AF2401 Financial Reporting - Conceptual Framework and Accountability

Vocabulary flashcards covering corporate accountability, the IASB Conceptual Framework, accounting regulation, and methods of implementing IFRS from AF2401 Financial Reporting.

Corporate accountability

The specific ways in which companies and their managers are held to account for their actions through financial reporting and other duties owed to stakeholders.

Conceptual Framework

A coherent system of inter-related objectives and fundamentals that prescribes the nature, function, and limits of financial accounting and leads to consistent standards.

General purpose financial statements

Financial reports prepared and presented at least annually that are suitable for a wide range of users, aimed primarily at meeting the financial information needs of investors.

Relevance

A primary qualitative characteristic of financial information, indicating that the information is capable of making a difference in the decisions made by users, encompassing materiality.

Faithful representation

A primary qualitative characteristic requiring financial information to depict the true economic substance of transactions over their legal form, equivalent to a true and fair view.

Agency theory

An economic perspective that views a company as a nexus of contracts between various parties, including equity investors, lenders, and managers.

Financial gearing

An accounting-based measure calculated as debt divided by equity ($\frac{\text{debt}}{\text{equity}}$), often used by lenders in contracts to limit a company's borrowing capacity.

International Accounting Standards Board (IASB)

An independent standard-setting body established in 2001 that develops and publishes International Financial Reporting Standards (IFRS).

International Accounting Standards Committee (IASC)

A committee of accountancy bodies founded in 1973 that developed International Accounting Standards (IAS) prior to the establishment of the IASB.

FRS 102

The primary accounting standard for unlisted companies in the UK (UK GAAP), maintained by the Financial Reporting Council and based on 'IFRS for SMEs'.

Methods of Implementing IFRS

The distinct approaches jurisdictions take to adopt or adapt IFRS, including adopting the process directly, standard-by-standard endorsement, optional adoption, or non-full convergence.

Stakeholders

Individuals or groups that have power over a company ( capital providers, state) or are affected by its actions (employees, customers, suppliers, public, environment).

General principles approach

A regulatory approach providing high-level guidance that requires preparers and auditors to exercise judgement, which can lead to inconsistency across entities.

Detailed rules approach

A regulatory approach providing specific accounting instructions for precise situations, which offers clarity but risks complexity and rule-gaming by preparers.