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dexazuxo's version from 2017-05-12 18:40

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Question Answer
Who uses financial reports?shareholders, analysts, customers, suppliers, media, employees
What is the key relationship in a business?SHAREHOLDERS: supply capital and own the company MANAGERS: use capital and are employees. the financial reports are a route to make managers accountable to investors.
Main reporting standards?IASB, FRC, FASB
Reports must be: Understandable, comparable, relevant, reliable
What is hard/soft data?hard data: hard numbers (numbers don't lie), market share data, financial statements ........... soft data: chairman/CEO statement, competitors reports, SWOT reports
Why might accrual accounting create problems for financial accounting?1. managers can use discretion and judgement to allocate cost/benefit to specific reporting periods..... 2. only management has detailed info/knowledge to make those judgements ..... BUT managements judgement may not be perfect, and management may have incentive to manipulate. THEREFORE: investors need a system to monitor/prevent manipulation.
Main disadvantage of accrual accounting? leaves too much discretion to managers to manipulate financial statements.
What are the functions of the central bank? Policy: 1) Conduct of monetary policy - controls level of money supply and liquidity in the economy which influences demand = growth. *control inflation .. *issuing bonds (withdraw liquidity) .. *Quantitative easing.......Instrument independence: takes steps to achieve goal laid by govt....... full independence: freedom of central bank to choose goal and steps required. 2) supervisor of the banking system . make sure money markets are working in a way to provide enough liquidity in the economy for it to grow, but not too much (inflation).. Central bank also supervise to make sure that they don't take too much risk to put whole economy into meltdown. KEY: make sure banks don't run out of liquidity. FUNCTIONAL: 1. banker to commercial banking system (lender of last resort, maintain saver confidence) ..... 2) banker to the government (maintains govt ban account to avoid letting private entity abuse), ... 3) manager of foreign exchange reserves...4) issuer of national currency ..... 5) manager of national debt: makes sure enough money in banking system so national debt is funded ------- Funding: tighten money supply through long term bond (liquidity tied up) --------- unfunding: loosens the system through shorter term bonds (easy to transform to liquidity)
work out net shareholders equity?total/gross assets - liabilities owed
Work out net reported income?income after all expenses deducted (tax, interest, operating)
memorize