The Accounting Standards and the framework are the rules and regulation set up the Regulatory department for setting up a common policy in the industry. The objective of the financial statement of a company is to give necessary details about the company performance in the year and the comparison of the same over the last year. The evaluation of investment is done by the key financial data provided by the company for the performance of the company in the financial year. The Generally Accepted Accounting Principles are the accounting rules and regulations usually followed by the companies in the UK.
The Accounting standards and rules must be followed by every company in the UK for preparing their financial statements (Nobes 2014). The accounting rules and regulations followed by the company forms a common area for the investor to understand the financial statements and the annual report reported by the company. The UK Financial Reporting Council (FRC) is the regulatory body which governs and guides the financial reporting framework.
The reporting framework is reviewed periodically by the regulatory body to incorporate necessary changes in the policy of the reporting framework (Schaltegger and Burritt 2017). The Chief Standard Setting Bodies for the policies and the rules is the Financial Accounting Standard Body. The reporting standards set up the regulators narrows down the possible accounting choices available to the management of the company for reporting its various kinds of transactions (Belal 2016).
The Objective of the financial statement is to provide the key financial information about the company and reflects the firm’s financial position and annual performance done by the company. The financial statement reported by the company is categorically distributed under several heads and accounts depending upon the type and nature of the transaction. The key focus for the accounting standard setting bodies and the regulators is to protect the investors and stakeholders of the company. The preparation of the financial statement should be well assessed and be in accordance with the stated accounting policy under which the accounting standard body guides.
The financial standard bodies ensures that the policies and the rules and the regulations promotes transparent and fair value accounting. The “Companies Act Accounts” guides that the company should prepare financial reports which give material information about the company and the reporting should be in accordance with the Financial Reporting Standards which s given and guided by the Financial Reporting Council (FRC) the Regulatory body (‘UK and Irish GAAP’). The regulation set up by the Companies Act makes the company disclose all material information and deals relevant under each accounting head and the implication of the same in the financial statement of the company (Barbu et al. 2014).
The companies are also allowed to report the financial statement under the International Financial Reporting Standards, which is guided by the International Accounting Standard Board (IASB) which also provides a uniform form of accounting and financial reporting providing flexibility to the companies for reporting the transaction under the various accounting heads. IAS Regulation (Regulation (EC) No.1606/2002) which states that the consolidated report presented by the companies which are listed in Europe Union Market should prepare their financial statement in accordance with the IFRS.
The UK regulatory body also gives the option under the Companies Act 2006 under the section 395 and 403 that the companies can opt for preparation of the financial statement of the companies in accordance with the ‘IAS Accounting’ or the ‘Companies Accounting Act 2006’. The Companies Act 2006 under the section 394 tells that the company should prepare individual report of the various accounts.
it reports under the financial statement of the company so that the investors and the stakeholders of the company are better able to map and review the financial position of the company (Pijper 2016). It is very important for every firm to have a common uniform base of accounting rules and regulations so that the users of the financial report get the option of comparability feature in the report (Bamber and McMeeking 2016). The three common aspect which should be found in a financial report is the option of “Comparability, Verifiability and Timeliness”.
The Accounting rules and regulations are needed in guiding and developing the layout of the accounting procedure to be followed by the companies of that the companies in the industries and the sector can adopt a common uniform base of accounting. The key motive behind having and developing a uniform set of accounting policies is that the same would enable the investor compare different companies in the same industries for the financial positions they stand on. Users of the financial statements evaluate certain financial metrics and tools for the evaluation and analysis of the company such as Ratio Analysis, Revenue Decomposition, Equity Valuation Methods and forecasting of financial statements (Christensen et al. 2015).
It is very important for the companies to prepare correct data and relevant information on various grounds so that the investment decision is not hampered. Forecasting of financials and evaluation of the financials involves application of the historical data provided by the company. The data and information should be verified and should be well asserted so that the forecasting and evaluation is correct. The primary concern over the accounting regulator and the standard setting bodies is that the accounting standard bodies should be converged and should form a common base of accounting for reporting financial statement of the companies (Gunningham and Sinclair 2017).
The IFRS and the GAAP are the two primary standard setting bodies in the field of accounting which have been working on the development of the common base of accounting and having a common base for reporting the financial stamen of the company. The standard setting bodies differs in terms of the three opinion and accounting way and the methodology involved in the same which acts as the key hindrance for the standard setting bodies for convergence. The general requirement for the financial statement under the IFRS (IAS NO.1) has been categorically divided into two major parts.
The first part of the Statement includes the key accounts and heads like the Balance sheet, Statement of the comprehensive income, cash flow statement, and statement of the changes in the shareholders equity and the footnotes of the company. The second part of the statement contains the general features and observation and the fundamental principles to be observed. The fundamental principles should be such that the accounting should be based on the fair value accounting, going concern, accrual basis of accounting, conservatism, i.e., prudence, consistency, comparability and the frequency of updating the relevant data and information.
The structure and the content of the financial statement reported should be primarily be focused on the common reporting standards. The different measurement base applied by the company in the revaluation of various transactions and accounts like the historical cost approach, current cost, amortized cost, realizable value and fair market value. The key characteristics of the coherent framework should be such that the financial statement for the company logically fits together the key qualities like transparency, comprehensiveness and consistency feature in the report (Thomson, Grubnic and Georgakopoulos 2014). The transparency features ensures that the information and data provided by the company in the financial statement should be fair and transparent and should reflect material information reflecting economic reality on the same.
If the information provided are irrelevant and misstated then the same would affect the investment decision process followed by the users of the accounting information and the relevant decisions based on the same. The company should not provide incorrect information are play with the transactions of the company under the various accounting heads in order to conduct a financial misconduct. Revenue management and accounting and capitalization of the operating expenses are some of the key factors and transaction where the management of the company generally follows discretion in the management and reporting of the same.
Reporting of accrued revenue as a part of revenue and operating expense as a part of the capital expenditure are some of the key area where the discretion of management works out and they usually play out. There should be several disclosure and informative logic that should support the transactions done and which is generally reported in the footnotes of the company. Comprehensiveness is the factor, which is an essential framework for the financial reporting framework of the company (Brown, Preiato and Tarca 2014).
The financial information provided by the company should be comprehensive in nature and should cover various relevant information and data given by the company. There are various accounting transaction and accounting heads where different kind of financial data are provide the same needs to be provided in the footnotes section of the company financial report so that the users of the report can easily understand the same and apply the same in the evaluation process. The reporting of financial data and information in the footnotes section of the annual report also include the comparison of the data from the previous years and the fundamental principle behind the same. The key accounting changes are reported and the reason for such growth and decline should be well supported.
The macroeconomic decisions and the business factors are some of the crucial factor which can affect and influence the various group heads of the company factors and bring material changes in the business. Timeliness and consistency of the data provided is the third crucial factor reported by the management of the company for the financial statements provided. The data and information given should be presented in a timely manner and should be provided as per the regulations rules and guidelines given.
The presentation of the quarterly, semiannually and annually data for the company for showing the financial position changes observed in the company during the time frame must be presented. It is very crucial that the companies report information and relevant data and maintain consistency in the presentation of the same so that the users of the financial data are always well aware about the business operations and the conditions of the company.
The Income statement shows the financial performance of the company and includes the key business operations transaction which shows the firms net profitability position. The regulatory body generally guides that the expenses can be either grouped or classified according to the nature and type of transactions. The Income statement panel should show figures for the last two years so that the users can assess the performance of the company and which enable the users perform relevant data application.
The reported expenses in the income statement may be or may not be shown in brackets. The Balance sheet of the company shows the firm changes in the assets and liability of the company (Collier 2015). The net changes in the asset may include purchase or dispose of assets which can be relevantly found in the cash flow statement of the company. The asset side of the balance sheet is divided into two common heads current asset and non-current assets and the various account are reported under the two common heads. The liability side of the company shows the net borrowing position of the company, the amount it has borrowed and the respective head or sources of borrowing via debt or equity.
The cash flow statement of the company is a detailed account that includes the key business operations of the company that are usually transacted via Cash/Bank and is reported in detailed structured way. The three primary heads where the accounting heads are reported are Cash flow from operations, Cash flow from investing activities and Cash flow from financing activities which forms the basic accounting structure of the head. The footnotes section of the company provides the detailed transaction done by the company in the various accounting heads (Nobes 2014).
The fundamental principles and the logic behind the transaction done and reported are some of the common areas discussed in the footnotes section. The footnotes statement of the company provided is the crucial data and must be assessed and evaluated by the users of the report for the application of the same. The primary concern for the accounting standard setting bodies and the regulators is to protect the investor’s perspective and stakeholders of the company. The financial standard bodies ensures that the policies and the rules and the regulations promotes transparent and fair value accounting.
Thus, it is crucial for the companies to prepare correct data and relevant information on various grounds so that the investment decision is not hampered. The regulation set up by the Companies Act makes the company disclose all material information and deals relevant under each accounting head discussed above and the implication of the same in the financial statement of the company (Cao, Chychyla and Stewart 2015).
The importance of the accounting standard setting bodies is very crucial as they set up the guidelines for the companies for the reporting structure they need to follow and the various rules and regulation under which the same will be performed (Kraft 2014). However it is crucial to note that the firms should change the accounting policies and should abide by the current updated policy guided by the accounting standard bodies. The accounting rules and regulations should reflect the economic reality of firm and must include the macro business conditions under which the firms operates. However there are several areas which needs to be properly analyzed and evaluated while assessing the financial report of the companies. Risk and return characteristic involved in the company and the operations which are carried on by the firm are some of the crucial area of analyses which the firm should analyze.
It is usually recommended that firms should present a five year financial summary snapshot in the financial statement of the company so that the investors and the stakeholders of the company could evaluate the trend of growth in the time period. The financial reporting council from time to time update the accounting policies which should be carefully reviewed and the material impact of the same on the financial statement and the performance of the company also needs to be properly analyzed.
The preparation of the financial statement should be well assessed and be in accordance with the stated accounting policy under which the accounting standard body guides. Thus it is very crucial for the Accounting standard bodies to regularly review the financial presentation done by the company and analyze the various aspect of the same. The regulation of the same will ensure that the investor’s perspective are always in best interest and they are provided with material information which would help them in making business decisions.
Reference
Bamber, M. and McMeeking, K., 2016. An examination of international accounting standard-setting due process and the implications for legitimacy. The British Accounting Review, 48(1), pp.59-73.
Barbu, E.M., Dumontier, P., Feleag?, N. and Feleag?, L., 2014. Mandatory environmental disclosures by companies complying with IASs/IFRSs: The cases of France, Germany, and the UK. The International Journal of Accounting, 49(2), pp.231-247.
Belal, A.R., 2016. Corporate social responsibility reporting in developing countries: The case of Bangladesh. Routledge.
Brown, P., Preiato, J. and Tarca, A., 2014. Measuring country differences in enforcement of accounting standards: An audit and enforcement proxy. Journal of Business Finance & Accounting, 41(1-2), pp.1-52.
Cao, M., Chychyla, R. and Stewart, T., 2015. Big Data analytics in financial statement audits. Accounting Horizons, 29(2), pp.423-429.
Christensen, H.B., Lee, E., Walker, M. and Zeng, C., 2015. Incentives or standards: What determines accounting quality changes around IFRS adoption?. European Accounting Review, 24(1), pp.31-61.
Collier, P.M., 2015. Accounting for managers: Interpreting accounting information for decision making. John Wiley & Sons.
Gunningham, N. and Sinclair, D., 2017. Leaders and laggards: next-generation environmental regulation. Routledge.
Kraft, P., 2014. Rating agency adjustments to GAAP financial statements and their effect on ratings and credit spreads. The Accounting Review, 90(2), pp.641-674.
Nobes, C., 2014. International classification of financial reporting. Routledge.
Nobes, C., 2014. International classification of financial reporting. Routledge.
Pijper, T., 2016. Creative accounting: The effectiveness of financial reporting in the UK. Springer.
Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts and practice. Routledge.
Thomson, I., Grubnic, S. and Georgakopoulos, G., 2014. Exploring accounting-sustainability hybridisation in the UK public sector. Accounting, Organizations and Society, 39(6), pp.453-476.
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