Financial Accounting and Regulatory Framework

BSc (Hons) Business Management Top up
BMP6018
Financial Accounting & Reporting Framework
A discussion of the fundamental
accounting concepts, and how they
are linked with the users of financial
reports
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A critical evaluation of the fundamental financial accounting
concepts and conventions, and how these have an impact on
the contents of the financial statements and its users. The
history of the accounting regulations and reasons for the
constant changes
Financial accounting can be simply defined as one of the branch of accounting that
basically involves a procedure of recording, classifying, arranging, summarizing and
reporting the different types of financial transactions that have been generated out of
the business operations over a specific period of time (Prewett and Terry, 2018). The
major role of these transactions are utilized for the purpose of the preparation of the
different financial statements. This will basically include balance sheet, income
statement, cash flow statement. Therefore, this will help in assessing the
performance of the company effectively.
History of Accounting Regulations
The accounting regulations are created and set up by the FAFs standard-setting
boards the Financial Accounting Standards Board and the Governmental Accounting
Standards Board are the guidelines that decide how that language is composed. Those
guidelines are referred to altogether as U.S. By and large Accepted Accounting
Principles or U.S. GAAP. Organizations, not-for-benefits, legislatures, and different
associations use these accounting regulations as the establishment whereupon to furnish
clients of budget summaries with the data they need to settle on choices regarding how
well an association or government is dealing with its assets. Financial backers and banks
can utilize this data to choose where to supply assets or loan cash. Including
establishments and grantors, can utilize this data to choose where to give. Therefore, the
financial data should be clear, compact, practically identical, important and illustratively in
nature to maintain the highest level of efficiency in the accounting records.
Reasons for Constant Changes in the Accounting Regulations
The worldwide economy is highly dynamic and regularly erratic. To keep up
with security, institutional and retail financial backers should have the option to trust
openly accessible monetary data. Accounting regulations are made to address this
issue, and are sanctioned to direct announcing organizations along this way. There
is an important requirement of changing or updating the accounting policies, rules
and regulations on a regular basis to meet up with the dynamic economy which is
changing on a regular basis (van de Velde, 2018). The reasons for that can be
external as well as internal. Therefore, the major reason behind making changes will
help in maintaining effectiveness, efficiency and consistency in context to the
accounting records.
Difference Between Accounting Rules and Principles
Accounting Rules Accounting Principles
 These are the opinions which are
recognized by the legal and professional body.
 These are compulsory to be
implemented by the company as well as the
accountants.
 They are highly rigid and are not flexible
 These are the basic rules that
are required in the accounting systems.
 They are not compulsory and
hence do not bind the accountants.
 They are highly flexible in nature.
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in nature.
 They are particularly concerned with the
accounting sector specifically.
 They are fundamental in
accounting and hence have a very broad
perspective that which can be applied in all
the aspects s of financial accounting.
Importance of Financial Accounting Concept and Convention
The accounting concepts and conventions are considered as the integral
part of the business organization. It basically helps in maintaining the proper
financial records based on the financial standards prescribed by the financial
authorities. The primary goal is to accomplish consistency in the readiness and
upkeep of financial reports. It considers the fundamental guideline, which helps
bookkeepers in the readiness and upkeep of the business records (Bharti, 2018).
It means to accomplish a typical comprehension of rules or presumptions to be
trailed by a wide range of substances, consequently working with far reaching and
equivalent monetary data. It works on the nature of fiscal summaries and reports
regarding understandability, dependability, importance, and similarity of such fiscal
reports and reports. Their application helps in ensuring that the financial
statements are informative as well as reliable. There are different types of
accounting concepts and conventions on the basis of which the business
organization performs its accounting functions in order to maintain proper and
clear records. The detailed information about the accounting conventions and
concepts are mentioned below:
1. Accounting Concepts:
These are considered as the foundation that is laid by the accounting system in an
organized form in the business organization. These are considered as highly vital and
important for all the organizations as it specifically helps in syncing the different
industries with a same accounting concepts so that the level of variations in the
accounting can be minimized. Also, the major role played by theses accounting concepts
are it helps in comparing in a very effective yet efficient manner. Therefore, it can be
considered that the accounting concepts helps in providing the better management in
order to perform he accounting related functions in a consistent manner. There are
different types of accounting concepts that helps in laying down the foundation to
address different conceptual issues. There meaning and impact on the financial
statement as well as the users of the financial data is explained below in detail:
a) The accrual concept: This concept states that the revenue or the income
must be recognized at that point of time when it is earned. While on the other
hand this concept also states that the expenses must be recognized when the
consumption of the assets are done (Prewett and Terry, 2018). This concept
allows all the present cash inflows and outflows to get combined with the future
expected cash inflows and outflows to provide more accurate picture of the firm in
a better manner.
IMPACT: The impact of accrual concept on the financial statements is that all the
financial transactions are recorded in the books of accounts when they occur. This
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