Accountancy 200 Fundamentals of Accounting

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Accountancy 200Fundamentals of Accounting

• THE COMMUNICATION OF ACCOUNTING INFORMATIONPart I

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The Accounting Communication Process
Financial Statements
Management
Prepare Financial Statements
Independent Auditors
Audit Financial Statements
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The Accounting Communication Process
Financial Statements
Management
Independent Auditors
Information Intermediaries
Investors and Creditors
Government Regulators
Analysis Advice
Analysis Decision
Compliance w/ Laws Regs
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Accounting Principles Underlying Communication
Qualitative Characteristics of Financial
Information

• Relevance
• The capability of information to make a
  difference in a decision by helping users to form
  predictions or to confirm or correct prior
  expectations.
• Predictive value.
• Feedback value.
• Timeliness.

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Accounting Principles Underlying Communication
Qualitative Characteristics of Financial
Information

• Reliability
• The quality of information that assures that the
  information is reasonably free from error and
  bias and faithfully represents what it purports
  to represent.
• Verifiability.
• Neutrality.
• Representational faithfulness.

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Accounting Principles Underlying Communication
Qualitative Characteristics of Financial
Information

• Comparability
• Consistency

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Accounting Principles Underlying Communication
Full Disclosure Principle
The inclusion in the reported information of
everything material that is necessary for
faithful representation of the relevant phenomena.
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Accounting Principles Underlying Communication
Constraints of Accounting Measurement (Modifying
Conventions)

• Materiality
• A threshold for the omission or misstatement of
  accounting information.

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Accounting Principles Underlying Communication
Constraints of Accounting Measurement (Modifying
Conventions)

• Cost-benefit comparison
• A threshold for NOT reporting accounting
  information.
• Conservatism

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Accounting Principles Underlying Communication
Constraints of Accounting Measurement (Modifying
Conventions)

• Industry practices
• Modification of some accounting principles may be
  necessitated by the unusual characteristics of
  some industries.

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P5-2 Matching Transactions with Concepts