FA Elements of financial statements, etc.

Relevance

for decision-making: help them evaluate past, present or future events

e.g. existing debt is of relevance to prospective investors, lenders

Materiality

if omission or misstatement can influence economic decisions (based on size/nature) – e.g. 10,000 is generally material for a non-profit but not Microsoft

Reliability

Free from error/bias; faithful representation e.g. income smoothing – choosing numbers to fit a predetermined result

Substance over form

presented based on economic reality rather than legal form e.g. the one who controls an asset records it, not who owns it

Prudence

degree of caution in uncertainty to avoid overstating/understating assets.

e.g. bad debts; timing of revenue recognition

Completeness

Within bounds of materiality/costs, not omitting information e.g. leaving out a current liability would change the debt to equity ratio, make the financial statements less useful

Comparability

consistency for the entity itself and for other entities e.g. cleaning vs. repairs and maintenance should be handled consistently so that a change in accounting technique doesn’t make it appear that a real change occurred. Investors need to be able to compare and look at trends between different entities

Timeliness

providing information within the decision time frame; delays can cause information to be less relevant/useful e.g. for investors

Balance between cost and benefit

Benefits should exceed costs as per judgment. Costs are not necessarily borne by those who enjoys the benefit e.g. audit exemption

Understandability

Presented to be comprehensible by users with reasonable knowledge of business, accounting and economic activities e.g. how financial statements are structured with headings, disclosures

Purposes of control accounts

1) General ledger free of details but produces correct balance for presentation of trade payables and receivables on financial statement
2) Control mechanism for accuracy - errors
3) Identify omissions
4) Internal checking system in business (separation of duties)

Integrity

straightforward and honest in business relationships

Objectivity

Not allowing bias, conflicts of interest, undue pressure from others to override professional judgment

Professional Competence and Due Care

use due care and skill, maintain professional knowledge

Confidentiality

respect confidentiality of information acquired from business relationships

Professional Behaviour

compliance with laws and regulations; avoid actions that discredit the profession

Sources of the accounting regulatory framework

1) European Law

2) Companies Acts

3) Financial Reporting Standards (FRS)