Underlying Principles – The Building Blocks Underlying Principles – The Building Blocks.

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