Acca f3 Financial Accounting (int) Study Text
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- Bu səhifədəki naviqasiya:
- Measurement bases
- General
- Liabilities and provisions
- IASBs Framework
- Changes in financial position
34 3: Accounting conventions Part B The qualitative characteristics of financial information and the fundamental bases of accounting 2.15 Substance over form
accordance with their substance and economic reality and not merely their legal form. Substance over form usually applies to transactions which are fairly complicated. It is very important because it acts as a 'catch-all' to stop entities distorting their results by following the letter of the law, instead of showing what the entity has really been doing. 2.16 Presentation of accounting policies There should be a specific section for accounting policies in the notes to the financial statements and the following should be disclosed there. (a)
Measurement bases used in preparing the financial statements (see Section 5 ) (b) Each specific accounting policy necessary for a proper understanding of the financial statements (see
Section 6 ) To be clear and understandable it is essential that financial statements disclose the accounting policies used in their preparation. This is because policies may vary, not only from entity to entity, but also from country to country. As an aid to users, all the major accounting policies used should be disclosed in the same note. There is a wide range of policies available in many accounting areas. Examples where such differing policies exist are as follows, although the list is not exhaustive and it has been selected from the standard to reflect the limited areas covered in your syllabus. Area Policy
General – Overall valuation policy (eg historical cost, replacement value) – Events subsequent to the reporting period
– Receivables – Inventories and related cost of goods sold – Depreciable assets and depreciation – Research and development
– Commitments and contingencies Profits and losses – Methods of revenue recognition – Maintenance, repairs and improvements – Gains and losses on disposals of property 3 The IASB's Framework The
IASB's Framework provides the basis of its conceptual framework. IASs and IFRSs are based on this framework. The key elements are:
Financial statements should provide useful information to users. Financial position is shown in the statement of financial position. Financial performance is shown in the income statement. Changes in financial position are shown in the statement of cash flows. The
main underlying assumptions are accruals and going concern.
Financial statements should be: – Understandable – Relevant – Reliable – Comparable Key term FAST FORWARD Part B The qualitative characteristics of financial information and the fundamental bases of accounting 3: Accounting conventions 35 The Framework for the preparation and presentation of financial statements ('Framework') is, in effect, the conceptual framework upon which all IASs and IFRSs are based and hence which determines how financial statements are prepared and the information they contain. The Framework consists of several sections or chapters, following on after a preface and introduction. These chapters are as follows.
The objective of financial statements. Underlying assumptions
Qualitative characteristics of financial statements The elements of financial statements
Recognition of the elements of financial statements Measurement of the elements of financial statements
Concepts of capital and capital maintenance We will look briefly at the preface and introduction to the Framework as these will place the document in context with the rest of what you will study for this paper. We will then look only at the first three of the chapters listed above, because a detailed knowledge of the remainder of the Framework is not examinable. A brief summary of the remaining chapters is given at the end of this section. 3.1 Preface The preface to the Framework points out the fundamental reason why financial statements are produced worldwide, ie to
pressures in each country. These pressures may be social, political, economic or legal, but they result in variations in practice from country to country, including the form of statements, the definition of their component parts (assets, liabilities etc), the criteria for recognition of items and both the scope and disclosure of financial statements. It is these differences which the IASB wishes to narrow by harmonising all aspects of financial statements, including the regulations governing their accounting standards and their preparation and presentation. The preface emphasises the way financial statements are used to make economic decisions and thus financial statements should be prepared to this end. The types of economic decisions for which financial statements are likely to be used include the following.
Decisions to buy, hold or sell equity investments Assessment of management stewardship and accountability
Assessment of the enterprise's ability to pay employees Assessment of the security of amounts lent to the enterprise
Determination of taxation policies Determination of distributable profits and dividends
Inclusion in national income statistics Regulations of the activities of enterprises Any additional requirements imposed by
financial statements produced for the benefit of other users. The Framework recognises that financial statements can be prepared using a
the most common is based on historical cost and a nominal unit of currency (ie pound sterling, US dollar etc), the Framework can be applied to financial statements prepared under a range of models. 3.2 Introduction The introduction to the Framework lays out the purpose, status and scope of the document. It then looks at different users of financial statements and their information needs. Yüklə 3,78 Mb. Dostları ilə paylaş:
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