Upload
waseem-akbar
View
220
Download
0
Embed Size (px)
Citation preview
8/3/2019 Presentation of Accounting
1/32
8/3/2019 Presentation of Accounting
2/32
M.Farhan 118
Arslan Rasheed 104
Habib Rizvi 133
M. Qasim 121Mukhtar Ahmad 138
8/3/2019 Presentation of Accounting
3/32
1-Conventions,2-Accounting standards,
3-Framework.
8/3/2019 Presentation of Accounting
4/32
Accounting Convention
An accounting convention refers to commonpractices which are universally followed inrecording and presenting accounting data
8/3/2019 Presentation of Accounting
5/32
More About Accountingconventions
Accounting conventions are evolved throughthe regular and consistent practice over the
years to facilitate uniform recording in the
books of accounts.
8/3/2019 Presentation of Accounting
6/32
The most important conventions which havebeen used for a long
period are :
1= Convention of consistency.2= Convention of full disclosure.
3= Convention of materiality.
4= Convention of conservatism.
8/3/2019 Presentation of Accounting
7/32
Convention of consistency
The convention of consistency means thatsame accounting principles should be usedfor preparing financial statement in specificperiod.
8/3/2019 Presentation of Accounting
8/32
8/3/2019 Presentation of Accounting
9/32
It is to be found within the group of inter-related financial statements of an organizationon the same date. It occurs when fixed assetshave been shown at cost price and in theinterrelated income statement depreciation has
also been charged on the historical cost of theassets.
8/3/2019 Presentation of Accounting
10/32
This consistency is to be found between
financial statements of one entity from periodto period. Thus, it helps in comparingperformance of the business between two
years i.e. current year with past year.
8/3/2019 Presentation of Accounting
11/32
This consistency is to be found in thestatements of two different business entities of
the same period. This type of consistencyassists in making comparison of the
performance of one business entity with theother business entity in the same trade and onthe same date.
8/3/2019 Presentation of Accounting
12/32
Convention of full disclosure requires that allmaterial and relevant facts concerningfinancial statements should be fully disclosed.Full disclosure means that there should be full,fair and adequate disclosure of accountinginformation. Adequate means sufficient set of
information to be disclosed. Fair indicates anequitable treatment of users. Full refers tocomplete and detailed presentation of
information.
8/3/2019 Presentation of Accounting
13/32
The convention of materiality states that, tomake financial statements meaningful, only
material fact i.e. important and relevantinformation should be supplied to the users ofaccounting information.
8/3/2019 Presentation of Accounting
14/32
This convention is based on the principle thatAnticipate no profit, but provide for allpossible losses. It provides guidance forrecording transactions in the books of accounts. It is based on the policy of playingsafe in regard to showing profit. The main
objective of this convention is to showminimum profit.
8/3/2019 Presentation of Accounting
15/32
Frame
Work
8/3/2019 Presentation of Accounting
16/32
An accounting conceptual framework canbe defined as: a coherent system of inter-
related objectives and fundamentals thatshould lead to consistent standards that
prescribe the nature, function and limitsof financial accounting and financialstatements.
8/3/2019 Presentation of Accounting
17/32
The Need for a Conceptual Framework
To develop a coherent set of standards
and rulesTo solve new and emerging practical
problems
Conceptual Framework
8/3/2019 Presentation of Accounting
18/32
The Framework is comprised of three
levels:First Level = Basic Objectives
Second Level = Qualitative
Characteristics and Basic Elements
Third Level=
Recognition andMeasurement Concepts.
Conceptual Framework
8/3/2019 Presentation of Accounting
19/32
Financial reporting should provide information that:
(a) is useful to present and potential investors and creditors(a) is useful to present and potential investors and creditorsand other users in making rational investment, credit, andand other users in making rational investment, credit, andsimilar decisions.similar decisions.
(b) helps present and potential investors and creditors and(b) helps present and potential investors and creditors andother users in assessing the amounts, timing, andother users in assessing the amounts, timing, anduncertainty of prospective cash receipts.uncertainty of prospective cash receipts.
(c) portrays the economic resources of an enterprise, the(c) portrays the economic resources of an enterprise, theclaims to those resources, and the effects ofclaims to those resources, and the effects oftransactions, events, and circumstances that change itstransactions, events, and circumstances that change itsresources and claims to those resources.resources and claims to those resources.
First Level: Basic Objectives
8/3/2019 Presentation of Accounting
20/32
Qualitative Characteristics
The FASB identified the Qualitative
Characteristics of accounting information that
distinguish better (more useful) information
from inferior (less useful) information for
decision-making purposes.
Second Level: Fundamental Concepts
8/3/2019 Presentation of Accounting
21/32
Understandability
A company may present highly relevant and
reliable information, however it was useless to
those who do not understand it.
Second Level: Fundamental Concepts
8/3/2019 Presentation of Accounting
22/32
Second Level: Qualitative Characteristics
Secondary Qualities:Comparability Information that is measured
and reported in a similar manner for
different companies is consideredcomparable.
Consistency - When a company applies the
same accounting treatment to similar eventsfrom period to period.
8/3/2019 Presentation of Accounting
23/32
Economic Entity company keeps its activityseparate from its owners and otherbusinesses.
Going Concern - company to last long enough tofulfill objectives and commitments.
Monetary Unit - money is the commondenominator.
Periodicity - company can divide its economicactivities into time periods.
Third Level: Assumptions
8/3/2019 Presentation of Accounting
24/32
Materiality - an item is material if its inclusion oromission would influence or change the judgment ofa reasonable person.
Industry Practice - the peculiar nature of someindustries and business concerns sometimes requiresdeparture from basic accounting theory.
Third Level: Constraints
8/3/2019 Presentation of Accounting
25/32
8/3/2019 Presentation of Accounting
26/32
The term standard denotes a discipline,
which provides both guidelines andyardsticks for evaluation. As guidelines,accounting standard provides uniformpractices and common techniques ofaccounting. As a general rule, accountingstandards are applicable to all corporateenterprises.
8/3/2019 Presentation of Accounting
27/32
AS-1 Disclosure of accounting policies (January
1979). This standard deals with the disclosure ofsignificant accounting policies in the financialstatements.
AS-2Valuation of Inventories (June 1981). Thisstandard deals with the principles of valuinginventories for the financial statements.
AS-3 (Revised) Cash flow statement (June 1981,
Revised in March 1997). This standard deals with thefinancial statement which summaries for a givenperiod the sources and applications of an enterprise.
8/3/2019 Presentation of Accounting
28/32
AS-4 Contingencies and events occurring after theBalance Sheet date (November 1982, Revised in April,1995) This standard deals with the treatment ofcontingencies and events occurring after the balancesheet date.
AS-5 Net profit or loss for the period, prior period(period before the date of balance sheet) items andchanges in accounting policies (November 1982,
Revised in February 1997). This standard deals withthe treatment in financial statement of prior periodand extraordinary items and changes in accountingpolicies.
8/3/2019 Presentation of Accounting
29/32
AS-6 Depreciation Accounting (November
1982). This standard applies to alldepreciable assets. But this standard does notapply to assets in the category of forests,
plantations and similar natural resources andwasting assets.
AS-7Accounting for constructioncontracts (December 1983, revised inApril2003). This standard deals with accounting forconstruction contracts in the financialstatements of contractors.
8/3/2019 Presentation of Accounting
30/32
AS-8Accounting for Research andDevelopment (January 1985). This standarddeals with the treatment of costs of research and
development in financial statements.
AS-9 Revenue Recognition (November 1985).This standard deals with the bases forrecognition of revenue in the statement of profit
and loss of an enterprise.
8/3/2019 Presentation of Accounting
31/32
AS-10Accounting for fixed assets(November 1991). This standard deals
with recognition of fixed assets grouped intovarious categories, such as land, building,
plant and machinery, vehicles, furniture andgifts, goodwill, patents, trading and designs.
8/3/2019 Presentation of Accounting
32/32
Any
Question?