accounting information value

8/9/2019 Accounting Information Value

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AccountingPrinciples and Standards

Excellence Workshop for

PTCL ADEs at TSC Haripur

Jan 2002


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Accounting

Information

Value Chain

Anybody who has any stake in

an organization draws value

from the accounting information

of that organization


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Major Users

Owners/ Shareholders

Bankers/ Financiers

Suppliers/ Vendors Tax Collectors

Corporate Regulators

Employees

Managers


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Essential Features thatMake

Accounting Information Effective

Relevance

Comprehensibility Accuracy

Timeliness Cost Effectiveness


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Limitations of Accounting

Information

Focuses on monetary quantitative

things, ignores qualitative factors Normally ignores value volatility

Relies on judgement and estimations

Relies on verifiability / documentation

Isolation syndrome


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Isolation Syndrome

Sales

ProductionMarketing

Admn. & HR

AccountsSales

ProductionMarketing

Admn. & HR

Accounts

All business functions must

integrate with Accounts

Integration Synergy


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Financial

Reporting and

FinancialInformation

System (FIS)Analyze

Design

Implement


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What is Financial System?

A Computerized system for generating Financial Statements

Subsidiary Accounting Information Income Tax Returns

Bills to Customers

Payments to Suppliers Reports to Managers

Generic correspondence with customers/tax authorities


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Reporting System - Generic Process

Record economic activity on voucher forms.

Classify recorded data

according to division / products

according to functions

according to type of expense

Posting voucher into Journals and Ledgers Aggregation of each type of economic activity

Summarization in the form of final statements.


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Basic Accounting Law

The sum of the balances ofAssets is alwaysequal to the sum of the balances of

Liabilitiesand

Equity The law is expressed in terms of BasicAccounting Equation

Assets = Liabilities + Equity Using this law, the fundamental Accounting

rules of Debit and Credit have been devised


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Account Type Increase Decrease

Assets Debit (Dr.) Credit (Cr.)

Liability Credit (Cr.) Debit (Dr.)

Equity Credit (Cr.) Debit (Dr.)

Income (increase in Equity) Credit (Cr.) Debit (Dr.)

Expense (Decrease in Equity) Debit (Dr.) Credit (Cr.)

Rules of Debit (Dr.) and Credit (Cr.)


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Four Fundamental Assumptions

Separate Entity

Going Concern Accounting Period

M

onetaryM

easurement


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Important Accounting Principles

1. Historic Cost

2. Realisation

3. Matching

4. Consistency

5. Disclosure

6. Materiality

7. Objectivity

8. Prudence


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Accounting Standards and Practice Due to globalisation and multinational business operations, need for

harmonization of accounting policies/ procedure is growing. Generally Accepted Accounting Principles (GAAP) and International Accounting

Standards (IAS) are the set of standards followed all over the world by followers

of US and UK accounting regimes respectively.

Professional accounting bodies, globally, undertake research on new issues and

problems that arise from time to time in business transactions. Two widelyrecognised bodies are;

International Federation of Accountants (IFAC): basically concerned with audit

guidelines, and laying down ethical standards

International Accountant Standards Committee (IASC): Issues accounting standards

on different aspects of accounting.

IASC is, now, a committee of IFAC

Research produce and evolve accounting standards which form the underlying

basis of accounting practices.

Fundamental accounting standards are similar world over; but different practices

are followed in various countries.


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Accounting in Pakistan

Companies Ordinance 1984 The companies law in Pakistan requires that accounts of all public limited

companies be audited by Chartered Accountants

The law lays down the bases, procedures and formats of accounts

Income Tax Act requires that all private companies having paid-

up capital of Rs.2 million or more have their accounts audited by

a Chartered Accountant or a Cost andManagement Accounts.

There are two professional accounting bodies in Pakistan;

Institute of Chartered Accountants of Pakistan (ICAP)

Institute of Cost andManagement Accountant of Pakistan (ICMAP)

Both the Institutes have legal status and recognition from the

Govt. of Pakistan


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Thank YouAny Questions?

Should you need furtherclarification, most welcome to

send queries atE mail: [email protected]

[email protected]

accounting information value

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