation of credit controls for new customers x The authorisation of new suppliers.

You should be able to identify many more areas where financial controls are required simply by thinking through the accounting system.

5 Advantages of a computerised system over a manual accounting system include:

x Faster processing time

x Less chance of computation errors arising

x Easier to make corrections or adjustments (as they carry through the system) x Less physical space is needed to maintain records.

Chapter 2

1 GAAP is a term that all accountants should be familiar with.

GAAP is Generally Accepted Accounting Principles. It refers to all of the rules, from whatever source, that govern accounting in a particular jurisdiction. It may therefore include:

x National legislation x Accounting standards

x Stock exchange requirements.

2 The correct answer is A. Regulations are not necessarily relevant to all organisations. It is therefore a disadvantage of a regulatory system that some companies are bound by regulations which are not relevant to them.

3 The IASB is the International Accounting Standards Board. Its objectives include:

x The development of high quality accounting standards x The promotion of the use of those standards

x The convergence of international and national standards.

4 The IFRS Advisory Council was previously known as the Standards Advisory Council. The Council is made up of about 50 members who have an interest in international financial reporting. As such, the Council advises the IASB on agenda decisions, priorities in its work and the impact of standards in practice.

5 The IFRSIC is the International Financial Reporting Standards Interpretations Committee and was previously known as IFRIC. It assists the IASB in establishing and improving International Financial Reporting Standards, dealing with newly identified financial reporting issues not specifically addressed in IFRS, or issues where unsatisfactory or conflicting interpretations have developed, or seem likely to develop.

Knowledge of the regulatory bodies which contribute to the development of International Financial Reporting Standards is important.

6 The term ‘‘true and fair view' is not defined in accounting standards. It is taken to mean that financial statements present fairly the position and performance of an entity. In many jurisdictions this is achieved through the application of IFRS, although in rare cases these may be departed from in order to achieve fair presentation.

Chapter 3

1 A conceptual framework is a statement of generally accepted theoretical principles which form the frame of reference for financial reporting.

2 Where there is no conceptual framework, the following problems may arise:

x Standards are produced in a haphazard manner and ‘‘firefight' problems which have developed.

In other words they are reactive rather than proactive.

x Contradictions and inconsistencies arise between standards.

x Standards develop which are ‘‘rules-based' rather than ‘‘principles-based'. These offer no flexibility and may result in incorrect reporting of the substance of transactions.

3 The correct answer is A. Additional objectives of the Framework are to:

x Assist preparers of accounts to apply IFRS.

x Assist preparers of accounts when dealing with topics which are not the subject of an IFRS.

x Assist users in interpreting financial statements.

x Provide information about the approach to the formulation of IFRS.

4 The objective of the financial statements is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions.

5 Changes in the financial position of an entity are shown in the statement of cash flows.

Chapter 4

1 Accounting policies are the specific principles, bases, conventions, rules and practices adopted by an entity in preparing and presenting financial statements.

This definition comes from IAS 8 and should be learnt.

2 The correct answer is C. These four criteria are characteristics of useful financial information and are defined in the IASB's 1989 Framework.

It is very important that you are familiar with these qualitative characteristics.

3 Financial information is reliable if:

x It faithfully represents transactions x It is free from bias

x It is free from material error x It is complete

x Prudence has been applied in the case of uncertainty.

4 Going concern is the assumption, when preparing a set of accounts, that an organisation will continue to operate for the foreseeable future (at least 12 months).

The accruals concept requires that organisations record transactions not as the cash is paid or received, but as the revenues or expenses are earned or incurred in the accounting period to which they relate.

Both of these terms are key and you should be very familiar with them.

5 Substance over form is the principle that transactions are accounted for in accordance with their commercial substance rather than their legal form. Examples of its application include:

x Recognising an asset acquired under a finance lease as a non-current asset x Producing consolidated accounts for groups of companies.

6 Barriers to the global harmonisation of accounting standards include:

x The different purpose of financial reporting in different countries x Different legal systems

x An unwillingness of some countries to give up their own national standards x Cultural differences

x The need for more basic standards for developing countries and more sophisticated standards for developed countries

x Unique circumstances such as hyperinflation in certain countries.

7 Advantages of the global harmonisation of accounting standards include:

x The ability of investors to compare potential investments from any country x Easier access to cross border finance for multi national companies

x An easier consolidation process for multi national companies