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Purpose of Financial Reporting

   

Added on  2020-02-24

6 Pages2056 Words191 Views
Running Head: CURRENT DEVELOPMENT IN ACCOUNTING AND THOUGHTCurrent Development in Accounting andThoughtSubject Code-Trimester No.- Student’s name- Word Count -1500 Name of the tutor -

CURRENT DEVELOPMENT IN ACCOUNTING AND THOUGHTP a g e | 2Ans.1:The conceptual framework helps in determining the concepts and the purpose of financial reporting. It helps the board in the preparation of accounting policies and concepts which are required to be followed consistently. The aim of general purpose financial statements is to highlight information with respect to the company’s performance, its cash flow, and its financial position. These principles are in line with the theme of the conceptual framework. They provide assistance by means of policies and concepts which help in the preparation of financial statements. The objective of financial reporting provides the required information to its users so that they can make decisions based on it. The purpose of users is also linked to it. They want to ensure transparency from the end of the companies through their financial information [ CITATION IFR17 \l 16393 ].Consistency, reliability, comparability, and relevance are the qualitative characteristics of accounting. These are the actual expectation of the intended users from the companies preparing financial statements. The objectives of measurement in accounting are to show a true and accurate picture of the company’s financial position. Both, the qualitative characteristics and the objectives are connected to each other because their basic aim is transparency [ CITATION IFR17 \l 16393 ]. The role of relevance is to make the material relevant which can assist in decision making. It is the interconnection which connects the past data with the future predictions. Faithful representation affirms the business activities as genuine. It speaks for its accuracy with respect to the company’s financial position. Faithful representation stands for more levelof importance. This is because it is not enough if the information is just relevant. It should vouch for its completeness, neutrality, and error- free course of nature [ CITATION Bra13 \l 16393 ]. Relevance is crucial but faithful representation is an obligation. For example, if a business concern is having debtors of $21,542, it can be cross verified with the help of future forecast and past data. But, if the company fails to fairly represent it in its financial statements, the ultimate aim of the conceptual framework will fail. This is the importance of fair representation which requires the reflection of accuracy. Currently, the companies are failing in fairly representing their financial aspects to its users. Apart from the need for

CURRENT DEVELOPMENT IN ACCOUNTING AND THOUGHTP a g e | 3accuracy, it is required to follow the accounting policy with relevant disclosures. The area of faithful representation is quite broad in nature as compared to relevance [ CITATION Bra141 \l 16393 ]. If a company follows relevance but fails to comply in faithful representation, it fails toachieve the objectives of the general purpose financial statement. Even IAS 1, Presentation ofFinancial Statements affirms for the concept of fair representation. The aim of the faithful presentation is in line with the purpose of an accounting standard. It asks for accurate information and true disclosures. It is important that the information should be just and fair with proper disclosures and free from error. The same is the basic need of any accounting standard [ CITATION Cha17 \l 16393 ]. In this era, the need for disclosures has increased. It is due to this information, major decisions are being made by its intended users. Today, the stakeholders are not just interestedin the financial information, they do look for non-financial information as well. This is why our accounting standards are being regularly updated as per the needs of the business environment. The importance of faithful representation has increased to such an extent that even the controllers of financial statements disqualify such information in its absence. In our diversified business environment, which is growing and developing, it can be said that faithful representation is now a necessity and not just a part of the conceptual framework[ CITATION Bra141 \l 16393 ]. Right from the stakeholders to the board and the due compliance of government, all ofthem expect faithful representation from a company’s financial statements. In today’s scenario, if the information shared by the companies are not complying faithful representation, such will have a severe question on its survival. Because today’s world expecttransparency and if the companies are unable to provide that, it will not exist in the long run. So, it is quite crucial, to keep the stakeholders and other connected persons in confidence to survive in the long run [ CITATION Bra141 \l 16393 ]. It is quite possible for the accounting to achieve faithful representation because the conceptual framework along with the accounting policies and standards supports it. It is still difficult because some fraudulent companies still exist who bypass such framework. But to have a reputed brand image, it is now a necessity to reflect faithful representation in financial information. For this, better compliance rules and procedures are being formulated so that its base becomes stronger [ CITATION ias17 \l 16393 ].

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