Topic 6: Exam 1 revision

Role of the Accountant

to provide the business with the information to maximise the organisations financial performance and make good decisions about the company

What systems do accountants design and maintain?

Financial and recording systems, including accounting software and its performance.

How do accountants record financial information?

By using computerised accounting systems to record transactions.

What reports do accountants prepare for managers?

Internal reports such as budgets and performance reports.

What financial reports are prepared for shareholders?

Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, and Cash Flow Statement.

Who do accountants advise within a company?

The board and senior management.

Why do accountants analyse financial reports?

To interpret data and support decision-making.

What is the purpose of planning strategies?

To improve profitability and financial security.

What is cost accounting used for?

Determining standard costs of producing a product.

Who are the two main types of accounting users?

Internal users (managers) and external users (outsiders).

Who uses management accounting?

Managers, directors, and employees within the business.

What is the purpose of management accounting?

To help with planning, controlling, and decision-making.

Is management accounting focused on past or future data?

Future (predictions and forecasts).

How often are management accounting reports prepared?

Frequently (e.g. monthly).

Give examples of management accounting reports.

Budgets, cost reports, capital budgeting, and cost-volume-profit analysis.

What is the key purpose of management accounting?

To improve business performance.

Who uses financial accounting?

External users such as shareholders, investors, lenders, and the public.

What is the purpose of financial accounting?

To show profitability and financial position.

Is financial accounting based on past or future data?

Past (historical data).

Which accounting must follow certain laws or standards?

Financial Accounting

What is the key difference between management and financial accounting?

Management accounting is for internal use and future decisions; financial accounting is for external users and past performance.

What is the main concern in cost analysis?

Expectation of future profits.

What must management evaluate to predict profits?

How costs and profits change with sales volume.

What is cost behaviour?

How costs change in response to changes in business activity.

Why is cost behaviour important?

It helps management make better decisions.

What is the role of management in business operations?

To control operations and achieve business objectives.

Why do managers analyse costs?

To make decisions about products or services.

Costs

An economic sacrifice of resources for a particular purpose, such as making a product or providing a service.

Purpose of CVP analysis

Helps managers understand how costs volume and profit are related

What CVP is used for

Deciding pricing output levels product mix and break even analysis

Fixed costs definition

Costs that do not change with production volume

Variable costs definition

Costs that change in proportion to production volume

Mixed costs definition

Costs containing both fixed and variable components

Contribution margin definition

Amount left after variable costs to cover fixed costs and profit

Contribution margin purpose

Shows how much each unit contributes to covering fixed costs

Break even point definition

Level of sales where total revenue equals total costs

Margin of safety definition

How much sales can fall before the business reaches break even

Assumptions of CVP analysis

Costs can be classified selling price constant fixed costs constant

Why CVP is useful

Supports planning pricing and decision making for managers

Insolvency

A situation where a company is unable to pay debts on time

What is considered when determining insolvency?

The company's ability to obtain additional funds to meet obligations.

Who is appointed when a company becomes insolvent?

An administrator takes control of the company's affairs. They manage the company and asses if it can return to solvency

What is voluntary administration?

An insolvency procedure where an external administrator is appointed to manage a financially troubled company.

What is the role of a voluntary administrator?

To investigate the company's affairs and report to creditors whether the company should enter a deed of company arrangement, go into liquidation, or return to directors.

What is liquidation?

The orderly winding up of a company's affairs.

What happens during liquidation?

Assets are sold, operations stop or are sold, and money is distributed to creditors and shareholders.

What is court (compulsory) liquidation?

Liquidation ordered by a court due to insolvency or inability to pay debts.

What is members voluntary liquidation?

Liquidation started by members when the company is solvent.

What is creditors voluntary liquidation?

Liquidation started when a company is insolvent and unable to pay debts.

What is the main purpose of creditors voluntary liquidation?

To allow creditors to recover money owed to them.

What are the main roles of a liquidator?

Collect, protect, and sell company assets.

What else does a liquidator do?

Investigate and report on the company's affairs and causes of failure.

How are funds distributed in liquidation?

After costs, first to secured creditors, then unsecured creditors, then shareholders if surplus exists.

When are liquidators required to work?

Only when there are enough assets to cover their costs (except for required legal reporting).

What is receivership?

A process where a receiver is appointed by a secured creditor to recover debts by selling company assets.

What is the main role of a receiver?

To collect and sell assets to repay the secured creditor.

Who must a receiver report to, regarding offences?

ASIC.

What duty does a receiver owe to unsecured creditors?

To take reasonable care to sell assets at market value or best possible price.

What is the correct order of repayment in insolvency?

Liquidation costs, secured creditors, employee entitlements, unsecured creditors, shareholders.

Climate Change

A long-term alteration in temperature and typical weather patterns in a place.

Physical Risks

Direct impacts from climate change, including acute (severe weather events) and chronic (long-term weather changes)

Acute Physical risks

Severe weather events that cause immediate damage (e.g. fires)

Chronic Physical risks

Persistent weather events leading to long term changes (e.g. rising sea levels)

Transitional Risks

Risks associated with the shift to a low carbon economy, such as Policy and legal risks, Technological risks & Market risks

Resource efficiency

Decreasing costs through more efficient production and distribution methods, optimizing resource use and adopting a circular economy.

Innovation in products and services

Increasing demand for product and services that have low emissions.

Investment opportunities

Opportunities can improve efficiency that leads to decreased costs, increased profits and new markets.

Regulatory Compliance and reporting

Compliance assists with improving reputation, business leadership, increased brand awareness and attracting investment in the business.

Scope 1 Emissions

Emissions that are directly emitted by the organization from sources it owns and controls.

Scope 2 Emissions

Where the manufacturer is responsible for producing the emissions, but businesses who purchase from these manufacturers contribute to these emissions by supporting the manufacturers

Scope 3 Emissions

Indirect emissions occurring in the value chain of the reporting company, often the largest share of total emissions.

Unfair compensation for employees

When an employee is dismissed from their job in a manner that is Harsh, Unjust or Unreasonable

Breach of confidentiality

When private or confidential information is disclosed to a third party without the owner's consent

Misrepresentation of financial data

Intentional distortion of financial information to deceive stakeholders.

Conflict of Interest

Having multiple interests where serving one interest deliberately works against another.

What is segregation of duties?

Splitting tasks among different people to reduce error and fraud.

What are non-current assets?

Assets that provide benefits for more than one year.

What is an asset register?

A record of all assets owned, including insurance and history.

What are accounts receivable?

Money owed by customers who bought on credit.

What is inventory management?

Managing ordering, storing, and use of inventory efficiently.

What is cash management?

Managing cash flow to ensure enough liquidity.

What is short-term debt?

Debt that must be repaid within one year.

What is long-term debt?

Debt that is repaid over more than one year.

What is equity financing?

Raising money by selling shares (no repayment required).

What is debt financing?

Borrowing money that must be repaid with interest.

What are cash management trusts?

Investments pooling funds into short-term securities.

What are term deposits?

Money placed in a bank for a fixed time to earn interest.

What are debentures?

Loans issued by companies, secured by assets and repayable with interest.

What are unsecured notes?

Loans without asset security, usually short-term.

What are secured loans?

Loans backed by collateral.

What are unsecured loans?

Loans without collateral and usually higher interest.

What is a bank overdraft?

A short-term borrowing facility up to a set limit.

What is leasing?

Using an asset for a period without owning it.

What is hire purchase?

Buying an asset over time, gaining ownership at the end.

What is asset management?

Managing assets to maximise use and reduce risk.

What is internal control?

Policies to protect assets and ensure rules are followed.

What is short-term finance?

Funds used for less than one year for daily operations.

What is internal auditing?

An independent check within a company of its records and control systems.

What is the purpose of internal audit?

To help achieve objectives and evaluate risk management and controls.

What is an external audit?

An independent review of financial reports to ensure they show a true and fair view.