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Lecture 13 Standards

standards

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10 views30 pages

Lecture 13 Standards

standards

Uploaded by

sidra.mehmood
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ACCOUNTING

PRINCIPLES
ACCOUNTING PRINCIPLES

Rules and guidelines followed by


businesses, for reporting their
financial information.
Accounting Principles

1. Concepts 2. Conventions
i. Business entity concept
ii. Going concern concept
iii. Cost concept
Accounting iv. Money measurement concept
v. Dual aspect concept
Concepts
vi. Accounting period concept
vii. Realization concept
viii. Matching concept
i) Business Entity Concept
According to this concept, the business is
treated as a unit or entity separate from its
owners, creditors and other parties with
which it deals.
ii) Going Concern Concept

It assumes that a company will continue


to operate in the foreseeable future (i.e. no
threat of liquidation).
iii) Cost Concept
Asset is recorded at the price paid to
acquire it and this cost is the basis for all
subsequent accounting for the asset.
iv) Money Measurement Concept

Only those transactions, that are capable


of being measured in monetary terms are
recognized in the financial statements.
v) Dual Aspect Concept

Under this concept "for every


debit, there is a credit."

Assets = Liabilities + Capital


vi) Accounting Period Concept

The time frame with reference to


which a business prepares its
financial statements.
vii) Realization Concept
Revenue is recognized when it is
earned, irrespective of whether cash is
received or not.

Expense is recognized when it is


incurred, irrespective of whether cash
is paid or not.
viii) Matching Concept
In determining net income for a period,
revenue and expenses of the same
accounting year must be matched.
i. Convention of consistency
Accounting ii. Convention of conservatism
Conventions iii. Convention of full disclosure
iv. Convention of materiality
i) Convention of Conservatism

“Anticipate no profit but provide all


possible losses”.
Policy of “playing safe”.
ii) Convention of full disclosure
Providing information that is complete and accurate.
iii) Convention of consistency

Financial statements of one accounting


period must be comparable to another.
iv) Convention of materiality
Is the importance of a transaction event or
sometimes any discrepancy, whose
information may be important to any of
the stakeholders.
INTERNATIONAL STANDARDS &
THEIR FRAMEWORK
Example:
The common set of U.S. accounting principles is the
generally accepted accounting principles (GAAP)
and are issued by Financial Accounting Standard
Board (FASB).
Financial Reporting Framework in
Pakistan

Under the Pakistani Companies Ordinance (1984), the


Securities and Exchange Commission of Pakistan notifies
the accounting standards that are applied by entities in
Pakistan.
INTERNATIONAL STANDARDS
The International Accounting Standards Committee (IASC)
founded in June 1973.
Replaced by International Accounting Standards Board (IASB) in
April 2001.
It was responsible for developing and promoting International set
of accounting rules.
IAS vs. IFRS

IASC  IAS (1973 to 2001)


IASB  IFRS (2001 till now)
Why International Standards?
1. Considerable growth in International Investment
2. Growth in number of multinational Organizations
3. To bring harmony and uniformity across globe
4. Helping countries, not having any standard-setting body
Accounting Standards and Legal
Framework
Anyone preparing the financial statements which
are intended to show true and fair view of
organization must observe the rules laid down in
Accounting Standards
Objectives of Financial Statements

1. Financial performance
2. Financial Position and Changes in it
Underlying Assumptions

1. Going Concern (Business will continue to operate for


foreseeable future i.e. at least 12 months)
2. Accrual Basis (Recording revenue when earned and
expenses when incurred)
Qualitative Characteristics

1. Understandability (Simplicity)
2. Comparability (Consistency)
3. Relevance (Materiality)
4. Reliability (True & Fair, Neutral, Complete)
Constraints on Information
•Timeliness
•Balance between Cost and Benefit
•Balance between Qualitative Characteristics
Other Assumptions

1. Separate Determination (notes)


2. Stability of Currency
Key Takeaways:

1. Basic or Fundamental Rules


2. Customary Approaches to Reporting
3. International Perspective

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