The main role and concept of accounting is to collect, compile, create and communicate information to investors, creditors, shareholders and other parties that are responsible and take part in making decisions for a business entity. This financial information need to be understandable and comprehensive to the people responsible for making decisions regarding the business. Otherwise if this information is incomprehensive then it would be a complete waste of time for everyone involved in the process. Therefore the FASB decided that financial information should be compiled by the following four qualitative characteristics:
• Relevance
• Reliability
• Comparability
• Consistency
The U.S and the international conceptual framework accept relevance
…show more content…
These parties claim that both of these characteristics have a negative correlation between them since one might suffer in order for the other to gain more weight with the financial information presented. This conflicting relationship between relevance and reliability is even supported by the FASB, “reliability may suffer when an accounting method is changed to gain relevance and vice versa.” (FASB, 1980). Many believe that there is a choice to be made between the qualitative characteristics, since they support that the financial information should either be relevant or reliable since they cannot be both. If the information needs to be relevant then it is done at risk of endangering the perceived quality of the information. (Phillips, 2003). Sometimes it may not be clear whether there has been a loss or gain either of relevance or of reliability. For example advocates of current cost accounting believe it is more relevant to use the current cost income from continuing operations in order to measure operating performance instead of the operating profit which is calculated on the basis of historical costs. Due to the fact that there are uncertainties and different variations in the determination of the current costs then there might some errors in the resulting information. Because of those errors, verifiability and representational faithfulness, which are the main components, that describe reliability, might be reduced. (FASB, 1980) In addition to this it is assumed that if fair value measurement is introduced in the accounting information then that subsequently means that reliability might be lost. (M.Smith,
This report analyses the disclosures of objective of general purpose financial reporting and the qualitative characteristics of useful financial information according to The Conceptual Framework for Financial Reporting. It investigates Bega’s current accounting practice of Property, Plant and Equipment in accordance with AASB 116 Property, Plant and Equipment, and how it satisfies the objective of general purpose financial reporting and the qualitative characteristics of useful financial. This result will then recommend Bega to improve their current accounting practices.
Financial and Managerial accounting are used for making sound financial decisions about an organization. They provide information of past quantitative financial activities and are useful in making future economic decisions. (Albrecht, Stice, Stice, & Skousen, 2002) The same financial data is used to derive reports for each accounting process yet they differ in some ways. Financial accounting primarily provides external reports for external users such as stock holders, creditors, regulating authority and others. (Garrison, Noreen, & Brewer, 2010) On the other hand Managerial accounting is concern with providing information that deals with the internal viability of the organization and is tailored to meet the needs of an individual organization. (Albrecht, Stice, Stice, & Skousen, 2002)
Financial accounting is the analysis, classification, and recording of financial transactions and reporting such information to respective users especially external users who use the information to make decisions about their engagements with the entity. In financial accounting general purpose financial statements are used for external reporting. The public by standards imposes the development of the statements through respective national professional bodies, International Accounting Standards Board and respective company Acts for various nations.
One of the most debatable topics in the accounting industry today is the extent in which we should make the financial statements understandable to the general population. The FASB currently gears its reporting standards toward...
In the Summary of Statement No. 157, FASB says the conclusions of fair value measurements follow these parts of the Conceptual Framework: No. 1 Objectives of Financial Reporting by Business Enterprise, No. 2 Qualitative Characteristics of Accounting Information, No. 6 Elements of Financial Statements, No. 7 Using Cash Flow Information and Present Value in Accounting Measurement (Financial Accounting Standards Board, 2006, para. 12). Both the U.S. GAAP and IFRS adhere to Objective No. 1 in that they are striving to provide an increase in the disclosure, recognition, and presentation to the end users of financial statements. Even though some individuals may feel that the fair value measurement creates volatility with reporting statements, the
The Purpose of Financial Statements The financial statements of a business are used to provide information about the status of the business, set performance targets and impose restrictions on the managers of the firm as well as provide an easier method for financial planning. The financial statements consist of the Profit and Loss Account, Balance Sheet and the Cash Flow Statement. There are four areas of information, which we can collect from a company's financial statements. They are: Ÿ Profitability - This information comes from the Profit and Loss account. Were we can compare this year's profit with the previous years.
The users of financial statement have definite objectives to analysis and interpret .Therefore; there are variations in the objectives of interpretation by various classes of people. However, there are certain specific and common objectives which are listed below:
The purpose of this document is to describe the nature, purpose and scope of accounting and it deliberately explains the details of each category in accounting. Accounting involves in preparing financial documents of an entity by analyzing, verifying, and reporting this records. It emphasizes its major characteristic role in field of banking and finance, with a mixture of supportive sub topics.
Decisions are conclusions made by mangers after long cautious thoughts and happen when answers to problems are chosen for discharge. Options here have to be more than one to enable managers to choose between them, hence, making decisions. Managers of an organization make decisions based on financial statements, since the information contained in financial accounting reveals what has already taken place and what is going on in the organization (Socea, 2012). Managers also predict the future of an organization by reporting that future in the current date. According to Socea (2012), managerial accountants use the financial accounting data that is appropriate, dependable, and comparable. According to Breuer,
(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.
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.
The revenue/cost period-: Revenue and the cost period in accounting that the company get income from normal business activities. It’s referred to normal business income that the company got by selling their product and service.
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.
The function of accounting information system transforms from simple storage to a supportive tool of decision-making, producing high quality information and detailed analysis, bringing about real economic benefits. However, it also challenges the skills and ethics of modern accountants, putting forward the new demand for the professionals who use the accounting information system. As a result, two capabilities are recognized to be essential for the professionals. One is the competency, it lists out a pattern of knowledge used in the job as well as be aware of the link between information systems and decision-making. On the other hand is the ability of analyzing and diagnosing, which is good at problem solving. Another challenge is about ethical issue, requiring integrity and confidentiality as a professional quality of an accountant. To conclude, the accounting information system integrating the information, analyzing and supporting decision-making will become more important in the forming of a company’s strategy. Understanding the structure of accounting information system would lead to a competitive advantage over competitors in the
"The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions."[Financial statements should be understandable, relevant, reliable and comparable. Reported assets, liabilities and equity are directly related to an organization's financial position. Reported income and expenses are directly related to an organization's financial performance.