Corporate Governance, Ethics, and Financial Statements Flashcards

Flashcards generated from lecture notes on Corporate Governance, Ethics, and Financial Statements.

Governance

Authority applied on management to ensure adherence to rules.

Corporate Governance

Rules, practices, and processes by which a company is directed and controlled; ensures transparency, accountability, fairness, and integrity.

Integrity (Code of Ethics)

Honest, truthful, and transparent in all professional dealings.

Objectivity (Code of Ethics)

Provide unbiased and impartial financial information.

Professional Competence and Due Care (Code of Ethics)

Possess the necessary knowledge, skills, and expertise and stay updated with the latest standards.

Confidentiality (Code of Ethics)

Ensures privacy and security of sensitive financial information; do not disclose without authorization.

Professional Behaviour (Code of Ethics)

Conduct oneself in a manner that upholds dignity and reputation of the profession.

Business Ethics of Good Corporate Governance

Fairness, honesty, respect for stakeholders, and consideration of broader societal interests.

Triple Bottom Line (TBL)

People (social), Planet (environmental), and Profit (economic).

ESG

Environmental, Social, Governance.

Environmental (ESG)

Company's impact on the environment (emissions, waste, pollution, climate change).

Social (ESG)

Labour practices, human rights, employee benefits, community involvement, diversity, and equity.

Governance (ESG)

Company's management processes and decision-making; focuses on corporate governance and business ethics.

Operating Activities (Cash Flow Statement)

Day-to-day business activities (payments to suppliers, interest, taxes).

Investing Activities (Cash Flow Statement)

Purchase or sale of non-current assets.

Financing Activities (Cash Flow Statement)

Equity transactions (shares sold, repayment of borrowings, dividends paid).

Cash Basis Accounting

Recognizes transactions only when cash is paid or received.

Accrual Basis Accounting

Records transactions when they occur, whether or not cash is involved.

Historical Cost

Price paid at the time of acquisition.

Fair Value

Market value on a particular date.

Replacement Value

Cost of acquiring an asset identical to an existing asset.

Net Realisable Value

Value an asset could be sold for.

Present Value

Value at the present time, considering changing value of money.

The Conceptual Framework

AASB and IFSB provides precise definitions of accounting terms / elements & provides criteria for guidance.

Basic Objective (Conceptual Framework)

To provide financial information to potential investors, lenders and other creditors in making decisions.

Relevance (Qualitative Characteristic)

Capable of making a difference to the decisions made by users.

Reliability (Qualitative Characteristic)

Faithful representation, without bias, complete, neutral, and free from error.

Comparability (Enhancing Qualitative Characteristic)

Statements must be able to compare aspects of an entity at one time and overtime, and between entities at one time and overtime.

Verifiability (Enhancing Qualitative Characteristic)

Different people, using the same methods, obtain similar results.

Timeliness (Enhancing Qualitative Characteristic)

Accounting information is only useful if it is available in time.

Understandability (Enhancing Qualitative Characteristic)

Financial information must be classified and characterised clearly and concisely.

The Economic Entity (Accounting Assumption)

Financial statements only report transactions within company as business itself is separate from owner.

Monetary Concept (Accounting Assumption)

Only include transactions that can be measured reliably in accurately using a monetary unit of measurement.

Period Assumption (Accounting Assumption)

Company presents useful information in shorter time periods, such as years, quarters, or months.

Going Concern (Accounting Assumption)

Assumes business will continue to operate as normal in the foreseeable future.

Revenue Recognition Principle

Directs a company to recognise revenue in the period in which it is earned; when product or service has been provided.

Matching Principle

Must match expenses with associated revenues in the period in which revenue was earned.

Historical Cost Principle

Everything company owns and controls (assets) must be recorded at its value at the date of acquisition.

Conservatism Principle

Accountants need to be conservative when estimating, it is better to understate the financial position then to overstate it.