ACCOUNTING

ACCOUNTING

1. Recording,analysing,summarising info

   • Objectives of FS:
     • Economic decisions
       • Ability generate cash
     • Timing, certainty of cash flows
       • ability to pay employees

2. Regulations of Accounting

   • Development of accounting:
     • 1.Legislation
     • 5. True & Fair view
       • CF: useful=relevance+ faithful rep.
       • CA06: true and fair view of financial position at particular point of time
       • IAS1: fair presentation in financial position, cash flows- faithful rep of effect of transactions
     • 2. acc concepts, personal judgement
     • 3. acc standards
       • To compare diff org
     • 4. GAAP
       • Relevant, reliable, comparable, understandable

3. Main Financial Statements

   • Statement of Profit or Loss
     • Display income and expense in reporting period
       • Users understand return produced by economic resources. Ability of mgt to discharge responsibilities. Predict future returns on economic resources
   • Statement of financial position
     • List of assets controlled and liabilities owed at particular date
     • Snapshot of financial position at particular moment
     • Factors:
       • 1.Economic resources
         • cash, labour, materials, machinery, skills
       • 2. Financial structure
         • Predict future of borrowing needs. Predict distribution of profits/cash flow among owners and lenders. Predict future finance raising
       • 3. Liquidity & Solvency
         • Predict ability to meet commitments when due
       • 4. Adaptability
     • CF focus on economic resources and claims- strength/weakness

4. Qualitative characteristics

   • Fundamental characteristics
     • Relevance
       • decision making using predictive & confirmatory value
       • Materiality
     • Faithful Representation
       • Complete Neutral Free from errors
   • Enhancing characteristics
     • According to CF: Comparability Verifiability Timeliness Understandability

5. Accounting concepts

   • Objectives of IAS1
     • 1. True and fair view 2. FS reliable, reflect effect of transactions 3. FS compared with previous period/other entities 4. FS prepared with IFRS
     • IAS1
       • Compliance with IAS1
         • -explicitly stated -IAS followed if compliance disclosed -inappropriate actions cannot be rectified by disclosure/exp material
       • Fair representation
         • -Application of acc policies -use of qualitive characteristics -additional disclosures where required
       • Departure from IAS
   • Going Concern
     • Continue to operate in forseeable future, no intention, no liquidation, do not cease trading
     • If not, assets valued at break up value, net realisable value in forced sale
   • Accrual Basis
     • Income earned= expense incurred
   • Materiality
   • Offsetting

6. Ethical considerations

   • Judgement vary: valuation of buildings, research and dev, brands
   • IESBA Code of Ethics
     • Integrity Objectivity Confidentiality Professional Competence and due care Professional behavior
   • Principles based system
     • Advantages
       • 1.Onus of individual
       • 2. Prevents narrow interpretation of legistic requirements
       • 3. Allow variations in situation
       • 4. Adapt to changes in env
       • 5. Can contain prohibitions