Accountant & Bookkeeper

5 collins street melbourne jean@accoutning-melbourne.com

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legislation for Accountants and Bookkeepers

Accounting legislation

legislation for Accounting

The regulatory framework of accounting in the Australia has been shaped by various factors, many of which are historical. The same is true of the accounting regulatory framework in other European countries. Attempts have been made to harmonize accounting across the European Union and the United States to ensure that financial statements are consistently prepared in accordance with a true and fair view no matter where the business entity is located.

In the United Kingdom and Australia the primary law relating to the disclosure of information in financial statements is the Companies Act, which contains detailed provisions regarding the applications of the basic accounting requirements. Accounts must reflect what has actually happened in the business and the information presented must not be misleading. The accounts are expected to be prepared on the basis of fundamental accounting principles and to comply with accounting rules. education is the key to becoming a bookkeeer or accountant - Learning through distance learning programs such as training.gov.au to ensure you have the knowledge required to be a accountant. If they already have the basic knowledge Australian students are enrolling into a Diploma of Accounting

The accounting rules are called the accounting standards, which are a set of professional declarations that establish the norms to be maintained for communicating accounting information, and are set, in Australia, by the Accounting Standards Board (ASB).

The Accounting Standard Board defines accounting standards as follows: ‘Accounting standards are authoritative statements of how particular types of transactions and other events should be reflected in financial statements and accordingly compliance with accounting standards will normally be necessary for financial statements to give a true and fair view.’

The international financial reporting standards (IFRSs) are set by the International Accounting Standards Board (IASB). The IASB is an independent establishment, whose objective is to standardize the accounting principles that are used in financial reporting throughout the world. The IASB committee consists of representatives of accountancy bodies from across the world. The members of IASB try to persuade the setters of national standards to publish accounting statements that are in accordance with the international standards. One of IASB’s goals is to achieve international acceptance and recognition of the international standards.

In trying to achieve standardization of accounting statements, IASB aims to:

make international investment decisions more compatible reduce the costs of converting financial statements made under one regime of accounting
regulation to comply with those prepared under another (by multinational companies)
encourage the growing number of national standard-making bodies to work in harmony
provide accounting standards for countries that do not have their own standard- setting bodies.

We will now look at the underlying accounting concepts and the fundamental concepts contained in accounting standards that dominate the regulation of financial statements. Financial statements will include supporting information such as a report from the company chairman and another from the company auditor.

Accountants and Bookkeepers basic conepts

underlying accounting concepts

accounting concepts basics

A number of accounting concepts have been applied ever since financial statements were first produced for external reporting purposes. We will now look briefly at the following concepts:

historical cost concept
money measurement concept l business entity concept
time interval concept.

Historical cost concept

Assets of a company (e.g. a building owned by a company) are normally shown in the financial statements at a value based on their original cost. This approach is relatively objective because it is based on the actual invoices and other documents. For example, when a business entity buys a PC for £1,000, it receives an invoice or receipt for £1,000. This receipt is objective evidence of the cost of the PC.

Money measurement concept

Accounting information has traditionally been concerned only with those facts that can be measured in financial terms (i.e. expressed in terms of money) and most people agree to the financial value of a transaction. The advantage of such an approach is that a number of widely differing facts can be expressed in terms of a common measurement.

Business entity concept

The affairs of a business are totally separate from the non-business activities of its owners. The items recorded in the accounting records of the business are therefore restricted to the transactions of the business. No matter what activities the proprietor(s) engage in outside the business, they are completely disregarded in the accounting records kept by the business. It is for this reason that funds or goods taken out of a business by its owners are treated as a reduction in their investment in the business, not as an expense of the business.

Time interval concept

One of the underlying principles of accounting is that financial statements are prepared at regular intervals of one year. For internal management purposes the financial statements may be prepared far more frequently, possibly on a monthly basis or even weekly.

fundamental accounting concepts

fundamental concepts for accountants and bookkeepers

accounting bookkeepingconcepts basics

Fundamental accounting concepts are enforced through regulation and legislation. These comprise a set of concepts considered so important that they have been enforced through accounting standards and the Companies Act. We now go on to look at the following fundamental concepts:

going concern
accruals concept (also known as matching concept)
consistency
prudence
substance over form
materiality.

Going concern When preparing financial statements, values are based on the assumption that the business will continue into the foreseeable future. Therefore, the accounts are based on the assumption that there is neither the intention, nor the need, to reduce the scale of the company’s operations or go into liquidation. The use of the going concern concept means that it is considered sensible to keep to the use of the historical cost concept when arriving at valuations of the company’s funds, i.e. its assets. Accruals (matching) concept Expenditure should be charged to the period that benefited from the expense incurred. This concept suggests that all revenue or other benefit received should be matched to the expenditure incurred in generating that revenue or benefit. Where expenditure has been incurred during a period for which revenue or benefit has not yet been received, the expenditure should be omitted from the calculation of profit for that period and accrued until the period when the revenue or benefit results. An example would be annual buildings insurance paid mid-period that is valid for the first six months of the next period. The accruals concept also applies in reverse when the benefit is received before expenditure occurs. An example would be electricity consumed before a period end not yet charged for as the billing date for electricity is after the period end. Consistency Each item should be treated in the same way in every period. There are a number of different ways in which some concepts can be applied. Each business must choose the approach that gives the most reliable picture of the business, not just for the current period, but also over time consistency. This is impossible if the approach is changed every year. The consistency convention suggests that when a method has been adopted for the accounting treatment of an item, the same method will be adopted for all subsequent occurrences of similar items. Prudence The accountant should be prudent when preparing financial statements. In other words, if something is in doubt, plan for the worst and, if a transaction has not yet been completed ignore any possible benefits that may arise from it. It is the accountant’s duty to endeavour to present accurate facts in the financial statements. Assets must not be valued too highly. Nor should amounts owed by a business be understated. Otherwise, people might be misled into lending to or granting credit to a business when they would not have done had they known the true facts. The prudence concept requires that all losses (costs) are recognized immediately they become known whereas all gains (revenue) should be recognized only when they are realized (certain to be received). As a result, profits will normally be understated. A number of criteria must be observed before revenue may be recognized as having been realized:

goods or services have been provided for the buyer
the buyer accepts liability to pay for the goods or services
the monetary value of the goods or services has been established l the buyer is able to pay for the goods or services.

This is not necessarily going to be the same as either the time when the order is received or when the customer pays for the goods.