FSA Credential Level 1
Why are investors demanding quality sustainability information? - ANS- Improve their ability to
achieve above-market returns
- Reduce risk and volatility, and protect against diminished returns
- Improve environment and social investment outcomes
What factors drive demand for quality sustainability information within companies? -
ANSSustainability info can provide insights into financial performance and drive success in the
near, medium, and long-term through risk mitigation, cost reduction, and competitive advantage
Besides companies and their investors, what other institutions influence demand for
sustainability information? - ANS- Policy-based initiatives for sustainability disclosure through
recommendations or requirements
- Non-policy efforts such as the Sustainable Stock Exchange (SSE) initiative
Why was disclosure the basis of regulatory reform in the wake of the 1929 stock market crash? -
ANS- Lack of transparency in capital markets harmed socioeconomic well-being, bankrupted
companies, and eroded investors' confidence in financial information
- Disclosure was the basis of regulatory reform in this defining period because disclosure is a
means to promote transparency, and transparency is essential to fostering sound and efficient
capital markets
- The formation of the US SEC provides evidence that regulated corporate disclosure is an
effective mechanism to protect investors, positively influence corporate behaviour, and enable
informed investor decisions
How has the purpose of accounting changed since the 1930s, and why did financial reporting
move toward standardization? - ANS- Accounting practices used to be centered around
accurate recordkeeping via historical cost accounting
- However, companies had their own unique goals and firms began accounting and reporting
financial information using a range of methodologies, inhibiting the comparability of financial
statements
- Accounting associations pushed for a consensus regarding the true purpose of accounting and
promoted standardization
- Ultimately decided that accounting exists to provide information to make economic decisions,
which can include historical records and forward-looking information
- Adoption of standards such as the International Financial Reporting Standards (IRFS) and the
US GAAP allow investors around the world to efficiency source and use information yielded
through the standards
- Higher levels of standardized disclosure allows for consistent, comparable, and reliable
information across markets, allowing investors to equally assess and compare companies'
performance and prospects
, Why did materiality emerge in early regulation governing financial reporting? What purpose
does it serve? - ANS- Materiality was used to communicate companies' disclosure requirements
and to assess compliance with those disclosure requirements
- Purpose was to inform investors of any information that may affect their decision to buy shares
in a company
- Companies are therefore responsible for identifying and disclosing that information
What concepts underpin investor-focused materiality? - ANS1. Materiality if a function of the
report user - information that influences the judgements investors make when deciding to
provide financial resources to a company
2. Materiality is not about every investor or any one investor - investors bring different objectives
and levels of expertise, must consider those who have a baseline level of knowledge and
understanding
3. Materiality is contextual - materiality is about the effect of that information, misstatement, or
error in the context of a specific company and what decisions investors would be let to make if
omitted or misstated
4. Material information is not always monetary in nature - materiality for investor-focused
reporting can apply to non-monetary metrics as well as qualitative information
As defined by accounting standards, who are primary users and what are primary users'
objective(s)? - ANSPrimary users include existing and potential investors, creditors, and lenders
who need information to make informed decisions about providing resources to a company.
Financial accounting standards such as the IFRS Accounting Standards identify traits that can
be expected of primary users, and their common information needs, to help guide disclosure
decisions.
What are the concepts of omissions, misstatements, and obscurement? - ANS- The combined
concept of omissions, misstatements, and obscurement maintains that assessing if investors
could be influenced by a piece of information is a matter of considering the effect the information
in questions could have if stated incorrect, not disclosed, or is obscured by unncessary,
immaterial information
- Misstated = incorrect or otherwise inaccurate
- Omissions = ensure companies provide all information that could influence investor decisions,
can't be misleading because of what is omitted
- Obscurement = information communicated fairly and effectively without being hidden behind
unnecessary amounts of details or in other ways
What does the rise of intangible assets mean for corporate disclosure? - ANSThe increasing
proportion of intangible assets as a percent of total market value highlights that a very
significant amount of information related to companies' financial position, financial performance
and prospects is not accounted for in traditional financial statements. As a result, investors do
not have access to important information that could reasonably influence investment decisions.
This is evidenced in the fact that intangibles are particularly susceptible to mispricing by the
Why are investors demanding quality sustainability information? - ANS- Improve their ability to
achieve above-market returns
- Reduce risk and volatility, and protect against diminished returns
- Improve environment and social investment outcomes
What factors drive demand for quality sustainability information within companies? -
ANSSustainability info can provide insights into financial performance and drive success in the
near, medium, and long-term through risk mitigation, cost reduction, and competitive advantage
Besides companies and their investors, what other institutions influence demand for
sustainability information? - ANS- Policy-based initiatives for sustainability disclosure through
recommendations or requirements
- Non-policy efforts such as the Sustainable Stock Exchange (SSE) initiative
Why was disclosure the basis of regulatory reform in the wake of the 1929 stock market crash? -
ANS- Lack of transparency in capital markets harmed socioeconomic well-being, bankrupted
companies, and eroded investors' confidence in financial information
- Disclosure was the basis of regulatory reform in this defining period because disclosure is a
means to promote transparency, and transparency is essential to fostering sound and efficient
capital markets
- The formation of the US SEC provides evidence that regulated corporate disclosure is an
effective mechanism to protect investors, positively influence corporate behaviour, and enable
informed investor decisions
How has the purpose of accounting changed since the 1930s, and why did financial reporting
move toward standardization? - ANS- Accounting practices used to be centered around
accurate recordkeeping via historical cost accounting
- However, companies had their own unique goals and firms began accounting and reporting
financial information using a range of methodologies, inhibiting the comparability of financial
statements
- Accounting associations pushed for a consensus regarding the true purpose of accounting and
promoted standardization
- Ultimately decided that accounting exists to provide information to make economic decisions,
which can include historical records and forward-looking information
- Adoption of standards such as the International Financial Reporting Standards (IRFS) and the
US GAAP allow investors around the world to efficiency source and use information yielded
through the standards
- Higher levels of standardized disclosure allows for consistent, comparable, and reliable
information across markets, allowing investors to equally assess and compare companies'
performance and prospects
, Why did materiality emerge in early regulation governing financial reporting? What purpose
does it serve? - ANS- Materiality was used to communicate companies' disclosure requirements
and to assess compliance with those disclosure requirements
- Purpose was to inform investors of any information that may affect their decision to buy shares
in a company
- Companies are therefore responsible for identifying and disclosing that information
What concepts underpin investor-focused materiality? - ANS1. Materiality if a function of the
report user - information that influences the judgements investors make when deciding to
provide financial resources to a company
2. Materiality is not about every investor or any one investor - investors bring different objectives
and levels of expertise, must consider those who have a baseline level of knowledge and
understanding
3. Materiality is contextual - materiality is about the effect of that information, misstatement, or
error in the context of a specific company and what decisions investors would be let to make if
omitted or misstated
4. Material information is not always monetary in nature - materiality for investor-focused
reporting can apply to non-monetary metrics as well as qualitative information
As defined by accounting standards, who are primary users and what are primary users'
objective(s)? - ANSPrimary users include existing and potential investors, creditors, and lenders
who need information to make informed decisions about providing resources to a company.
Financial accounting standards such as the IFRS Accounting Standards identify traits that can
be expected of primary users, and their common information needs, to help guide disclosure
decisions.
What are the concepts of omissions, misstatements, and obscurement? - ANS- The combined
concept of omissions, misstatements, and obscurement maintains that assessing if investors
could be influenced by a piece of information is a matter of considering the effect the information
in questions could have if stated incorrect, not disclosed, or is obscured by unncessary,
immaterial information
- Misstated = incorrect or otherwise inaccurate
- Omissions = ensure companies provide all information that could influence investor decisions,
can't be misleading because of what is omitted
- Obscurement = information communicated fairly and effectively without being hidden behind
unnecessary amounts of details or in other ways
What does the rise of intangible assets mean for corporate disclosure? - ANSThe increasing
proportion of intangible assets as a percent of total market value highlights that a very
significant amount of information related to companies' financial position, financial performance
and prospects is not accounted for in traditional financial statements. As a result, investors do
not have access to important information that could reasonably influence investment decisions.
This is evidenced in the fact that intangibles are particularly susceptible to mispricing by the
