This report will discuss my understanding of the terms ‘accounting’ and ‘finance’. According to Wood and Sangster (2007) the definition of accounting is:
‘Identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information’ (Wood & Sangster 2008 p.3)
McLaney & Atrill (2010) state that:
‘Finance (or financial management), like accounting exists to help decision makers. It is concerned with the ways in which funds for a business are raised and invested. This lies at the heart of what a business is about’ (Mclaney & Atrill, 2010, p. 2)
The discussion will focus on looking at the key words in the definition of ...view middle of the document...
However there are a lot of rules and regulations that UK and international companies are required to comply with. These govern the measurement, presentation and disclosure of financial information (Elliot & Elliot 2011).
‘The Framework for the Preparation and Presentation of Financial Statements’ provides principles that guide accounting practice. The framework was issued by the International Accounting Standards Board (IASB) in 1989. There were two reports that influenced the framework these were the ‘Trueblood report’ in 1973 in the USA and the ‘Corporate Report’ in 1975 in the UK (Weetman, 2006, p.7). Both reports identified the needs of users and stated how they may be met.
All listed companies in the European Union are required by International Accounting Standards (IAS) to use a system of international reporting standards set by the IAS. For unlimited companies the UK ASB has a framework called the ‘Statement of Principles’ which is similar (Weetman 2006). The Financial Reporting Review Panel (FRC) enforce the standards issued by the ASB (Elliot & Elliot 2010)
Elliot and Elliot (2011) highlight that the IASB has adopted a conceptual framework for accounting, which would be a statement of principles to guide accounting practise in many countries. However accounting information is used for various objectives and if it is to be relevant to the user, this will not be achieved by detailed rules and regulations (Elliot & Elliot 2011). However the principles in the framework are ‘broad principles’ (Weetman 2006 p 19) so there is still a need for subjective judgement to come to a conclusion, when measuring accounting information.
Communicating economic information
There are many different users of accounting information from shareholders, lenders, customers, suppliers, government departments and employees. Any person interested in the performance of an organisation is called a stakeholder. Weetman (2006) defines a stakeholder as:
‘a general term to indicate all those who might have a legitimate interest in receiving financial information about a business because they have a stake in it’ Weetman, 2006, p.13)
Communicating accounting information helps stakeholders see a business or organisations activities and performance. This can help them to make financial decisions. This links back to the primary objectives of accounting.
A financial statement communicates accounting information; this is a written report which quantitatively describes the financial health of a company. Weetman (2006) says that there is not a single set of general purpose financial statements that can meet the needs of all users although they aim to meet the needs of a wide range of users. The IASB requires the statement to include an income statement (profit and loss account) and a balance sheet, a statement in changes in equity and a cash flow statement. Financial statements are usually compiled on a quarterly and annual basis...
