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Underlying Principles– The Building BlocksUnderlying Principles– The Building Blocks
learning objectives
uses and purpose of accounting
the conceptual frameworks of accounting
the Statement of Principles (SOP)
UK accounting concepts true and fair view
UK accounting and financial reporting standards
Session Summary (1)Session Summary (1)
international accounting standards
financial accounting, management accounting and financial management
accounting and accountancy
types of business entity
financial statements users of financial statements
accountability and financial reporting
Session Summary (2)Session Summary (2)
outline the uses and purpose of accounting and the practice of accountancy
explain the development of the conceptual frameworks of accounting
outline the contents of the UK Statement of Principles
explain the main UK accounting concepts and accounting and financial reporting standards
appreciate the meaning of true and fair view
Learning Objectives (1)
Learning Objectives (1)
consider the importance of international accounting standards
explain what is meant by financial accounting, management accounting and financial management
illustrate the different types of business entity
explain the nature and purpose of financial statements
identify the wide range of users of financial information
consider the issues of accountability and financial reporting
Learning Objectives (2)
Learning Objectives (2)
accountancy is the practice of accounting
The three questions generally answered by accounting:
how are we doing, and are we doing well or badly?
which problems should be looked at?
which is the best alternative for doing a job?
Uses and Purpose of Accounting (1)
Uses and Purpose of Accounting (1)
Accounting may be defined as
the classification and recording of monetary transactions
the presentation and interpretation of the results of those transactions the monetary projection of future activities from alternative courses of action
Uses and Purpose of Accounting (2)
Uses and Purpose of Accounting (2)
The Statement of Principles (1)
The Statement of Principles (1)
The SOP is a statement of guidelines, and comprises 8 chapters that deal with the following topics:
the objectives of financial statements
identification of the entities required to provide financial statements
the qualitative characteristics required to make financial information useful to users
The Statement of Principles (2)
The Statement of Principles (2)
the main elements included in the financial statements
when transactions should be recognised in financial statements
how assets and liabilities should be measured
how financial statements should be presented for clear and effective communication
the accounting by an entity for interests in other entities
Features of Useful Financial
Information
Features of Useful Financial
Information
UK Accounting Concepts
UK Accounting Concepts
True and Fair ViewTrue and Fair Viewthe term true and fair view was introduced in the Companies Act 1947
true and fair view was adopted by the European Community Council in its 4th directive
true and fair view was implemented by the UK in the Companies Act 1981, and in the implementation of the 7th directive in the 1989 Act (section 226 or 227)
In practice true and fair view relates to the extent to which the various principles, concepts, and standards of accounting have been applied
The framework of accounting that covers which data should be included within an accounting system, and how that data should be recorded and reported is included in:
Statements of Standard Accounting Practice (SSAPs)
Financial Reporting Standards (FRSs)
UK Accounting and Financial Reporting
Standards
UK Accounting and Financial Reporting
Standards
International Accounting Standards
International Accounting Standardsthe IASC was created in order to
develop international accounting standards
the successor to the IASC, the IASB (International Accounting Standards Board) was set up in April 2001
the IASB publishes International Financial Reporting Standards (IFRSs)
from 1 January 2005 there was mandatory application of the IFRSs by listed companies within EU member states
Branches of Accounting
Branches of Accounting
Professional Accounting Bodies
Professional Accounting Bodies
Accounting processes follow a system of
recording and classifying data
followed by
summarisation of financial information for subsequent
interpretation and presentation
Accounting ProcessesAccounting Processes
Types of Business Entity
Types of Business Entity
The three main financial statements that appear within a business’s annual report and accounts are the
balance sheet
profit and loss account
cash flow statement
Financial StatementsFinancial Statements
Users of Financial and Accounting
Information
Users of Financial and Accounting
Information
Accountability is maintained by
the reporting to shareholders on a yearly and half-yearly basis of sales and other activities and profits or losses arising from those activities and the audit function
Accountability and Financial ReportingAccountability and Financial Reporting