Flashcards: Context of Financial Reporting — 46 cards

What is accounting as an information system?

It translates a company’s activities and transactions into figures stored in a database.

What types of figures does accounting information include?

Sales revenue, inventory, and cash expressed in local currency.

Which company activities are translated into accounting figures?

Purchases, sales, payments, collections, salaries, and loan repayments.

What type of data does management accounting use for analysis?

Highly detailed data extractions.

What activities does management accounting analyse?

Revenue generated by a product or customer.

What is another name for financial accounting?

General accounting.

What type of data does financial accounting use?

Less detailed data extractions.

What comprehensive results does financial accounting determine?

The company’s ability to generate profit or cash.

How often is the accounting database updated?

Daily.

When are data extractions aggregated in accounting?

After daily updates at different levels of detail.

Why is financial accounting information released outside the company?

Because companies have a legal obligation to disclose it.

What is information asymmetry in a company?

Unequal access to information when management and ownership are separated.

Who uses financial accounting information to assess management quality?

Shareholders and creditors.

What is net income often used for legally?

Calculating dividends and starting profit tax calculations.

How can financial accounting serve in legal situations?

It provides evidence in litigation and helps detect possible fraud.

How do external users access company financial information?

Through legally required publication only.

Who has direct access to company data, internal or external users?

Internal users have direct access.

What decisions can financial information help users make?

Purchasing a business or granting credit.

Who uses financial information to assess a company's situation and predict its future?

Shareholders and their advisers including analysts, journalists, and rating agencies.

What actions may shareholders take based on their financial forecasts?

They may keep, sell, or buy shares.

From what sources do shareholders receive income?

Dividends and capital gains.

Who are considered lenders to a company?

Financial institutions, institutional investors, bondholders, and suppliers granting payment delays.

What do lenders assess about a company before lending?

Current financial situation, future repayment ability, and guarantees like buildings or equipment.

How does Continental European accounting regulation differ from Anglo-Saxon regulation?

It is more oriented toward lenders, while Anglo-Saxon regulation favors shareholders.

Who are some other external users of financial information besides shareholders and lenders?

Customers, tax administrations, government and regulatory bodies, and the public including researchers.

Who are internal users of financial information?

Employees, employee representatives, and management bodies such as the Board of Directors.

What does GAAP stand for in accounting?

Generally Accepted Accounting Principles.

Which countries have their own GAAP standards mentioned?

France, Germany, and the United States.

What is IFRS in relation to GAAP?

An international GAAP providing International Financial Reporting Standards.

What is the purpose of GAAP for shareholders and creditors?

To provide information about a company’s actual financial situation for decision-making.

What two comparability aspects should useful financial information have?

It should be comparable over time and between companies.

According to GAAP, how should financial information be characterized?

It should be objective and reliable through external auditor verification.

Where is financial information published?

In financial statements.

Which financial statement shows a company's financial position on a given date?

The balance sheet.

What does the income statement show about a company?

Its profit or loss over a given period.

What does the cash flow statement show?

Changes in cash from operating, investing, and financing activities over a period.

What do the notes in financial statements explain?

How figures in the balance sheet and income statement were calculated.

Which financial figure do shareholders mainly need?

Profit after tax for dividends.

Why do creditors need to know the debt level?

To assess the company's ability to pay.

Which profit figure might employees use to calculate bonuses?

Operating profit.

What do consolidated accounts show?

The financial situation of a group with a parent company and its controlled companies.

When does a parent company prepare consolidated financial statements?

When it controls multiple companies, including itself and the others.

What is the difference between individual and consolidated accounts?

Individual accounts cover one company; consolidated accounts cover a group controlled by the same parent.

Which accounting standards are used for individual financial statements in France?

French GAAP.

Which accounting standards mainly apply to consolidated financial statements in France?

IFRS.

Does publishing consolidated financial statements exempt companies from publishing individual statements?

No, companies must still publish their own individual financial statements.