Question

Regulatory requirements that accountants should consider when setting up policies relating to inventory, use AASB conceptual framework

Answer 1

Question:-Regulatory requirements that accountants should consider when setting up policies relating to inventory, use AASB conceptual framework?

Solutions:-

The purpose of the conceptual framework in accounting :-

• The main reasons for developing an agreed conceptual framework are that it provides a framework for setting accounting standards, a basis for resolving accounting disputes, fundamental principles which then do not have to be repeated in accounting standards.
• The Financial Accounting Standards Board ( FASB ) is a private, not-for-profit organization whose mission is “to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information.
• Created in 1973, FASB replaced the Committee on Accounting Procedure (CAP) and the Accounting Principles Board (APB) of the American Institute of Certified Public Accountants (AICPA).
• FASB’s Conceptual Framework, a project begun in 1973 to develop a sound theoretical basis for the development of accounting standards in the United States. From 1978 to 2010 the FASB released eight concept statements.
• About FASB:-
• The Financial Accounting Standards Board (FASB) is a private, not-for-profit organization whose primary purpose is to developgenerally accepted accounting principles (GAAP) within the United States in the public’s interest.

About Conceptual Framework:-

A conceptual framework can be defined as a system of ideas and objectives that lead to the creation of a consistent set of rules and standards. Specifically in accounting, the rule and standards set the the nature, function and limits of financial accounting and financial statements.

The main reasons for developing an agreed conceptual framework are that it provides:

• a framework for setting accounting standards;
• a basis for resolving accounting disputes;
• fundamental principles which then do not have to be repeated in accounting standards.

FASB’s Conceptual Framework, a project begun in 1973 to develop a sound theoretical basis for the development of accounting standards in the United States. From 1978 to 2010 the FASB released eight concept statements.

1. OBJECTIVES OF FINANCIAL REPORTING BY BUSINESS ENTERPRISES (SFAC No. 1) 1978
2. QUALITATIVE CHARACTERISTICS OF ACCOUNTING INFORMATION (SFAC No. 2)1980
3. ELEMENTS OF FINANCIAL STATEMENTS OF BUSINESS ENTERPRISES (SFAC No. 3)1980
4. OBJECTIVES OF FINANCIAL REPORTING BY NONBUSINESS ORGANIZATIONS (SFAC No. 4) 1980
5. RECOGNITION AND MEASUREMENT IN FINANCIAL STATEMENTS OF BUSINESS ENTERPRISES (SFAC No. 5)1984
6. ELEMENTS OF FINANCIAL STATEMENTS; a replacement of FASB Concepts Statement N. 3, also incorporating an amendment of FASB Concepts Statement No. 2 (SFAC N. 6) 1985
7. USING CASH FLOW INFORMATION AND PRESENT VALUE IN ACCOUNTING MEASUREMENTS (SFAC No. 7) 2000
8. No. 8. CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING, a replacement of SFAC No. 1 and No. 2 2010

Why is the Framework Necessary :-

With a sound conceptual framework in place the FASB is able to issue consistent and useful standards. In addition, without an existing set of standards, it isn’t possible to resolve any new problems that emerge.

The framework also increases financial statement users’ understanding of and confidence in financial reporting and makes it easier to compare different companies’ financial statements.

Objectives of Accounting

The Financial Accounting Standards Boards Statements of Financial Accounting Concepts No. 1 states the objective of business financial reporting, which is to provide information that is useful for making business and economic decisions. Specifically, the information should be useful to investors and lenders, be helpful in determining a company’s cash flows, and report the company’s assets, liabilities, and owner’s equity and the changes in them.

With these objectives in mind, financial accountants produce financial statements based on the accounting standards in a given jurisdiction. These standards may be the generally accepted accounting principles of a respective country, which are typically issued by a national standard setter, or International Financial Reporting Standards, which are issued by the International Accounting Standards Board.

U.S GAAP

Generally Accepted Accounting Principles refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards or Standard accounting practice. These include the standards, conventions, and rules that accountants follow in recording and summarizing, and in the preparation of financial statements.

IFRS

International Financial Reporting Standards (IFRS) are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. They are a consequence of growing international shareholding and trade and are particularly important for companies that have dealings in several countries. They are progressively replacing the many different national accounting standards.The rules to be followed by accountants to maintain books of accounts which is comparable, understandable, reliable and relevant as per the users internal or external.