ACCA F1 Accountant in Business Bodies governing the accounting profession The accounting profession is keen to be very self regulating,

ting, meaning that the profession would prefer to issue its own regulations and deal with its own problems rather than relying on legislation. In many countries there is a strong accounting profession, accounting bodies play their role in developing national accounting standards. Companies have to follow the law as well as requirements of standard-setting bodies. In the past there was a multitude of different accounting standards worldwide making it very difficult for international investors to compare the financial statements of companies in different parts of the world. In 1973 International Accounting Standards Committee (IASC) was formed to try to harmonise accounting standards in different countries. In 2001 IASC was replaced by International Accounting Standards Board (IASB).

IASCF International accounting standards committee foundation supervises the development of international standards guidance. The structure is as follows

International accounting standards committee foundation (IASCF)

Standards Advisory Council (SAC)

international accounting standards board (IASB)

international financial reporting interpretations committee (IFRIC)

IASB produces international accounting standards. The SAC consults with users of accounting standards and the accounting profession and advises the IASB as to which areas require new or amended standards. The IFRIC guides on issues where guidance of a standard is conflicting.

Following are the user groups with which the SAC may consult. Accounting firms standards /profession Companies complication of standards, any difficulties in application of

consideration of cost of implementation of new standards,

Governments Stock exchange regulators

proposed standards are compatible with the law proposed standards are likely to aid comparability between companies

national accounting whether international standards are compatible with theri standard setters own national standards The role of the IASB The IASB is an independent standard setting body, based in London. It has 14 members from 9 countries. IASBs aims include development of a single set high quality, understandable and enforceable global accounting standards and to cooperate with national accounting standard setters to achieve convergence in accounting standards around the world. Standards produced by IASC are called IAS(international accounting standards). Standards produced by IASB are called IFRS(international financial reporting standards). Collectively these are international accounting standards. Nearly 100 countries have adopted international standards or amended their national standards to bring in line with international standards.

Why countries want to adopt international accounting standards 1. it is easier for multinational companies, which encourage investment. 2. investors trust on the financial statements produced according to IAS because investors perceive those standards as being fair and transparent. 3. national accounting standard setters dont have to develop their own standards, because they can use international standards. The Accounting Profession The purpose of accounting function the accounting function in an organisation produces financial information that will be used to make decisions. Some information is produced for users outside the company and some for users within the company. External/ Internal Use both Users Accounting deptt and Customers Accounting deptt Used for Recording in ledgers paying for goods preparing financial statements At the end of period

Information Sales Invoice

Ledgers

internal

Financial buy/sell/hold Statements

External

Shareholders

deciding whether to shares

Lenders Employees redundancy, pay rise is Cost making information make or prices Accounting and finance functions internal accounting deptt

deciding whether to lend assessing likelihood of considering whether reasonable calculating production costs, decisions as to whether to buy components, determining

The formation, implementation and control of policy and performance The accounting function has an important role to play in helping management to: Formulate policy Implement policy by establishing procedures to be followed Control performance

Policy formulation is designed to achieve the organisation objectives, so the starting point must be to identify the objectives, e.g. to maximise the reported profits after tax, subject to treating each stakeholder group properly. Planning is the establishment of objectives, and the formulation, evaluation and selection of the policy, strategies, tactics and action required to achieve them. Once a plan has been adopted, it is then possible to control the activities of the business to seek to achieve the plans outcomes Strategic, tactical and operational planning There are three different levels of planning (known as planning horizons).These three levels differ according to their time span and the seniority of the manager responsible for the tasks involved. Strategic planning senior managers formulate long term objectives (goals) and plans (strategies) for an organisation. Tactical planning senior managers make short term plans for the next year. Operational planning all managers (including junior managers) are involved in making day to day decisions about what to do next and how to deal with problems as they arise.

A budget is a plan expressed in quantitative (normally financial) terms for the entire the whole of a business or for various parts of the business for a specified period of time in the future. Budgetory control is the establishment of budgets relating the responsibilities of managers to the requirements of a policy, and the continuous comparison of actual with budgeted results. The accounting & reporting functions The sequence of steps taken is shown below. Transactions ==== day books ==== ledger accounts ==== financial statements Whenever a business transaction takes place, it is first recorded in the books of prime entry The main books of prime entry are: The The The The The purchase day book sales day book cash book petty cash book journal

The main financial statements produced each year are: A balance sheet or statement of financial position at the year end, showing the assets owned and the liabilities owed, and how these net assets are financed. An income statement for the year showing the revenues earned and the costs incurred, leading to the net profit or loss arising for the year. A cash flow statement summarising the cash receipts for the year and the cash payments paid out, to help readers of the accounts to understand the liquidity of the business.

Companies must send a copy of their financial statements to each of their shareholders each year. Large companies and publicly quoted companies must appoint external auditors each year to give their independent opinion whether the published financial statements give true and fair view or not.