An Analysis of Accounting Concepts in Financial Reporting (Finance)

This report provides an overview of financial accounting, emphasizing the importance of systematic recording and analysis of financial transactions for businesses. It discusses the International Accounting Standards Board (IASB) framework, highlighting its role in standardizing financial reporting for external users, including investors and creditors. The report explains key qualitative characteristics of financial information, such as relevance and faithful representation, and enhancing characteristics like verifiability and comparability. It also explores how short-term decisions are made by managers, focusing on concepts like contribution, break-even points, fixed costs, and variable costs. The report concludes by emphasizing the significance of financial accounting in maintaining accurate records and supporting informed decision-making within organizations, along with the importance of considering cost structures for effective management.

Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
TASK 2............................................................................................................................................2
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Accounting is systematic and comprehensive recording of financial transaction in
pertaining a business. It is considered as one of the key function for all entities so that they can
summarise, analyse the transactions which are done by them (Barth, 2013). Readers are aware
about that all listed companies who are regulated in European market are required to consolidate
their accounts according to International Accounting Standards since 2005. In this essay,
International Accounting Standard Board (IASB) framework is discussed. Further in this report,
benefits of financial reporting have been discussed which help to users in marinating accounts.
At last, different concepts has been discussed which help to organisation in making short term
decision.
TASK 1
The primary users of financial reporting are potential investors, creditors, lenders who are
using this information’s so that they can make decision about selling, buying or holding equity
for a specific period of time. The framework regarding IASB had set out the concept that shape
the preparation and presentation of making financial statement for their external users (Gordon
and et.al., 2015). This framework assists with in promoting the harmonisation of regulations,
procedures and accounting standard which is related with presentation of financial statement and
provide basis for reducing number of alternative accounting treatment.
This framework comprises with several section which covers many areas such as;
elements of financial statement, qualitative characteristics of monetary information, underlying
assumptions, concept of capital maintenance. All this will help to users in maintaining their
accounts in reliable.
Framework identifies two fundamental qualitative characteristics which are useful in
financial information; relevancy and faithful representation (Jackling, 2013). There is another
characteristic which enhancing qualitative; verifiability, timeless, understand ability and
comparability. However, this agenda acknowledges that information which may not possess all
enhancing characteristics but still it may be useful for users. These attributes are providing useful
and reliable information to their users in maintaining authenticate report on financial statement.
A primary characteristic of financial information is that it should be willingly (readily)
understandable by users. This assumes that users are having knowledge regarding their business;
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its economic activity and concept about accounting. It allows entity to include complex matters
in financial report also.
Information which are collected by users are showing relevance and it influence the
economic decision which help to operator in evaluating past, present and future events and can
be predict in simple way. This information must be reliable and should be free from error or bias
which represent faithful representation of data (The IASB conceptual framework - an
introduction, 2017). As it is useful if information’s are having predictive and confirmatory value.
Predictive value concerned with in anticipating future results. Whereas confirmatory value
enables users to confirm and check earlier predictions which are made by them. In certain
situations, information can be relevant but it may be unreliable. The users who are making
financial statement need to be address uncertainty.
Comparability provides facility regarding assessment for the performance of reporting of
company over the time period. It may also consider performance of numerous entities during the
year. So, while preparing financial statement it must apply all fundamental concepts which
shows consistency and users should be aware about accounting policies which are employed by
them.
Faithful representation of financial information is representing purports of reports. With
the use of these information it actually shows what is actually present and what really happened.
Some of the characteristics are there which represent whether information is reliable or not;
completeness (there should be full disclosure of all essential information), neutrality (data should
be f4ree from bias), and free from error (no omission).
Timeless means providing information to decision-makers with in specific time period so
that users can take reliable information. An information should not be delayed while providing to
users.
TASK 2
In organisation need of decision arises when managers are facing so many problems and
for them alternative course of actions are available. Short-term decision is tactical in nature
which business entities are making best use of resources in less period of time. There are
different terms which are used in organisation and assists them in making useful decision for
short period of time.
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Contribution is considered as crucial one for every business. As it focuses on returns
which allow business to make profit from each unit of product sold by them. After this to
determine that whether enough return is available for business to make more profit after
considering fixed costs. While making short term decision manager have to analyse that
individual products are providing profit to them or not. Along with this, it will help to managers
in calculating how many stuffs are needed to be sold so that they can cover all business costs i.e.
variable and fixed.
Break-even point considered when business is no longer operating their function with a
loss but yet they are earning profit. It is that point where organisation is earning sales from
enough income in order to cover all fixed costs and expenses (Maloney and et.al., 2012). It aids
to organisation in making short-term decision if entity is producing more units and earning huge
amount of profit. Through this they can analyse that in long term they can produce more units
and meet out with their expenses.
Fixed cost is helpful for organisation in making short term decision because managers are
already aware about that what specific cost are required in doing expenses (Arguedas and van
Soest, 2011). For example, costs of items do not change when there is a change in quantity of
output. As it includes rent, payment of loan amount, insurance premiums etc. With the help of
this managers can use funds in appropriate manner.
Variable cost includes direct materials where it roughly proportionate to how number of
units to be produced, through this cost of product per unit should decline somewhere and
increases volumes due to greater purchasing of products at discounts (Ahn, Khandelwal and Wei,
2011). It may be help for organisation in making short-term decision to sell their old products at
discount rate in order to generate more profit to meet pout with expenses.
CONCLUSION
It can be concluded from above report that financial accounting has made their role in
organisation which help them in making proper records. With the help of this, company can
maintain authenticate records and spends funds in appropriate manner. Apart from this, while it
is essential for manager to considered fixed cost, variable cost per unit which assists them in
taking fruitful decision for organisation.
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REFERENCES
Books and journals
Ahn, J., Khandelwal, A. K., & Wei, S. J. (2011). The role of intermediaries in facilitating
trade. Journal of International Economics, 84(1), 73-85.
Arguedas, C., & van Soest, D. P. (2011). Optimal conservation programs, asymmetric
information and the role of fixed costs. Environmental and Resource Economics, 50(2),
305.
Barth, M. E. (2013). Measurement in financial reporting: The need for concepts. Accounting
Horizons, 28(2), 331-352.
Gordon, E. A. & et.al., (2015). The IASB's discussion paper on the Conceptual framework for
financial reporting: a commentary and research review. Journal of International
Financial Management & Accounting, 26(1), 72-110.
Jackling, B. (2013). Global adoption of international financial reporting standards: Implications
for accounting education. Issues in Accounting Education, 28(2), 209-220.
Maloney, S. & et.al., (2012). Breakeven, cost benefit, cost effectiveness, and willingness to pay
for web-based versus face-to-face education delivery for health professionals. Journal of
medical Internet research, 14(2).
Online
The IASB conceptual framework - an introduction. 2017. [Online]. Available through:
<https://www.accountingweb.co.uk/business/financial-reporting/the-iasb-conceptual-
framework-an-introduction>. [Accessed on 13th September 2017].
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