Accounting Standards and Regulations

Flashcards summarizing key terms and definitions related to Accounting Standards and Regulation.

Agency issues

Issues that arise in businesses due to information asymmetry, where one party has more or better information than the other.

Information Asymmetry

A situation where one party in a transaction has more or better information than the other party.

Principal-Agent Relationship

A relationship in which one party (the principal) delegates work to another party (the agent) who performs that work on behalf of the principal.

Representational Faithfulness

The quality of accounting information that ensures it accurately reflects the economic reality of transactions.

Relevance

The quality of information that allows users to make decisions based on that information.

Qualitative Characteristics of Accounting Information

Attributes that make accounting information useful to users, such as relevance, reliability, comparability, and understandability.

Accounting for Intangible Assets (AASB 138)

The accounting standard that outlines the definition and treatment of non-monetary assets without physical substance.

Accumulated depreciation

The total amount of depreciation that has been expensed against an asset since its acquisition.

Impairment

A reduction in the carrying value of an asset when its recoverable amount is less than its book value.

Biological Asset

A living animal or plant, whose value can be measured using accounting principles.

Deferred Revenue

Income received before it is earned, recorded as a liability until the service is delivered or goods are provided.

Accounting Choices

Decisions made by management regarding the methods of accounting that affect the financial statements.

Contracting Management

The process of engaging or rewarding managers based on performance targets to align interests.

Timeliness

The characteristic of information that relates to how quickly it is available to decision-makers.

Equity

The residual interest in the assets of the entity after deducting liabilities.

Financial Position

The status of a company's assets, liabilities, and equity at a particular point in time.

Debt Covenants

Conditions or restrictions placed on a borrower by a lender to protect the lender's interests.

Income Recognition

The process of recording income when it is earned and realizable, often reflected in the income statement.