Lecture notes 1-6

What are the reasons for accounting diversity?

Antwoord: Legal system (common law and code law) Taxation Providers of financing Inflation Political and Economic ties

What are the problems caused by accounting diversity?

Antwoord: The preparation of consolidated financial statements is made more difficult, due to local currency and local accounting standards Access to foreign capital markets is more difficult, as accounting standards differ between countries. Foreign investors might be hard to find Comparability of financial statements Lack of high-quality accounting information, as some parts of the world lack high-quality accounting standards

When an organisation is cautious when it comes to uncertainty of future events the company is: Meaning that when a cost might occur, but they are not sure it will happen. It will still be included in the financial statements. The opposite of this is:

Antwoord: Conservative Opposite: Optimism

Examples of accounting diversity

Antwoord: Language, currency, terminilogy, reports required, timeliness, format, level of detail, disclosure, recognition and measurement, relevance of statements

What are the steps of Financial statement analysis?

Antwoord: 1. Accounting analysis - Begins with an evaluation of the extent to which a company\'s financial statements reflect economic reality. 2. Financial analysis - involves the use of adjusted financial statement information to conduct cash- , profitability- and risk- analysis 3. Prospective analysis - involves combining the results of the previous analyses to forecast future financial statement information

The result of inflation on financial statements is when ignored:

Antwoord: 1 Understated asset values 2. Overstated income results 3. Difficulty with comparing companies as they are all exposed to different rates of inflation

When you are holding payables during inflation, it results in a ...

Antwoord: Purchasing power gain

When you are holding cash and receivables during a period of inflation results in a ....

Antwoord: Purchasing power loss

Borrowing money during a period of inflation results in a..

Antwoord: Purchasing power gain

Methods of accounting for changing prices: General Purchasing Power (GPP) accounting

Antwoord: Updates historical cost accounting for changes in the general purchasing power of the monetary unit. Non-monetary assets and liabilities, stockholders\' equity and income statement items are restated using the general price index (GPI). Requires power gains and losses (resulting for monetary assets and liabilities) to be included in net income.