LSC UoS BA - Accounting Concepts & Financial Report Characteristics

This report provides an overview of five key accounting concepts as per the International Accounting Standards Board (IASB) and their application in the UK business context. The concepts covered include going concern, consistency, prudence, matching, and materiality, each illustrated with practical examples. Furthermore, the report details the qualitative characteristics of financial reports, such as understandability, relevance, consistency, comparability, reliability, and objectivity, emphasizing their importance in ensuring transparency and fair representation of financial information. The report concludes by highlighting the role of accounting in tracking assets, liabilities, and making provisions for uncertain losses, ultimately aiding businesses in presenting unbiased information to stakeholders. Desklib provides a platform to explore more solved assignments and past papers for students.

Accounting for Business

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
Five Accounting Concepts with their example............................................................................3
Qualitative characteristics of Financial Reports..........................................................................4
CONCLUSION................................................................................................................................5
REFERENCE...................................................................................................................................6

INTRODUCTION
Accounting helps the business in tracking and monitoring their income and expenditures
that's why they play crucial role in running a business. It also help in ensuring the statutory
compliances and provides management and investors quantitative and qualitative financial
information. The report will discuss the five accounting concepts as per the International
Accounting Standard Boards which further help the UK businesses in the preparations of the
financial statements. Furthermore, the report will also state the qualitative characteristics of the
financial reports.
TASK
Five Accounting Concepts with their example
As per the International Accounting Standard Board (IASB), the accounting concepts
helps in drawing up the financial statements for the internal and external use purpose. Such an
accounting concepts are as follow: Going Concern: This is a concept which state that the company will never going to broke
and dissolve in the future. The going concern is basically accounting assumption which
state that the business is in good financial position and will remain in operation for the
foreseeable future (Vician and Mortenson, 2017). For example: A UK company has
faces the tough financial situation and also struggling to pay its debts. In that case the
government will provide the company guarantees of all payments to its creditors and
consider its as going concern despite of its poor financial position. Consistency: This is also one of the most important accounting concept which state that
once a company select any accounting method than they need to follow the same for all
period. It means they can't change the method and technique continuously and if they
want to change its than they have to do the same with retrospective way. For example: If
any company select the LIFO method for inventory valuation than they can't change to
FIFO method in next accounting year. Prudence: This concept of accounting defines the requirement of the provision which
means that in case if any company has uncertain event where chances of loss is higher
than they have to make provision of it. But on the other hand, such uncertain event
outcome will be profit than such an effect will be done in financial statement only after

actual income recognition (Hamman, 2021). For example: ABC Ltd. customers have file
suit against company having €10000 penalty and there is a chance that company will lose
this case than the ABC Ltd. need to make provision with amount €10000 and shown its
as current liability. Matching: The matching concept of the accounting states that income earned and
expenses incurred should be record in the accounting period in which it actually occurred
rather than received or not. This concept follow accrual basis financial statement rather
than cash basis. For example: A company sell the goods on both cash and credit basis.
The last month of accounting year 2021 credit sales such as €50000 is received by the
company in April. In this case, the amount of €50000 will be recorded in march 2021
rather than April 2021.
 Materiality: The materiality concept helps the businesses to analyse the particular
transaction and events on material and immaterial basis. The material items are those
which affects the decision-making process of the internal and external users of the
financial statements (Wahab, Ali and Abduzahre, 2019). For example: The issuance of
shares affects the decision-making of the investors as their earning per share decreases
because of increase in outstanding shares. That's why such an items and transaction must
be included in the financial statement and notes to accounts for showing true and fair
financial reports.
Qualitative characteristics of Financial Reports
The qualitative characteristics of the financial reports includes the following factors
which help the company to prepare financial statement which ultimately reflect true and fair
view and that is: Understandability: This implies the expression and clarity about any financial transaction
and events which must be understandable. The company have present the financial report
in such an manner which is easily understandable to the users of the financial statements
(Al-Waeli and et.al., 2020). Relevance: This characteristics of the financial report state that all the financial
information present in the financial statement must be relevant and material which affects
the decision of the user and management of the company. For example, any of the

transaction affects the users investment decision such as buyback of shares must be
considered as relevant information. Consistency: Their should be consistency in the adoption and execution of financial
methods and techniques. Such as if any company uses SLM method for calculation of
depreciation than they have to adopt the same method in all the upcoming accounting
year to keep the financial reports reliable and fair. The change to WDV method affects
the whole position of the businesses (Zyznarska-Dworczak, 2020). Comparability: This characteristics state that the financial reports of the company must
be presented in such a way that the users are able to compare it with the industry and
other competitors. That's why companies have to implement the policies and rules as
defined in the accounting standards followed by industry because it helps in comparison
of the financial performance. Reliability: This state that the financial report must show the information that is truthful,
accurate and complete. Any material information if missed out by the company affects
the overall performance and decision making of the companies and users (Wahab, Ali
and Abduzahre, 2019).
 Objectivity: This implies that the financial report must be presented in a neutral way
which never show biased information to the users based on any particular investors and
vested interest (Hamman, 2021).
CONCLUSION
The report concludes the five accounting concept along with their examples which further
help the company to show and present the unbiased information to all the users. The report will
also discuss the qualitative characteristics which must be follow by the every UK companies in
order to provide relevant, reliable and accurate information. The accounting helps the business to
track their assets and liabilities and make proper provision for any uncertain losses.

REFERENCE
Books & Journals
Vician, C. and Mortenson, K. G., 2017. Integrating Accounting Themes with Enterprise System
Experiences: An Accounting Department's Journey. AIS Educator Journal. 12(1).
pp.34-58.
Hamman, M. A., 2021. Department of Accounting Ahmadu Bello University, Zaria. aisa4sure@
gmail. Com.
Wahab, B. A., Ali, L. M. N. and Abduzahre, L. K. S., 2019. A proposed Model for Measuring
and Evaluationg the Earning Quality based on the Qualitative Characteristics of
Accounting information. Managerial Studies Journal. 11(22).
Al-Waeli, A. J. and et.al., 2020. Impact of accounting information system on financial
performance with the moderating role of internal control in Iraqi industrial companies:
An analytical study. Jour of Adv Research in Dynamical & Control Systems. 12(8).
pp.246-261.
Zyznarska-Dworczak, B., 2020. Sustainability Accounting—Cognitive and Conceptual
Approach. Sustainability. 12(23). p.9936.