Chapter 1 Introduction Learning summary

1. Chapter 1 IntroductionLearning summary By the end of this chapter you should know: • how accounting affects and is affected by its organisational environment • the needs of stakeholders in an accounting context • different types of entities • the five underlying accounting concepts • the six fundamental accounting concepts • the regulatory framework within which accounting must operate • how the accounting standard-setting process developed • the establishment of the Accounting Standards Board and International Accounting Standards Board • the qualitative characteristics of the Statement of Principles • the importance of auditing and corporate governance. Unlocking Financial Accounting Chapter 1

2. Accounting information systems – key points An accounting information system collects, processes, stores, analyses and disseminates information for a specific purpose. It is used for: • collection and processing of a set of inputs (e.g. invoices) • dissemination of outputs (e.g. reports and analysis of accounts and calculations). Unlocking Financial Accounting Chapter 1

3. Information need of stakeholders – key points Unlocking Financial Accounting Chapter 1

4. Types of entity – key points Unlocking Financial Accounting Chapter 1

5. Legislation – key points • Financial statements are prepared in accordance with a true and fair view. • Companies Act contains detailed requirements regarding the application of the basic accounting principles. • Accounting Standards are a set of professional declarations which maintain the communication of accounting information. They are set in the UK by the Accounting Standards Board (ASB). • The international accounting standards are set by the International Accounting Standards Board (IASB). Unlocking Financial Accounting Chapter 1

6. Underlying accounting concepts – key points • Historical cost concept • Money measurement concept • Business entity concept • Time interval concept Unlocking Financial Accounting Chapter 1

7. Fundamental accounting concepts – key points • Going concern concept • Accruals concept • Consistency concept • Prudence concept • Substance over form concept • Materiality concept Unlocking Financial Accounting Chapter 1

8. The Statement of Principles – key points The Statement of principles provides a frame of reference to the Accounting Standards Board in developing new accounting standards and deals with the following issues: • the elements of financial statements • the objectives of financial statements • the qualitative characteristics of financial information • measurement in financial statements • recognition in financial statements • accounting for interests in other entities • presentation of financial information Unlocking Financial Accounting Chapter 1

9. Audit and corporate governance – key points • External audit is carried out by professionals (independent experts) from outside the organisation, who investigate the accounting transactions have been carried in accordance with the accounting concepts, the law and accounting standards. • Internal audit analyses the organisation’s performance and is used to aid decision-making processes in the organisation. • Governance promotes good practice in terms of the organisation’s operation. It includes the interactions between stakeholders and the goals for of the organisation. Unlocking Financial Accounting Chapter 1