Definition And Example Of Principles Based Accounting

In 1973, the Financial Accounting Standards Board (FASB) was created and their 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.” (FASB.org, 2009a). The FASB is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles (GAAP) within the United States. The Securities and Exchange Commission (SEC) designated the FASB as the organization responsible for setting accounting standards for public companies in the U.S. Therefore, the FASB plays a vital and important role in protecting the financial well being and the overall stability of our

The field of accounting is constantly evolving. This is true not only for the theory of accounting itself but also the entities that govern its theory and practice. Presently, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are faced with some of the biggest challenges to date. To understand the significance of these two boards, it is necessary to understand their histories, relations between the boards, and the standards that they set. Also how the knowledge of these boards and the field they lead, gained through the masters of science in accountancy

Research: The Financial Accounting Standards Board (FASB) was founded in 1973 as a private and independent organization governed by the Securities Exchange Commission (SEC). The organization’s primary purpose is to establish the rules and standards of Generally Accepted Accounting Principles (GAAP) for the interest of the public. (“Facts about FASB”) “Since its inception in 1973, the FASB has issued 168 Statements of Financial Accounting Standards and a series of concepts statements”. (Facts about FASB, n.d.) The FASB's mission is "to establish and improve standards of financial accounting and reporting for the guidance and education of the public,

Topic 842 will require the estimation of lease terms and subsequent lease payments by companies under a criteria that cautiously take into consideration, in addition to written lease arrangements, the “economic incentives for a company to exercise an option to extend a lease term or for an entity not to exercise an option to terminate a lease”. With respect to finance leases only, the lease payments will subsequently be discounted using the company’s incremental borrowing rate to reach the lease obligation. This lease obligation will then be disclosed as a liability with an offsetting disclosure of the right to use asset as an intangible asset on the balance sheet. The amount of the right-to-use asset will also include any direct cost related to the negotiation of the lease and payment by the company. With respect to capital leases, the lessee is required to separate the interest on the lease liability and the amortized right-to-use assets on the statement of comprehensive income. The payment of interest on the lease liability and lease payments are recorded in the operating activities of the statement of cash flows. The principal portion of the lease payment will be recorded within the financing activities section of the statement of cash flows.

As the complexity of our financial economy develops it is important that our accounting standards progress in accordance. Accounting is very important to the development of the global and local economies. Accounting is basically the gathering, summarizing and presenting of financial information of an entity to interested internal, external and possible investors. This information should be presented in a non-bias way so that other people are able understand.

Leases are classified into two main types; finance lease and operating lease. The impact of each type of lease on the company’s annual report is different. When accounting for finance leases, for example, the concerned lessee makes recognition of the asset that has been leased in the statement of financial position or balance sheet and consequently charges all other finance charges including the depreciation charges relating to the leased asset on to the statement of income or profit and loss

Generally accepted accounting principles (GAAP) offer a framework for all standards, rules and procedures that are ""¦defined by the professional accounting industry" and have been adopted by "nearly all publicly traded U.S. companies" (Investing Answers). The principles contained within GAAP are regularly updated in order to "reflect the latest accounting methodologies," and companies rely on these updated principles, which are both established and administered by the American Institute of Certified Public Accountants (AICPA) and the Financial Accounting Standards Board (FASB) (Investing Answers).

Accounting principles are an important foundation to allow business owners, shareholders, the government and accountants to understand the financial position of a company. A failure to apply appropriate accounting principles can lead to inaccurate reports being used in business decision making. This may result in inappropriate investment and business decisions and lead to collapses as evidenced by the scandals surrounding One-Tel and Worldcom. Accountants employed by these business have been found to have acted unethically by manipulating the financial accounts.

Rule based accounting standards are difference from principle based standards in that rule based standards are just that – rules. For instance, the Internal Revenue code is rule based. There are things you can do and things you can’t. When rules are broken,

There are general rules and concepts that preside over the field of accounting. These general rules, known as basic accounting principles and guidelines, shape the groundwork on which more thorough, complex, and legalistic accounting rules are based. The Financial Accounting Standards Board (FASB) uses the basic accounting principles and guidelines as a foundation for their own comprehensive and complete set of accounting rules and standards.

The objective of this report is to present the factual findings of the audit of operating leases to the CFO and CEO of the XYZ limited. The XYZ’s 2015 financial statements has shown the material amount of operating leases and therefore needs particular attention during the course of audit. The auditing of assets held under the leasing agreements involves the verification under the guidelines of IAS 17 Leases. The current accounting standard for leasing is applicable for Australian companies has been undergoing changes and the new accounting standard for leasing has been introduced to enhance the credibility of financial statements disclosures in the financial statements. The new standard contains significant new provisions for which the author need to consider the marital effects on the truth and fairness of reporting. The report will analyze the difference between the old and new standard, investigate the effect on financial statements ratios, and cash flows, profit & loss and balance sheet.

The principles are the result from the accounting practice that has been used and improved over the time. The deeper explanation about the statement is that, accounting standard such as IFRS is created based on the previous accounting practice itself rather the theories. The theories are useful in guiding the other field like finance and economics. There is also evidence that the accounting theory exists after standard has been practiced (Cluskey, Ehlen and Rivers 2007). The father of accounting, Luca Pacioli explained about double-entry booking in one of his studies. The study described the practice and explained to the readers the logic behind it. The research had given birth to dozens of studies made by theorist to further discuss about the accounting practice. By this evidence, the readers can also conclude that not only the standard that exist from accounting practice but in fact, accounting theory also exist to explain the nature of the practice. Back to the purpose of this paper, accounting theory plays no role in the setting of accounting standard is approved by two points: the process of setting accounting standard itself is a political activity and the development of accounting standard is influence by the existing accounting practice not accounting

Accounting is the art of measuring and communicating financial information. To maintain uniformity and consistency in preparing and maintaining books of accounts, certain rules or principles have been evolved. These rules or principles are classified as concepts and conventions. One of the important concept in accounting is “Measurement” (Mattessich, 1977)

According to Steve Collings (2010), the accounting treatment of leases has presented a lot of problems over the years for the particular profession. Problems are observed in the way some leases are being treated in a business’ income statement and statement of financial position. Although, as we are going to expand more on that, the major problem of accounting for leases according to Collings (2010), is the manipulation of financial statements by incorrectly categorizing ‘finance leases’ as ‘operating leases’. The main purpose of the essay is to discuss why accounting for leases has been so controversial and whether the new standard (IFRS16) will give a more meaningful picture of companies’ financial position for lessees.

The development of accounting standards and rules is based upon conceptual framework which is part of system of financial reporting. These standards set the nature, function and limits of financial account and financial statement. In line with the suggestion of Reichel and Ramey (1987), conceptual framework is described as a set of broad ideas and principles taken from relevant fields of enquiry and used to structure a subsequent presentation. This reflects the items such as equity, expenses, income, assets and liabilities in financial statement. The International Accounting Standards Committee (IASB) is the body that developed the international conceptual framework in 1989 with the hope to attain global acceptance .The objective is to improve financial reporting which indicate the preparation of financial statement for limited company by providing updated, clear and complete set of concepts. In order to evaluate the role of conceptual framework, this essay aims to provide a discussion of the usefulness and limitations of conceptual framework in relation of International accounting standards. As mentioned above, the usefulness of conceptual framework includes consistency, comparability and credibility. Meanwhile, the limitations involve the difficulty to set up, difficulty to create the new ideas and may only benefit to certain groups.