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Chapter 7 and 8 CISI Accounting Exam Questions and Answers
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Chapter 7 and 8 CISI Accounting Exam Questions and Answers
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Chapter 7 and 8 CISI Accounting ExamQuestions and Answers
2 main motivations of stock lending? - Answer -1. Cash-driven - Lender is able to
increase returns on a portfolio by receiving a fee in return for lending their stock to the
borrower.
2. Securities-driven - The borrowing firm needs a specific securities to cover a trading
position. e.g. Could be trying to short a stock.
Pre-borrowing meaning? - Answer -Means to anticipate a short sale by entering an
agreement with another firm/company to pre-borrow their securities.
If a short sale does not occur within 3 days then the securities must be returned to the
lender. If a short sale does occur then the securities are borrowed as normal and
applied to a short position the following day.
When do UK firms have to disclose short positions? - Answer -UK firms must disclose
short positions when their net short positions amount to:
0.1% of issued share capital in a listed company.
The net short positions are publicly disclosed when they reach 0.5% of the issued share
capital of a listed company.
Benefits of stock lending? - Answer -Increases liquidity of the securities market.
Reduces the potential for failed settlements and penalties.
Provides extra security to lenders through collateralising a loan.
Supports trading and investment strategies otherwise hard to execute, such as shorting
and use of derivatives.
Allows investors to earn income by lending securities.
Facilitates hedging and arbitrage, therefore helping to improve market efficiency.
, International Sustainability Standards Board (ISSB) - Answer -ISSB = more recently
created standard-setting board.
Designed to meet the needs of international investors with global investment portfolios
for high quality, transparent, reliable and comparable reporting by companies on
climate/ESG matters.
International Accounting Standards Board (IASB) - Answer -IASB = Committed to
developing a single set of high quality, understandable and enforceable global
accounting standards for general purpose financial statements.
Co-operates with national accounting standard setters to achieve converging (matching)
accounting standards across the world.
Standards issued by the IASB are designated "International Financial Reporting
Standards" (IFRSs)
Difference between US and other developed countries accounting standards? - Answer
-Many developed countries require the IASB standards to be used for listed companies.
However, the US retains its own GAAP (Generally Accepted Accounting Principles) that
is gradually converging with IFRS.
Group versus company accounts? - Answer -If a company invests in another company
then the original investment cost and the dividends received from this will appear in the
financial statement of the investing company.
However, if the investment is so significant that the investing company controls the
other company, then the preparation of group financial statements (group accounts or
consolidated financial statements) is needed.
Investing company= parent company
Other company = Subsidiary
Group account statements? - Answer -The parent company must prepare/present a set
of group accounts in addition to its individual company financial statements if it owns a
controlling stake in another company.
Group accounts present the financial statements as if the parent and the subsidiaries
were a single entity rather than distinct individual companies. E.g. assets and liabilities
are grouped together.
Issues with group accounting/combining accounts? - Answer -Goodwill - If the cost of
the investment exceeded the net assets of the subsidiary, the excess is described as
"Goodwill" and appears as an asset in the group financial statement.
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