A Detailed Review of Accounting Concepts & Financial Reporting

This report provides an overview of key accounting concepts and the qualitative characteristics of financial reports. It begins by discussing five core accounting concepts: accrual, money measurement, going concern, duality aspect, and matching, explaining their significance in preparing financial statements and ensuring accurate financial analysis. The report then examines the qualitative characteristics that make financial reports useful, including relevance, faithful representation, comparability, understandability, and reliability, as defined by the IASB. Each characteristic is explained in terms of its importance for users of financial information, highlighting how these qualities enable informed decision-making and strategic planning. The report concludes by emphasizing the importance of these concepts and characteristics in ensuring the accuracy and utility of financial reporting.

Assessment

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
Five accounting concepts.............................................................................................................3
Qualitative characteristics of financial report..............................................................................4
CONCLUSION................................................................................................................................5
REFRENCES...................................................................................................................................6

INTRODUCTION
Business accounting refers to the systematic, recording, analysing, interpreting and
presenting of financial information (Collis, Holt and Hussey, 2017). Accounting helps in
determining financial position of an organisation. Five accounting concepts used in the
preparation of financial statements is discussed. Qualitative characteristics of financial report
which make information useful to users is described.
TASK
Five accounting concepts
Accrual concept
According to this concept, transaction should be recorded at the time when they occur, do
not wait for the cash to be receive. Accrual concept help to ensure good information about
financial health of an organisation. This concept is useful in determining financial position of a
company. It is useful in business analysis and better plans can be made for growth of company. It
is used by small businesses and individuals to maintain proper record (Bergmann, Fuchs and
Schuler, 2019). Example of accrual concept is, cash flow statement. In cash flow statement,
income and expenses are recorded when they occur.
Money measurement
Money measurement concept means an organisation should record events or transactions
which can be measured in terms of money. Only those transactions should be recorded in
financial statement which has monetary value. Money measurement concept is important
because all the transactions are recorded in financial statements, it becomes easy to compare the
results. It forms a basis of evidence which can be used in legal matters (Budhathoki). For
example, profit and loss account, it helps in comparison and transactions which have monetary
value are recorded.
Going concern concept
Going concern implies that business entity will continue its operation in future and do not
discontinue operations due to any reason. Going concern assumption refers to prepayment and
accrual of expenses. If a company is assumed to be going concern, then certain expenses may
have deferred in financial report. Going concern concept is important for shareholders as it
demonstrates the stability of entity (Moore, 2017). This assumption affects stock price of
company; it has the ability to raise capital. Going concern provides basis for measuring income

earned and expense. For example, income and expense statement which helps in determining
profit or loss.
Duality aspect concept
According to duality aspect concept, every transaction is recorded in two different
accounts. This concept is based on double entry accounting, which is useful in producing reliable
financial statements. According to this concept, each transaction has double effect and should be
recorded in two different accounts. Duality aspect concept helps in ensuring that transaction is
recorded in both aspects i.e., debit and credit side (Cahyaningtyas, 2017). For example, ledger
accounts. In ledger accounts each transaction has double effect and recorded in two different
accounts.
Matching concept
Matching concept refers to expenses incurred during a period be recorded in the same time
period in which revenues are earned. If there’s no cause and effect relationship, then accountant
will charge the cost to expense. This matching principle helps business in matching revenue and
expenses so that appropriate results can be determined (da Costa and et.al.., 2020). It helps in
greater accuracy when representing company’s financial position, consistency across financial
statements. Example, trial balance, balance sheet and income statement.
Qualitative characteristics of financial report
Qualitative characteristics of financial report that make information useful to users are: Relevance
A relevant financial report helps in providing correct information to users and they can make
future plans accordingly. According to IASB, information in the annual report provides feedback
to the users about previous transactions. When details are correct or appropriate then it helps
users in taking decisions and better plans can be made for future. This is a qualitative
characteristic of financial report which make information useful for users. The report includes,
details of past analysis and present financial position of company (Lev, 2018). Faithful representation
This is the second qualitative characteristic, according to IASB framework, reports should be
presented faithfully. It means financial report should be complete, neutral and free from error. It
is important to present report faithfully so that it can be useful for users. On the basis of financial
report decisions are taken so, it should be without error and clear. This help user in taking quick

decisions and better plans can be made. According to IASB, financial report is assumed to be
neutral if it includes positive and negative points.
Comparability
Next qualitative characteristic is comparability. According to IASB, comparability refers to the
quality of information so that users can identify differences and similarities between two
companies. From the financial reports, users can do comparison so it should be made properly
without any error or mistake. The information in annual report cam be compared with other
companies and it helps in determining weak points. So, financial statement should be made
properly so that comparison can be done and it help in making plans or strategies for future. Understandability
According to IASB, understanability increases when information is classified, presented clearly,
characterised and concise. This help user in understanding things easily and they can take
decisions easily. Understandability has five items which includes, how well information is
presented by an organisation, disclosure of information, presentation in the form of graphs or
diagrams, financial report has glossary or not and technical jargons (Xu and et.al., 2019).
Financial report should be clear and concise so that users can understand it and make plans
according to that. Reliability
Information must be reliable, represent underlying transaction or event. To be reliable it is
important that information which is provided in the financial statement should be neutral means
free from bias. Financial report must be complete and neutral. It helps users in taking decision
and financial health of company is determined.
CONCLUSION
From the above discussion it can be concluded that, there are five concepts of accounting
i.e., accrual concept, matching, duality aspect concept, money measurement and going concern
concept has been discussed. It helps in identifying financial position of an organisation and
decision is taken on the basis of that. Qualitative characteristic of financial report which is useful
for users such as, reliability, faithful representation, relevance, comparability has been discussed.

REFRENCES
Books and Journals
Bergmann, A., Fuchs, S. and Schuler, C., 2019. A theoretical basis for public sector accrual
accounting research: current state and perspectives. Public Money &
Management. 39(8). pp.560-570.
Budhathoki, N. B. Accounting Concepts.
Moore, L., 2017. Revisiting the firm, reporting entity, and going concern concepts in light of
financial crisis. Accounting and the Public Interest. 17(1). pp.130-143.
Cahyaningtyas, F., 2017. Duality in small and medium enterprise accounting practices. Journal
of Innovation in Business and Economics. 1(02). pp.59-70.
da Costa, F. M., and et.al.., 2020. The effects of fair value on the matching of revenues and
expenses: The case of asset revaluations. The International Journal of
Accounting. 55(04). p.2050019.
Lev, B., 2018. The deteriorating usefulness of financial report information and how to reverse
it. Accounting and Business Research. 48(5). pp.465-493.
Xu, Q., and et.al., 2019. Financial report readability and audit fees: a simultaneous equation
approach. Managerial Auditing Journal.
Collis, J., Holt, A. and Hussey, R., 2017. Business accounting. Palgrave.