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7/12/12 HARESH KANSARA
ACCOUNTINGFOR MANAGERS
CONCEPTUAL FREAMEWORK
OFFINANCIAL STATEMENT
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INTRODUCTION
Financial statement nowadays are nolonger meant for just the promoters orowners of an enterprise.
The growing complexities of the modern
day business have put heavy demandson the enterprises in the preparationand presentation of their financialstatement.7/12/12 22HARESH KANSARA
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INTRODUCTION
Now predominant role and influence ofthe regulatory bodies such as SEBI,RBI,IRDA on the operation of the
enterprises.
It is not uncommon now to findcorporate annual reports running intohundred two hundred and even morepages.7/12/12 33HARESH KANSARA
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Users in analysing and interpreting theinformation contained in financialstatement prepared in conformity with
accounting standards. The Accounting Standards Board of the
ICAI in the development of futureaccounting standards and in its review
of existing ones relating to thepreparation and presentation of financialstatement for reducing the number ofalternative accounting treatmentspermitted by accounting standards.7/12/12 HARESH KANSARA 55
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SCOPE OF THE FRAMEWORK
Components of financial statement
Objective of financial statement
Users and their information needs Underlying assumptions
Qualitative characteristics and
constraints on relevant and reliableinformation
Elements of financial statement
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Components of financialstatement
Financial statements are the mostimportant part of financial reporting. Acomplete set of financial statement
comprises: Balance sheet
Statement of profit and loss
Cash flow statement
Notes to account and accounting policies
Items such as directors report,
chairmans statements, management7/12/12 77HARESH KANSARA
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Objective of financialstatement
The Objective of financial statementis to provide information about thefinancial position, performance and
cash flows of an enterprise to helpthe various users carry out anevaluation of the ability of the
enterprises to generate cash andcash equivalents and of the timingcertainty of generation for necessarydecision making.
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Objective of financialstatement
However they do not provide all theinformation that users may needsas
They largely portray the financial effectsof past events
Throw little light on the future direction
of growth Do not necessarily provide non-financial
information
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Objective of financialstatement
Financial position: the financialposition of an enterprise depends onthe economic resources It controls,
its financial structure liquiditysolvency and capacity to adapt tochanges in the environment in which
it operates. Economic sources
Financial structure
Liquidity and solvency7/12/12 HARESH KANSARA 1010
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Objective of financialstatement
Performance: Performance of anenterprise in particular itsprofitability leads to assessment of
potential change in the economicresources that it is likely to control inthe future.
Cash flows: cash flows information ofan enterprise is useful in evaluatingits investing financing and operating
activities.7/12/12 HARESH KANSARA 1111
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USERS AND THEIR INFORMATIONNEEDS
Present and potential investors beingthe key stakeholders and risk capitalproviders are concerned with the return
on their investments and the risksinherent therein.
Employees and their representative
groups need information about thestability and profitability of theiremployer enterprise.
Lenders need information that enables7/12/12 HARESH KANSARA 1212
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USERS AND THEIR INFORMATIONNEEDS
Suppliers and other trade creditorsneed information that enables themto determaine whether amounts
owing to them will be paid in time. Customers need information about
the quality of products, credit policy
and the continuance of theenterprise.
Government and their agencies are
interested in the activities of7/12/12 HARESH KANSARA 1313
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USERS AND THEIR INFORMATIONNEEDS
Public need information about thetrand and recent developments inthe prosperity of the enterprise and
the range of its activities particularlythose that effect them.
Management is interested in the
information contained in the financialstatement to evaluate its ownperformance devise growth plans for
the enterprise.7/12/12 HARESH KANSARA 1414
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UNDERLYING ASSUMPTIONS
Accrual basis: The meaning ofaccrual is something that becomesdue especially an amount of money
that is yet to be paid or received atthe end of the accounting period. Itmeans that revenues are recognised
when they become receivable.Though cash is received or notreceived and the expenses arerecognised when they becomeayable though cash is aid or not7/12/12 HARESH KANSARA 1515
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Going concern: This states that abusiness firm will continue to carryon its activities for an indefinite
period of time. Simply stated, itmeans that every business entity hascontinuity of life. Thus, it will not be
dissolved in the near future. Itprovides a basis for showing thevalue of assets in the balance sheet
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Consistency: The convention ofconsistency means that sameaccounting principles should be used
for preparing financial statementsyear after year. A meaningfulconclusion can be drawn from
financial statements of the sameenterprise when there is comparisonbetween them over a period of time.But this can be possible only whenaccounting olicies and ractices7/12/12 HARESH KANSARA 1717
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