Central to the following discourse would be the money measurement assumption where accounting profit precludes non-monetary elements such as opportunity costs to ensure consistency with part one of the assignments. Reliability of accounting profit – Self-regulation via ethical codes Before being considered a measure of the true profit, reliability of profit figures shall be assessed. As highlighted above, regulators are powerful in a way that profit is ‘the outcome of applying particular accounting rules and conventions … when these rules change, the same series o... ... middle of paper ... ...urvey of ethical behavior in the accounting profession. Journal of Accounting Research, 9 (2), pp. 287-306.
Percentage-of -completion revenue recognition could be permitted but solely when the customer or client owns the work-in... ... middle of paper ... ...rement would be reflected on a company’s balance sheet. The balance sheet will mirror the fair value carrying the amount while amortized cost information is shown in profit or loss. The difference between the fair value and amortized cost data will be identified in other comprehensive income (Snapshot: Financial Instruments). The changes proposed by the International Accounting Standards Board (IASB) will have a significant affect on the General Accepted Accounting Practices of the United States. Most profoundly, the affect will be felt in the areas of revenue recognition, leases, and financial instruments.
The Basic Concepts Upon Which Financial Accounting is Based Terms of Reference To prepare a short report, which will explain the basic concepts upon which financial, accounting is based. The need for accounting standards and why companies must comply with them. The Need for Accounting Standards In order for the Profit and Loss and Balance Sheets accounts to make sense to users who rely on them for their decision making purposes, there has to be consistency in the way items are treated in the financial statements. Without this agreement it would be impossible to use them to compare business performance. Limited companies have a statutory duty to comply with these rules and it is the job of the qualified auditor to check this compliance.
It also assumes a “prudent” investor; that is, an investor who takes the time to become reasonably well informed with respect to accounting theory and practice. Discuss this concept with respect to the current economic environment. Are different groups of investors “prudent?” 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.
At this point some limitations of the financial statement will be given. Furthermore, taking into consideration that companies are care mostly about their profit maximization and their financial health, capital maintenance and its concepts will be explained. This introduce as to the fact that companies do not show the social and environmental harms that are creating due to misallocation of information which it will be a matter of discuss. According to Financial Accounting Standard Board (FASB) conceptual framework’s scope and purpose is to underlie the preparation and presentation of financial statements and to serve as a guide the determination of accounting issues that are not attached directly in the International Accounting Standard(Alexander & Briton, 2004, pg137). Furthermore, it shows financial information to existing and potential investors, lenders creditors and further user groups (Carlon et al., 2012, pg11) This financial information are provided through the financial reporting, the qualitative characteristics of financial information, the reporting entity, measurement of the elements of financial statements and concepts of capital and capital maintenance.
By applying the matching concepts, the bookkeeping is requiring to record the revenue and expense in the same period. The matching principle is to ensure the profits are accurately reported for each accounting period. For this reason, the accrual accounting method requires end-of-period adjustments to be made to the business revenues and expenses while the cash method does not. These end-of-period adjustments create accounting transactions known as accruals (Baskerville,
The motivation behind both of these bookkeeping routines is to furnish the clients with enough data to settle on sound investment choices in regards to the organization. Consequently, both of these bookkeeping techniques will be exceptionally weighty in figuring out the budgetary status of the organization. First off, I will start by explaining what is financial accounting, and managerial accounting. Financial Accounting is concerned with reporting financial information to external parties, such as stakeholders, creditors, and regulators. Managerial accounting is concerned with providing information to managers for use within the organization (Garrison, Noreen, Brewer, 2012).
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.
This type of reporting can help commit fraud. This is the reason why I feel like companies should be made to accurately report assets under the current market price. On the other hand, “Fair value accounting is a type of financial reporting method, known as the “mark-to-market” accounting practice, and is familiar with generally accepted accounting principles (GAAP)” (Way, 2018). With using this method, companies can quantify and report the value of assets and liabilities of their actual fair market values and/or any variations in the reported asset or liability values over the course of it life as a gains or losses (Way, 2018). This will accurately increase or decrease net income and the reported equity on the balance sheets (Way, 2018).
The factors affecting independence of external auditors are multiple. Market competition among external auditors and the imperfection of laws regulated the external auditing industry are tow of most important factors. In order to maintain and guarantee the independence of external auditors and try to avoid the scandals like Arthur Andersen, some research on how to improve and maintain the independence of external auditors are necessary. It is possible for researchers to put emphasis on how to control the market competition among auditing organizations and enhance the ability of accounting regulators to supervise and manage the professional accounting industry in the future.