(i) Judgement and materiality play a significant role in helping to ensure that the selection of accounting policies in presenting the financial statements for a true and fair picture of the company’s financials. This means that entities should provide the financial statements with comparability, consistency and clarity to users of these statements. Entities must follow accounting policies required by IFRS and AASB should be relevant to particular circumstance. Judgement Judgement is a notion of relevance and reliability in developing and applying accounting policies. It is a requirement of management that they exercise a high degree of professional judgement when selecting appropriate accounting policies in the preparation of financial statements that is relevant to decision-making and assessment needs of users. Management should also consider the applicability of IFRS and AASB in dealing with similar and related issues and then the definitions, recognition criteria in the Conceptual Framework when there is no IFRS standard or interpretation in certain circumstances that are specifically applicable. Management may also consider the most current pronouncements of other standard-setting bodies to the extent that do not conflict with IFRS and AASB in developing accounting standards and accepted industry practices by using a similar conceptual framework. Accounting policies must be applied consistently to similar transactions and events, for example, entities are allowed to carry some items of PPE at historical cost and some at fair value, but similar items should be treated consistently in the same way within any one of class PPE. In the selection or changing accounting policies or estimates, management’s judgement will be restr... ... middle of paper ... ...er not to hold them to maturity. (iii) AASB 108 and earnings management As per paragraph 42 AASB 108, an entity shall correct material prior period errors retrospectively by restating the comparative amounts for the prior period(s) in which the error occurred, or if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented. In other words, the effect is to restate the current year’s financial statements as if the error had never occurred. The discovery of any prior period errors are excluded from current period’s profit or loss, but will be shown or hidden in retained earnings. It could be argued that this gives incentives to managers for using prior period corrections as a form of earnings management because it allows them to manipulate current earnings.
The effect of correction of the error and change in accounting method on retained earnings and significant asset and liability accounts is as follows:
Accounting policies are essential for adequately understanding the information provided in financial statements. An entity as required by GAAP, should present as an integral part of the financial statement a statement identifying the accounting policies adopted and followed by the reporting entity (Kieso, Weygandt & Warfiled, 2015, p.1391). Accounting policies are the specific accounting methods an organization presently uses and considers most appropriate to present its financial statements fairly. The disclosing of accounting policies must incorporate important conclusions as to the relevance of principles concerning the recognition of revenue and allocation of asset costs to current and future periods (FASB). Identifying accounting policies
In conclusion, appropriate principles could lead to clearer interaction and more comparable financial reporting standards without the need of the current rules. The NZ Framework has provided parts of clear and appropriate underlying principles to lead the application of NZ GAAP and other financial reporting standards. However the standards setting movement from ‘rule-driven’ approach to ‘principle-based’ approach is still half-way in New Zealand. How could principles be sufficiently clearly portrayed and put into practice require the profession to think and support. Just as Tweedie (2007, p.7) states, a principle based system will only work if preparers, auditors, users and regulators wish to make it work.
Comparability of financial information which was thought to be greed had always been presumed one of the driving forces behind U.S. accounting standards. Implications of events and transactions in international commerce and finance began to impact the domestic accounting environment. The mission of the FASB was revised at that time to incorporate the objective of promoting the international comparability of accounting standards concurrent with improving the quality of financial reporting. Accounting definitely encompasses many different aspects such as assumptions, principles and concepts. Financials particularly financial statements and reporting is extremely important within the history and driving forces for better accounting processes and standards. Accounting theory also looks into the historical foundations of accounting practices and standards – and the accounting rule making process by which they are derived.
According to the conceptual framework, the potential users of financial statements are investors, creditors, suppliers, employees, customers, governments and agencies, and the general public (Financial Accounting Standards Board, 2006). The primary users are investors, creditors, and those who advise them. It goes on to define the criteria that make up each potential user, as well as, the limitations of financial reporting. The FASB explicitly states that financial reporting is “but one source of information needed by those who make investment, credit, and similar resource allocation decisions. Users also need to consider pertinent information from other sources, and be aware of the characteristics and limitations of the information in them” (Financial Accounting Standards Board, 2006). With this in mind, it is still particularly difficult to determine whom the financials should be catered towards and what level of prudence is necessary for quality judgment.
The global financial crisis has brought significant focus on the accounting model for financial instruments, both in the United States and around the world. The significant rise in the volumes of asset securitizations and derivative financial instrument transactions has served to bring attention to particular features of accounting standards. The harshest criticisms often relate to the substantial use of fair value accounting for many financial instruments.
Accounting principles are main consideration , certain standards like rules of operations are pillar characteristicis to built accounting statements. Accounting principles can be presented in many ways, sometimes its create confusion for readers mainly for beginners, but still acoounting principles are main tool to obtained financial statements. Its hold the whole acoounting process together.
The globalization of business has resulted in the need for compatible accounting standards that can be used internationally for financial reporting. As a result, the International Financial Reporting Standards (IFRS) were developed by the International Accounting Standards Board (IASB) to unify the various financial reporting methods and create a single accounting standard which can be applied to any financial statement worldwide (Byatt). The global standardization of financial reporting will increase the readability and enhance comparability of globally traded companies’ financial statements, without the need of conversion or translation. There are a few main differences between the International Financial Reporting Standards (IFRS) and the U.S. Generally Accepted Accounting Principles (U.S GAAP). The increasing recognition and acceptance of the International Financial Reporting Standards by accounting professionals in the United States, will affect the way in which the U.S will record financial statements in the future.
Numerous scandals have resulted in the credibility of accountants and auditors being questioned in recent times. Concepts like triple bottom-line accounting, corporate governance, business ethics and codes of conducts are indicative of a growing concern with moral issues in the workplace and society in general. Is there a moral value system that can be used by future accountants and auditors to address these challenges, or should the concepts currently in place be emphasized more in the accounting workplace?
I have applied the IFRS to audit half-year income statement and statement of finical position from domestic sub-company or oversea branches. This allows me to understand the difficultly of dealing with accounting report form different nations. For example, we have to negotiate each report from the U.S. with their reporter by phone. It would take incredibly long time to explain the difference in order to adjust the figures in the reports. During the stuff training, we have been taught that to be professional at everywhere and anytime. Moreover, I realise that the most important feature to be a professional accountancy is responsibility. This is because that a unit of misallocation will cost other team number a huge amount of work to correct it. The experience of taking notes of weekly conferences between senior managers and PWC partner has indicates that how does change in financial policy influence the accounting treatment. For instant, since vice-perminster Mr Le Ke Qiang who visited China Construction Bank at earlier May. He point out that the Rate of Non-Performing Loans could not exceed 7% in the “BIG Four” Chinese bank. This has led Chinese bank to relax its accounting standard of credit rating. It allows me to understand the relationship between government and financial
The accounting policies are material and can’t be omitted because they help the users understand how the management arrived at the amounts presented in the financial
The Financial Accounting Standards Boards (FASB) defined conceptual framework as a consistent of underlying concepts and the ideas that describe the nature and general purpose of financial reporting which may lead to consistent standard in accounting (Deegan 2010). The role of the conceptual framework is to ensure that financial statements in accounting are free from bias and to provide useful information that is useful for user’s decision making. The standard-setting board also formulated a range of perceptions and theories related to accounting to trigger the objectives of financial reporting. The standard-setting board keeps issuing the conceptual framework over time to ensure that the conceptual framework’s objectives are improving to provide useful financial information. The innovative work on conceptual framework was embraced in the United States by the FASB in the early 1970s. The FASB accomplished disappointment in attempting to generate a standard that at the outset might not appear to present, especially testing theoretical issues. Regardless, while attempting to achieve concession on Statement of Financial Accounting Standard, tending to the theoretical issues produced critical matter for the board members. In this manner, throughout the outset the FASB understood the requirement for an obvious conceptual framework. Based on Hines’s argument, the conceptual framework is mean to provide the ability to increase self-regulate of a profession in order to neutralizing government interference from arising. Whether this argument has been accepted or not will be discussed in more detail with supported evidence to clarify the main point about Hines’s argument. Further details about this argument will discuss below.
Cash should be accurately identified and classified in the financial statements. The auditors determine the correctness of the financial statement presentation from the evidence obtained from the previously mentioned audit procedures. The auditors should inquire about any evidence of restrictions on the availability of funds and make sure those restrictions are properly disclosed. In addition, the auditors should compare financial statement presentation with the applicable accounting standards. These procedures provide evidence to the presentation and disclosure assertion.
Accounting is a very important term to our modern society. It is the career for men and women who at the start have their eyes set on top positions in industry, management, government, and general business. Accounting is a basic need of every businessman, from the operator of a filling station to the government of the United States. It's so important to our society. None of the business organization can operate without is. They are there-somewhere-in every business. In small business, people use pen, ink and skill keep the records. In large business, modern accounting machines are used to operate. Men and women are directing these machines in the accounting process. Wise businessmen enter business must have some accounting knowledge.
Owners and managers require financial statements to make important business decisions that affect its continued operations. Financial analysis is then performed on these statements to provide management with a more detailed understanding of the figures. These statements are also used as part of management's annual report to the stockholders.