Factors Affecting Financial Reporting Quality

Factors Affecting Financial Reporting Quality Financial Reporting Standards Financial Reporting Standards (FRSs) and Accounting concepts influence the production and presentation of financial statements. The FRSs that influence the production of financial statements are: FRS 3 Reporting Financial Performance The FRS sets out the basis for presentation of general purpose financial statements in a manner that ensures comparability. As the FRS requires reporting entities to highlight financial performance to aid the users in understanding the performance achieved, it sets out the overall framework for the presentation of financial statements. It also lays down the guidelines for the structure of financial statements and defines the overall considerations for financial statements, such as fair presentation, accrual basis of accounting, consistency of presentation, materiality and aggregation, and comparative information. This impacts the way profit and financial performance is reported and also the valuation of the assets and liabilities. It helps the users of accounts compare financial statements both with the entitys financial statements of previous periods and with the financial statements of other entities. FRS 15 Tangible Fixed Assets FRS 15 sets out the principles of accounting for initial measurement valuation and depreciation. It ensures that tangible fixed assets are accounted for on a consistent basis. It requires residual values to be reviewed at each balance sheet date. This impacts the valuation of tangible fixed assets. IAS 2 Valuation of Inventories This accounting standard sets out the accounting treatment for inventories. It provides guidance for determining the cost of inventories. It is due to this standard a loss due to damaged goods is excluded from inventory cost. The three concepts that have influenced the production of the financial statements are: Accrual concept The financial statements have been prepared on an accruals basis. The accrual concept, also known as matching principle, requires that transactions are reflected in the accounts of the period to which they relate to and not in the period in which payments are made or received. Impact of Accrual Concept on Profit When a trading and profit loss account for a period is compiled, the cost of goods sold relevant to the sales made during the period should be recorded accurately and in full in that account. Costs and incomes concerning a future period such as prepaid expenses and pre-received income must be carried forward as a prepayment for that period and not charged in the current profit statement. For example, prepaid general administrative expenses would be carried forward to the period they relate to. Similarly, expenses accrued or income accrued will be included in the current periods profit statement by means of an accruals adjustment. For example, manufacturing wages accrued will be added to manufacturing wages for the current period. Impact of Accrual Concept on Assets / Liabilities All prepaid expenses and accrued income will be treated as assets and accrued expenses and pre-received incomes will be treated as liabilities. Going Concern Concept Going concern concept is a part of UK statute law. This concept assumes that the business under consideration will remain in existence for the foreseeable future. Without this concept, accounts will have to be drawn up on the basis of what the business is likely to be worth if it is sold gradually at the date of the accounts. Impact of Going Concern Concept on Profit When an entity has a history of profitable operations and has a ready access to financial resources, one can conclude that the organisation will remain in existence for the foreseeable future. For example, as Appleby Oakley and Company has regularly been making profits, one can comfortably draw a conclusion on going concern concept. Impact of Going Concern Concept on Assets / Liabilities Going concern concept impacts the valuation of assets and liabilities. Due to the going concern concept, the values placed on continuing business assets and liabilities are different from the value placed on the assets and liabilities of a closing business. For example, stock is normally valued at cost price but if business were about to close down trading then it will be more relevant to use resale value of stock. Impact of Going Concern Concept on Users of Accounts Going concern concept impacts the decision making of users of accounts. For example, management may need to consider a wide range of factors relating to current and expected profitability, potential sources of replacement financing etc. while taking decisions. Consistency Concept The concept of consistency has been applied because the methods employed in treating certain items such as depreciation within the accounting records may be varied from time to time. According to consistency concept, once a business has decided which accounting methods it is going to apply and how it is going to interpret the various rules of accounting, it should be consistent in all matters from year to year. This is necessary to enable comparison of the results of the business from year to year. Impact of Consistency Concept on Profit If the consistency concept is not there, a business can merely change an accounting method to vary the profits. For example, if a business wishes, it may vary the depreciation rates or method of depreciation at and alter the reported profits. Consider the effects on profit of charging depreciation at 15% this year on  £10,000 worth of fixed assets and then charging depreciation at 10% next year on the same  £10,000 worth of fixed assets. This year you would charge  £1,500 against profits and next year it would be only  £1,000, using the straight line method of providing for depreciation. Impact of Consistency Concept on Assets / Liabilities If there is no consistency in the accounting methods, the assets and liabilities reported in different years will not be comparable. Impact of Consistency Concept on Users of Accounts Users of accounts including investors, management etc. can make more meaningful comparisons of financial performance of the organization from year to year. Partnership Salaries All partners have a right to work in and manage the partnership business. The partners may make arrangements amongst themselves whereby a partner may be entitled to a salary. Partnership salary includes remuneration drawn by a partner from the partnership funds for acting in the partnership business. An agreement to pay a partnership salary to a partner for a special project is an internal arrangement. The effect of the arrangement is that the partner receives a fixed part of the profits of the partnership before the remaining part falls to be divided among the partners in the appropriate proportions. The impact of partnership salary is only on the way the partnerships funds are applied as between the partners. A partner drawing a salary is not an employee and any salary paid to the partner cannot be claimed as a deduction from net profits. Therefore, one can neither treat a partnership salary as a true salary, nor an expense of the partnership, but only as a distribution of partners hip profits to the recipient partner. If Appleby suggests that he receives a salary, he will still be a partner and cannot be treated as an employee of a partnership. This implies that the partnership will not be able to claim a deduction for Appleby’s salary. Similarly, Appleby’s salary cannot create or increase a partnership loss. In reality, Appleby’s salary will be a mere allocation or advancement of profits prior to general distribution and will not be taken into account in calculating the net partnership income or loss. Appleby will need to show the amount received as salary as his income on his tax return. The amounts distributed to Appleby will be brought into account in computing his interest in the profits or assets of the partnership. However, the amount paid as salary is still regarded as constituting part of the profits of the partnership If Appleby gets a salary of  £2,500 per month, profit share of Oakley will reduce from  £85915 to  £73915 as illustrated below: Asset Depreciation In general, an asset can be depreciated if it meets ALL of the following requirements: The asset is used in a trade or business or held for the production of income as an investment property. The asset has a finite period of usefulness in the business that can be estimated and is longer than one year. The asset is susceptible to wear and tear, natural deterioration through interaction of the elements, or technical obsolescence. GAAP specifically excludes land from computation of depreciation. Land normally has indefinite economic life and it does not decline in economic value as a consequence of wear and tear, natural deterioration through interaction of the elements, or technical obsolescence. Therefore, it fails to satisfy the second and the third conditions for an asset to be depreciated. Land is probably the most common asset that is not depreciable. However, buildings may be depreciable. Generally, if such is the case then the cost of the land must be separated from the cost of the building for depreciation purposes. In the scenario under discussion, land and buildings are assumed to imply land and therefore not depreciable. References: Reporting Financial Performance, Available from: http://www.frc.org.uk/asb/technical/standards/pub0102.html, [Accessed 20 November, 2006] International Financial Reporting Standards, Available from: http://en.wikipedia.org/wiki/International_Financial_Reporting_Standards, [Accessed 20 November, 2006] Accounting Concepts and Conventions, Available from: http://www.accountingweb.co.uk/cgi-bin/item.cgi?id=69109, [Accessed 22 November, 2006] ANNEXURE A Assumptions and Working Notes for Task 1-2-3 Assumptions: 1. As the scenario merely states that overheads are apportioned between the factory and the administration/other sections and does not specify a share (except in the case of insurance), following share of overheads is assumed: Rent: factory 1/3 administration etc.2/3 Light and heat: Factory 1/2, administration etc.  ½ Insurance : Factory 1/4, administration etc. 3/4 (given) 2. It is assumed that the accumulated depreciation figures in the trial balance are before taking into account the current year’s depreciation. Working Notes: Cost of Raw Material Consumed = Opening Stock of Raw Material + Purchases of Raw Material – Closing stock of raw material = £12800 + £274500 - £8500 Depreciation on Plant Machinery Plant Machinery at Cost Price=  £31000 Accumulated Depreciation= £18100 Written down value as on 31 December 2003=  £31000- £18100= £12900 Depreciation = 15% on written down value = 15% of 12900=  £1935 Depreciation on Furniture and Fixtures Furniture and Fixtures at Cost Price=  £34700 Depreciation = 10% on straight line basis = 10% of  £34700=  £3470 Depreciation on Motor Vehicles Motor Vehicles at Cost Price=  £28800 Accumulated Depreciation= £12600 Written down value as on 31 December 2003=  £28800- £12600= £16200 Depreciation = 15% on written down value = 20% of 16200=  £3240 There is a 10% mark-up on manufacturing cost. As finished goods are valued at factory cost price with no adjustment for manufacturing profits, the 10% mark-up is taken as a part of the general reserve. Profit share and drawings are held through current accounts. Therefore, an adjusted current account is prepared. Finished goods have been adjusted for the damaged goods. Page 1 of 6Dr. Archana Raheja

Explaining Basic Accounting Concepts and Business Structures Essay

Explaining Basic Accounting Concepts and Business Structures I will explain the basic accounting concepts and business structures from the following topics: GAAP sources and hierarchy; Good accounting information using the qualities of accounting principles; Difference between Accrual based accounting and cash basis of accounting; Types of business structures and the features of each structure. 1. GAAP sources and hierarchy Generally accepted accounting principles (GAAP) is the set of accounting principles, standards and procedures that companies use to prepare their financial statements. GAAP principles are the bases of financial reports and the guidelines of United States accounting practices. There are four categories of sources of GAAP hierarchy as follows: Category (A): FASB Standards, Interpretations, and Staff Positions; APB Opinions; AICPA Accounting Research Bulletins. Category (B): FASB Technical Bulletins (no longer issued), AICPA Industry Audit and Accounting Guides, AICPA Statements of Position. Category (C): FASB Emerging Issues Task Force, AICPA AcSEC Practice Bulletins. Category (D): AICPA Accounting Interpretations, FASB Implementation Guides (Q and A), widely recognized and prevalent industry practices. The category (a) of the GAAP hierarchy has a higher authority than a FASB Technical Bulletin, which is in category (b).The hierarchy is important because it gives the out layer for companies to search for the specific accounting transactions. For example, if a specific transaction can not be covered in category (a), then companies will turn to categories (b) for selecting and applying appropriate accounting principles, then (c) and (d). 2. Good accounting information using the qualities of accounting principles Good accounting information should be understandable. If no one can not understand the accounting information presented, it becomes useless to lose all of the other qualities. The good accounting information should be Reliable and Relevant. Reliability means verifiable, representation faithfulness, and free of error and bias. If the accounting numbers are wrong, there is no any meaning to use the information. Relevance means predictive or feedback value presented on a timely basis. The internal managerial accounting reports are different from the external financial reports. The relevant information is needed to prepare the different kinds of reports. The good accounting information should be Comparability and Consistency. The good information can be used to identify the differences and similarities between companies. The company consistently use the same accounting treatment for better auditing purposes. 3. Difference between Accrual basis accounting and cash basis of accounting The revenue recognition principle and the expense matching principle are two key elements for Accrual basis accounting. Company uses accrual basis accounting to recognize income when goods are shipped or services are rendered, and to recognize expense when it is obligated to pay it. On the contrast, cash basis accounting recognizes the revenue and expenses when the cash is received and paid. The cash basis accounting is prohibited under GAAP because it does not record revenue and expense when earned and incurred. It will misstate the actual income and expenses incurred and can not reflect the real business operation during the accounting period. 4. Types of business structures and the features of each structure There are three types of business structures-Sole Proprietorship, Partnership, and Corporation. Sole proprietorship is a business owned by one person. It is the simplest form of business ownership. The sole proprietor is in direct control of all affairs and entitled all profits and losses and is free to transfer his interest in the sole proprietorship at will. The disadvantage is that the sole proprietor would be fully responsible for all debts and obligations related to the business. The business would have difficulty in raising capital. Partnership is a business owned by two or more persons associate a partner. Partnership can bring broad resources and unique skills. All the partners share profit and losses, share the right to manage and make major business decisions, have unlimited personal liability for obligation of the partnership. For tax advantage, the partnership does not pay federal income tax; rather, partners file their own individual tax return. Disadvantage is that partners are fully and personally liable for the debts if their partnership. Corporation is a legal entity distinct from its owners (called â€Å"shareholders† or â€Å"stockholders†) and manager. It is easy to raise fund. The major advantage of corporation is that the owners are not personally liable for the obligation. Stockholders are free to transfer their ownership interests. Corporation must pay income taxes on any profits that it makes, and stockholders generally do not have to pay income tax on its profits until they are distributed as dividends. The corporate tax rate generally is lower than the personal tax rate.

Student Loan Summary - Free Essay Example

Sample details Pages: 2 Words: 679 Downloads: 8 Date added: 2017/09/11 Category Advertising Essay Did you like this example? Student Loan Summary Christine Downey FP/101 August 15, 2010 Griselle Forte What are some future consequences of borrowing too much debt? Some of the most telling future consequences of borrowing too much debt would be evictions, foreclosures, declaring personal bankruptcies, wage garnishments, divorces, emotional break downs, higher than normal interest rates on loans, rejection of application for loans, ruined credibility, savings and retirement plans wiped out, and an undesirable credit report and score. Debt affects people in different ways and has a major impact on the life of each individual. It often determines how they will be able to live their lives. There are only two ways to acquire things that you cannot afford to pay out of pocket. Save until you have accumulated enough money to buy, or borrow the money with the promise you will pay the money back with interest over time. When borrowing, the best thing for anyone to do is always borrow money they are sure they can repay, be prompt in their payments, and pay more than the minimum amount to avoid future financial consequences in your life than you have already. Don’t waste time! Our writers will create an original "Student Loan Summary" essay for you Create order How do you plan on repaying your student loans? Regarding the Stafford Loan that is offered to University of Phoenix students, you have six months following college graduation before repayment of your student loan begins. After this time, you are responsible for the regular monthly payments, which were originally agreed upon between the student and the lender. This grace period should be used wisely. The goal of a student at this point, is to secure a job that allows him or her to reasonably manage all of their monthly bills, including their student loan. If a problem should arise where you cannot make ends meet during your grace period, immediately contact your financial advisor to aid you in modifying your repayment terms. I have opened a separate savings account strictly for college that I contribute to each week. It is better to set some money aside to cover repayment of my student loan than to feel the full financial burden when it is due. So much of the loan process is planning. All you do is plan when it comes to finances. You have to plan out your expenses to make sure you can afford your tuition bill. When you cannot afford tuition in its entirety, you get a student loan to cover the cost. If you are smart, while you are in college you can plan how to repay your loan. Once you graduate, you can work on getting a job that allows you to afford all of your expenses and make repaying your student loan less painful. What is one positive thing you can do to keep your student loans under control? One positive thing you can do to keep your student loans under control is to learn the best way to manage your hard-earned money while you are in college: Financial discipline. Do not borrow more than you need. Frugality can help you reduce the amount of the loan you applied for, as well as the amount you are going to be responsible for repaying. Plan a financial budget and live by it. Keeping your finances under control (with the help of being currently employed) should enable you to set money aside for repayment of your student loans when they come due. Once that kicks in, you have an opportunity to make further productive use of your student loan, beyond getting your degree; Making it a positive force in your credit history. Using your loan to create a positive credit history is as simple as making your payments on time and in doing so, your responsible behavior is reported to the credit report agencies, keeping your credit score at a good level rather than making it a lower score. Your student loan debt presents you with an opportunity. With proper knowledge and confidence, you can make the most of this opportunity, and establish yourself firmly in the realm of the responsible, moving steadily towards your lifestyle goals. Student Loan Summary

The Biography of Edwin Hubble

The astronomer Edwin P. Hubble made one of the most profound discoveries about our universe. He found the cosmos is much larger than the  Milky Way Galaxy. In addition, he discovered that the universe is expanding. This work now helps astronomers measure the universe. For his contributions, Hubble was honored by having his name attached to the orbiting Hubble Space Telescope.   Hubbles Early Life and Education Edwin Powell Hubble was born November 29, 1889, in the small town of Marshfield, Missouri. He moved with his family to Chicago when he was nine years old, and remained there to attend the University of Chicago, where he received a bachelor’s degree in mathematics, astronomy, and philosophy. He then left for Oxford University on a Rhodes Scholarship. Due to the dying wishes of his father, he put his career in the sciences on hold, and instead studied law, literature, and Spanish. Hubble returned to America in 1913 after the death of his father and began teaching high school Spanish, physics, and mathematics at New Albany High School in New Albany, Indiana. However, his interest in astronomy led him to enroll as a graduate student at the Yerkes Observatory in Wisconsin. His work there led him back to the University of Chicago, where he received his Ph.D. in 1917. His thesis was titled Photographic Investigations of Faint Nebulae. It  laid the foundation for the discoveries he later made that changed the face of astronomy. Reaching for the Stars and Galaxies Hubble next enlisted in the Army to serve his country in World War I. He quickly rose to the rank of major and was injured in combat before being discharged in 1919. He went immediately to Mount Wilson Observatory, still in uniform, and began his career as an astronomer. He had access to both the 60-inch and the newly completed 100-inch Hooker reflectors. Hubble effectively spent the remainder of his career there, where he also helped design the 200-inch Hale telescope. Measuring the Size of the Universe Hubble, like other astronomers, was used to seeing strangely shaped fuzzy spiral objects in astronomical images. They all debated what these things were. In the early 1920s, the commonly held wisdom was that they were simply a type of gas cloud called a nebula. These spiral nebulae were popular observation targets, and a lot of effort was spent trying to explain how they could form given the current knowledge of interstellar clouds. The idea that they were whole other galaxies was not even a consideration. At the time it was thought that the entire universe was encapsulated by the Milky Way Galaxy — the extent of which had been precisely measured by Hubble’s rival, Harlow Shapley. To get a better idea of the structure of these objects, Hubble used the 100-inch Hooker reflector to take extremely detailed measurements of several spiral nebulae. As he was observing, he identified several Cepheid variables in these galaxies, including one in the so-called Andromeda Nebula. Cepheids are variable stars whose distances can be precisely determined by measuring their  luminosity and their periods of variability. These variables were first charted and analyzed by astronomer Henrietta Swan Leavitt. She derived the period-luminosity relationship that Hubble used to discover that nebulae he saw could not lie within the Milky Way. This discovery initially met great resistance in the scientific community, including from Harlow Shapley. Ironically, Shapley used Hubble’s methodology to determine the size of the Milky Way. However, the paradigm shift from the Milky Way to other galaxies that Hubble was a tough one for scientists to accept. However, as time passed, the undeniable integrity of Hubble’s work won the day, leading to our current understanding of the universe. The Redshift Problem Hubbles work led him on to a new area of study: the redshift problem. It had plagued astronomers for years. Here is the gist of the problem: spectroscopic measurements of the light emitted from spiral nebulae  showed that it was shifted toward the red end of the electromagnetic spectrum. How could this be?   The explanation turned out to be simple: the galaxies are receding from us at high velocity. The shift of their light toward the red end of the spectrum happens because they are traveling away from us so fast. This shift is called the Doppler shift. Hubble and his colleague Milton Humason used that information to come up with a relationship now known as Hubble’s Law. It states that the farther away a galaxy is from us, the more quickly it is moving away. And, by implication, it also taught that the universe is expanding.   The Nobel Prize Edwin P. Hubble was honored for his work but unfortunately was never considered a candidate for the Nobel Prize. This was not due to a lack of scientific achievement. At the time, astronomy was not recognized as a physics discipline, therefore astronomers were not eligible. Hubble advocated to change this, and at one point even hired a publicity agent to lobby on his behalf. In 1953, the year Hubble died, astronomy was formally declared to be a branch of physics. That paved the way for astronomers to be considered for the prize. Had he not died, it was widely felt that Hubble would have been named that year’s recipient. Since the prize is not awarded posthumously, he did not receive it. Today, of course, astronomy stands on its own as a branch of science that also includes planetary science and space science. Hubble Space Telescope Hubble’s legacy lives on as astronomers continually determine the expansion rate of the universe, and explore distant galaxies. His name adorns the Hubble Space Telescope (HST), which regularly provides spectacular images from the deepest regions of the universe. Fast Facts about Edwin P. Hubble Born  November 29, 1889, Died: September 28, 1953.Married to Grace Burke.A well-known basketball player at the University of Chicago.Originally studied law, but studied astronomy in graduate school. Received Ph.D. in 1917.Measured the distance to the nearby Andromeda Galaxy using light from a variable star.Discovered that the universe is larger than the Milky Way Galaxy.Devised a system for classifying galaxies according to their appearance in images.  Honors: numerous awards for astronomy research, the asteroid 2068 Hubble and a crater on the Moon anmed for him, the Hubble Space Telescope named in his honor, U.S. Postal Service honored him with a stamp in 2008.   Edited by Carolyn Collins Petersen