By: Mee-lena Charles
Table of content
Introduction and features of financial statements page 3
Fundamental assumptions to be made when preparing a
Financial Statement page 4
Qualitative characteristics of financial statement page 5
Users of financial statements page 6
Objectives of IAS page 7
Main features of IAS page8-9
Balance sheet page 10-11
Income statement page 12-13
Limitations of conventional financial statements page 14
Accounting concepts and principles page 15
Introduction of accounting concepts and principles page 16
Types of accounting concepts page 17
Business entity and money measurement page 18
Going concern and prudence concept page 19
Materialityand consistency concept page 20
Accruals concept and matching concept page 21
Conclusion page 22
Limited companies are required by law to prepare and publish accounts annually. The form and content of the accounts are regulated by the companies Act 1985 as amended by the Companies Act 1989 and also Companies act 2006. The general contentof published financial statements is governed by IAS 1. IAS 1 lists the required contents of a company’s income statement and statement of financial position. It also gives guidance on items should be presented in the Financial Statements.
IAS 1 states that a complete set of Financial Statements must include:
1) Income Statement
2) Statement of Changes in Equity
3) Statement of FinancialPosition
4) Statements of Cash Flows
5) Notes to the Financial Statements
The Income Statement is the most significant indicator of a company’s financial statements. It is therefore, important that directors produce accounts which show a true and fair view of the financial affairs of the company and also conform to the relevant accountant standards
IAS 1 identifies fourfundamental assumptions that must be taken into account when preparing financial statements.
1) Fair presentation- Financial Statements should present fairly the financial performance, financial position and Cash flows of an entity and they should also conform to the IAS. Financial Statements should include accounting policies and explanatory notes
2) Going Concern- The entity is normallyviewed as a going concern, that is, as continuing in operation for the foreseeable future. It is assumed that the entity will not cease trading in the immediate future
3) Accruals- Financial statements should be prepared on an accrual basis so that expenses are matched with revenue earned, not as the cash is paid or received, in other words, expenses should be shown in the financial statements asthey have been incurred rather than as they have been paid.
4) Consistency- The presentation and classification of items in the financial statements should be consistent from one period to the next. Thus , it an entity uses straight line method of depreciation, then it should use the same method for the future year
Qualitative characteristics of FinancialStatements
The information provided by the Financial Statements should be useful and relevant to the users. IAS 1 set out four qualitative characteristics of the Financial Statements
Users must be able to understand financial statements. In other words, information in the financial statements should be readily understandable by users.
FinancialStatements should contain relevant information in order to be useful. The relevant information may be used to influence economics decisions of users, that is it helps users evaluate the past, present or future events. Information on financial performance and position is often used to predict future performance and position and other things of interest to the users, for example dividends or increase in...
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