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Lecture 1 (3)

The document provides an introduction to accounting, focusing on the scope and purpose of financial accounting and reporting, including the importance of transparency and accountability for stakeholders. It outlines the accounting cycle, types of financial statements, and the conceptual framework that underpins accounting standards. Key principles such as the qualitative characteristics of financial information and fundamental accounting assumptions are also discussed to ensure reliable financial reporting.

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9 views19 pages

Lecture 1 (3)

The document provides an introduction to accounting, focusing on the scope and purpose of financial accounting and reporting, including the importance of transparency and accountability for stakeholders. It outlines the accounting cycle, types of financial statements, and the conceptual framework that underpins accounting standards. Key principles such as the qualitative characteristics of financial information and fundamental accounting assumptions are also discussed to ensure reliable financial reporting.

Uploaded by

ibroximovxusanboy7
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Introduction to accounting

framework

Lecture 1

Natalya Fedoryak
Table of content:

 The scope and purpose of financial


accounting and financial reporting
 Conceptual framework:

- The qualitative characteristics of financial


information
- Measurement criteria
- Fundamental accounting assumptions.
The purpose of financial accounting

The main objective:


Provide information about reporting
entity that is useful to a wide range of stakeholders in
making economic decisions.
Key purposes:
 Transparency and accountability
 Facilitating investor and management decision-making
 Creditor evaluation
 Regulatory compliance
 Benchmarking and performance comparison
The process of financial accounting

Accounting Cycle:
1. Recording and analyzing
business transactions
2. Summarizing and balancing
accounts
3. Reporting financial
statements
The process of financial reporting

Financial statements are formal records of the financial


activities and position of a business summarizing the overall
financial health and performance of an organization by periods.
Types of financial statements
The statement summarises the assets, liabilities The
and equity (capital) balances of the business at statement of
the end of the reporting period.
The statement summarises the revenues earned The
financial
and expenses incurred by the business statement
position of
throughout the reporting period.
The
The statement summarises the movement in profit or loss
statement of
equity balances from the beginning to the end of
the reporting period. The
changes in
The statement summarises the cash paid and statement
equity of
received throughout the reporting period. The notes
cash flowsto
The statement of accounting policies and any the financial
other disclosures required by users of the statements
financial statements.
Conceptual Framework
and
Fundamental Accounting
Assumptions
The importance of conceptual framework

The conceptual framework presents the main ideas,


concepts and principles upon which all accounting
standards, especially International Financial Reporting
Standards (IFRS) are based. 
Minimize the subjectivity
and judgement
 Achieve comparability
between different business
entities
 Ensure fair and reliable
presentation
 Building trust and
confidence of stakeholders
The qualitative characteristics of
financial information
Qualitative characteristics are the attributes that make
information provided in financial statements useful to other and
enhance the quality of the financial statements.
The principles of measurement
Historical Cost is the price
paid for an asset when it was
acquired.

Present Value is the


Realisable Value is discounted future
the price at which an cash flows that an
asset could be sold in asset generates for a
its current condition business under a
at the market. specific use.

Current cost (Replacement


cost) is actual or estimated
market price for an asset that is
already acquired and used.
Fundamental accounting assumptions

 Going Concern

 Economic Entity

 Accruals / Matching Basis


 Substance Over Form

 Monetary Unit

 Consistency
Going concern
Financial statements are prepared on the assumption
that the entity will continue to operate for the
foreseeable future.
“There is1:no
Question intention
What is the and/or conditions to put the
timeline?
entity into liquidation.”

Question 2: What if company is NOT


going concern?
The company would likely need to adjust asset values (to
realisable values) and reclassify liabilities (typically moving
long-term liabilities to short-term).
Economic Entity
Financial statements always treat the business as a
separate entity from its owner(s), regardless of the
type of business entity.
“Financial statements reflect the business's
performance only.”

Example: Drawings and Dividends are NOT


business EXPENSES
Accruals / Matching Basis
Transactions must be recorded when revenues are
earned and expenses are incurred, not as money is
received or paid. “Reflects
true financial position regardless of the timing of the
cash flows.”
The The
Statemen Statement
t Of Cash of Profit or
Flows Loss

Example: Accruals and


prepayments
Substance over form
Transactions must be accounted according to their
substance and economic reality, rather than legal
form.
“Reflects the true financial reality of transactions.”

Example: Leases,
Preference shares
Monetary unit

Assumes that money/currency is the primary unit of


measurement and that all transactions and economic
events are measured in the form of currency.
“If a transaction cannot be expressed in money value,
it should not be included as it is considered useless for
accounting purposes.”

Example: Reputation, Customer List,


Human Resources
Consistency and Periodicity
Consistency: The presentation and classification of items in the
financial statements should stay the same from one period to the
next. “Accounting policies must be consistently
applied across periods.”

Periodicity: Entity’s life is divided into reporting periods


(e.g., months, quarters, years). “Periodic performance
evaluation and timely reporting.”
Independent study:
Reading: Kaplan Study Text (2021-2022),
Chapter - 1 “Introduction to financial
reporting”, (p.1-23).

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