Evaluation of Financial Accounting Standards (Coursework Sample)

Accounting Assignment
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Evaluation of financial accounting standards
Practical application of the various accounting methods
Accounting methods are the basic rules and guidelines under which various firms prepare their financial records and keep the records for future use. In the accounting technique, the most common accounting methods applied include the cash basis and the accrual basis. Different businesses have the task of determining which accounting method to be used in the business management. The sales volume of the firm will also determine the payment methods that the company can use to compete effectively in the entire market. Some businesses are not in a position to manage the inventory and the accounting method used significantly affected by the particular concept.
The ability of a business to extend credit to customers differs depending on the financial position of the firm, and it is affected by the economic method as well. Different internal revenue service provides different tax requirements that directly influence the accounting methods applied to any business. When doing record keeping in any business, the information can be used my managers in assessing the company’s financial position. At the same time, the information can be used by the law and for tax purposes in ensuring that tax obligations are met. It is of importance for any small or large businesses to know the method they are applying based on what will be most suitable for their particular business.
Cash basis
Under the method of accounting, income and expenses are recognized according to real-time cash flow. At the time the receipts are obtained, income is being recorded prudently on the relevant books of account, rather than based upon when it earned. Expenses on the other side are recorded as they are paid, rather when incurred. The concept offers much flexibility and a possibility to alter with taxable income. It can occur by delaying billing so that payment is not received in the current year. Expenses can be accelerated by paying them as immediately the bills are received, in advance of the due date.
Accrual basis
Both income and expenses can only be recognized when they are earned or incurred respectively. It does not give a consideration of when cash associated with the particular transactions changes hand. The payment time does not count much in recording the revenue. In fact, revenues are recorded when it is earned rather than when payment is received. On the same note, expenses are recorded when they are incurred rather than when payment is made. At one point in time, the company’s accounts will look very different depending on which accounting method is currently being used. As time moves, the difference are eliminated since all the expenses and revenue will be recorded in the relevant books of account. The cash basis offers many advantages compared to the accruals policy. The simplicity of the cash basis makes it easier to work with in analyzing the accounting concepts. When examining the picture of the cash flow, cash basis is identified to provide a more accurate picture of the flow. In some cases, the income of the company might be subjected to taxation before the actual money is realized. In the cash flow basis, the concept can be precisely regulated by employing tax to the actual amount of money received. The only challenge experienced is that capital and revenue are not matched in time.
Accounting policies are used by the company to prepare the financial statements. The strategy applied includes any method, measurement system and procedures for presenting disclosures. The principles are the rules that need to be used while the policies are considered to be the company’s way of adhering to the rules.
National Accounting Standard for Non-Governmental Organizations
The particular accounting standard applies to non-governmental organizations. Examples that are included in the non-governmental organizations include public unions. The organizations, however, operate according to relevant legislations. The scope and definition of financial statements prepared by non-governmental organizations are prudently covered in the analysis. The standard also applies in the case of contractions that arise from active normative-legal acts on accounting and the national accounting standard. Improving the financial statements of non-governmental organizations prepared in line with National Accounting Standard is the aim of the standard. The standard has specific sections which includes definitions of the specific terms used in the accounting concepts. The sections are in a position to borrow the same concepts when used in other parts. The standard can define methods for submission of general purpose financial statements to facilitate comparison of financial statements for the reporting period and those prepared by the same non-governmental organizations for previous years. It also factors for financial statements of other non-governmental organizations. Various considerations are applied in achieving the particular goal of the organization (Watts & Zimmerman, 1978). The financial statements should be submitted to facilitate generation of data required for the analysis and interpretation. The structure of the statements offers a justification and should be included in the design process. In most instances, a requirement is always considered to be mandatory. A consideration should be made to the minimum requirement for the content of financial statements prepared in line with the particular standard.
Concepts and Pervasive Principles
Under the section, there is no specific accounting or reporting requirements is not stipulated. It just set out the fundamental principles to be used in generating of financial statements in compliance with National Accounting Standard for Non-Governmental Organizations. The Users of the financial report prepared in the case involves the management of the non-governmental organization. Members, lenders and creditors, employees, the business contact group and the government have a critical involvement in the records kept in the case.
Assumptions Underlying National Accounting Standards for NGOs
The Accruals Basis
In the context of the financial transactions, income and expenses have to be recognized as a result of the transaction taking place and not due to cash or its equivalent is received or paid.
Going concern
The non-governmental organization has the obligation of existing in the future and does not have any option to liquidate in the near future. The going concern is done on the basis of historical cost measurement of assets and liabilities. The principle outlined above is a prerequisite for the application of historical cost measurement. Qualitative Characteristics of Financial Statements
The characteristics tend to make the information provided to be useful and relevant to the end users.
Relevance
The past, present and future events should be influenced by the information provided in the financial statements.
Materiality
The information at times can be omitted or misstated. In such instance, the information is material if the decision of the users is influenced.
Reliability
Error prevention and avoidance are crucial when handling information. Information will become reliable when it is free from material error and bias.
Faithful representation
The financial information should clearly indicate the exact position of the non-governmental organization objectively to such extent as it is possible and the representation of factual concepts concerning the institution.
Substance over form
Information has to be represented in accordance with the economic reality of their legal capabilities of the transactions that are being conducted.
Prudence
Caution should be employed in estimations of the values of various assets and liabilities. The importance of that is to avoid the consequence of understatement and overstatements. The method of the presentation of the valuation should be the best strategy ever.
Financial statement presentation
Financial statements should be presented according to ensure comparability both with the non-governmental organization’s financial statements of previous periods. It should also conform to the financial statements of other non-governmental organizations. The financial statement must provide information about a non-governmental organization in terms of assets, liabilities, net assets, revenues, expenses, and the overall cash flow. Supplementary information, including financial statements that do not have a monetary value attached. It may be reported alongside the financial statements in order to provide a more comprehensive picture regarding the kind of the business for the period (Abd-Elsalam & Weetman, 2003).
Riskiness of the Business
A non-governmental organization shall disclose in the notes of information about the key assumptions concerning the nature. In respect to the analyzed assets and liabilities, it is prudent to consider the nature of the account...