Unit 10 Financial Accounting And Reporting Assignment
Issues of finance and economics of all countries in the world in itself is a one joint structure thought we may be divided by boundaries, borders, factors like sex, creed, language etc but the real fact is that all of it is bound in one common structure and that is ‘need’. For example, a professor needs stationery for teaching his various students. Now this stationery shall be procured from several suppliers. These suppliers would procure them from manufacturers national or international, the essence of this example is that need of the professor and his students is indeed the inception of this hierarchy of inter dependence for satisfying there need. This has led to national and international financial transactions. The concept of globalization has further fuelled this need based orientation of financial and economical transactions intra country (Hussain 1989). Seeing the rise in transactions and the sectors of the society, which are the ultimate receivers of benefits have came in several statutory and regulatory bodies which are concerned with safeguarding of the interest of the bona fide end stakeholders and the society at large. The society expects transparency in operations because they allow business to use their resources i.e. either in form of investments or inputs. The regulatory bodies thus, enact towards ensuring the same.
The best medium of communicating or dissipating information about any organisations operational activity is its financial statements. The financial statements depict the overview of the organisations activity and the impacts of the same in monetary terms. Thus, there are several statutory guidelines which monitor the preparation of these financial statements so as to ensure that interests of stakeholders are never ever compromised. An organisation operating in UK needs to adhere to regulations for preparation and representation of financial statements set out by,
- The companies act 2006,
- UK Accounting standards, issued by accounting standards board, and
- International accounting standards and International financial reporting standards issued by IASB.
This further needs to be stated that the regulations as set out by the monitoring and issuing agencies varies upon the size and nature of the business organisation like, a sole proprietorship firm, a partnership firm and companies (listed and non listed) formed under the companies act, 2006. To further understand the impact and extent of these regulations we shall take an insight into the guidelines set out by the regulatory bodies.
Regulatory guidelines issued by Companies act, 2006:
For Sole Proprietorship firm: The companies act, 2006 does not sets out any specific regulation with regards to preparation of financial statements by the sole proprietorship firms. The companies act gives leverage to the owners and managers of such entities to choose and keep whatever accounting records suiting them. Howsoever, if a sole proprietor firm is registered for Value Added Tax they will need to keep adequate records that satisfy the requirements of the same. They in that case would also need to maintain proper financial statements as they would have to file tax returns and should also be able to furnish the details of the same to HMRC. (Rice 2011) Sole proprietors would be required to include any profit due to them (from their business) on their own personal income tax return. Thus most businesses have to keep some basic accounting records and to compile a profit and loss account once a year. The choice of format and content of such records remains at their disposal.
For Partnership firms: Partnership firms are also not strictly regulated under any specific norms set by the companies act, 2006. Howsoever, they are also required to maintain same records as sole proprietorship firms in cases where they are registered with VAT and are required to file individual tax returns.
In case of the limited liability partnership, the scenario is quite different and the preparation of accounts for such organisations is somewhat similar to companies registered under companies act, 2006.
For Companies: Companies registered under companies act, 2006 are required to maintain accounts and records as specified in part 15 of the act. The act classifies companies into ‘small’, ‘medium’ and ‘large’ categories. This classification is based on a requirement to satisfy two out of three criteria: turnover, balance sheet totals and number of employees. The actual figures are also prescribed in the act but they are subject to amendments from time to time.
The act for the purpose of setting out the specific guidelines for preparation of accounts, classifies guidelines on the basis of,
- Publicly traded companies –Public limited companies are the ones whose stocks are traded on a stock exchange, must prepare their books of accounts in accordance with International accounting standards (IAS’s) In case of companies which are operating in all of the European Union, are required to prepare consolidated accounts complying with IAS’s.
- Non Publicly traded companies –While companies which are non-listed and non-publicly traded are having an option in regards to prepare their accounts complying with either the accounting guidelines set out by companies act, 2006 and UK accounting standards or International accounting standards (IAS’s).
Role and regulations set out by the UK accounting standards: The UK accounting standards are issued by the Accounting standards board of the Institute of Chartered Accountants in England and Wales. The accounting standards board was established to develop regulations and guidelines that could enable preparation of accounts which keeps into accordance the benefit of users, prepares and auditors of financial information. The accounting standards board operates under the monitoring and funding of the financial reporting council. The accounting standards issued by the ASB are called financial reporting standards and ASB has issued 30 financial reporting standards till date. These are designed to facilitate adequate and proper reporting of financial information by the organisation which is expected to prepare the financial statements (Fraser and Orminston 2010).
Role of International accounting standards board: Globalisataion has given a wing to the way organisations work throughout the globe. It has created a sort of network amongst the nations trading and thus has created a new pool of stakeholders internationally as well. Thus, it becomes important to ensure that their expectations too are properly taken heed of. To ensure uniformity in arena of financial reporting, was established the International accounting standards board, which aims at developing uniform and unilateral accounting standards that could ensure uniformity of financial information’s amongst organisations operating anywhere around the globe.
The financial standards issues by the IASB are known as International financial reporting standards (IFRS) and since 2005 the EU in approach towards international harmonisation in matter pertaining to transparency and uniformity of financial statements has mandated the usage of IFRS for listed and publicly traded organisations operating in the EU howsoever these regulations are only statutorily applicable while preparing group financial statements, they are free at their will to choose the adequate standards while preparing individual standalone reports. While in case of non public trading organisations, these organisations are not compulsorily bound to adhere to IFRS in any scenario howsoever they are permitted to use the same.
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