Faithful Representation: Faithful representation means that the actual effects of the transactions shall be properly accounted for and reported in the financial statements.Information is considered material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. Materiality is a sub-quality of relevance. The ingredients of relevance are the predictive value and confirmatory value. Relevance: Relevance is the capacity of the financial information to influence the decision of its users.When producing financial statements, the following must comply: Financial information would be useful to users if such qualitative characteristics are present. įinancial accounting is the preparation of financial statements that can be consumed by the public and the relevant stakeholders. According to the European Accounting Association:Ĭapital maintenance is a competing objective of financial reporting. To provide financial information that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the reporting entity. According to International Financial Reporting Standards: the objective of financial reporting is: 6 Financial accounting versus cost accountingįinancial accounting and financial reporting are often used as synonyms.ġ.2.3.1 Statement of retained earnings (statement of changes in equity).2.3 Statement of financial position (balance sheet).2.2 Statement of financial performance (income statement, profit & loss (p&l) statement, or statement of operations).2.1 Statement of cash flows (cash flow statement).2 Three components of financial statements.While financial accounting is used to prepare accounting information for people outside the organization or not involved in the day-to-day running of the company, managerial accounting provides accounting information to help managers make decisions to manage the business. With IFRS becoming more widespread on the international scene, consistency in financial reporting has become more prevalent between global organizations. IFRS are issued by the International Accounting Standards Board (IASB). On the other hand, International Financial Reporting Standards (IFRS) is a set of passionable accounting standards stating how particular types of transactions and other events should be reported in financial statements. It includes the standards, conventions and rules that accountants follow in recording and summarizing and in the preparation of financial statements. Generally Accepted Accounting Principles (GAAP) is the standard framework of guidelines for financial accounting used in any given jurisdiction. Stockholders, suppliers, banks, employees, government agencies, business owners, and other stakeholders are examples of people interested in receiving such information for decision making purposes.įinancial accountancy is governed by both local and international accounting standards. This involves the preparation of financial statements available for public use. Financial accounting is the field of accounting concerned with the summary, analysis and reporting of financial transactions related to a business.
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