Strengths and Weaknesses of Accounting Concepts and Conventions

2080 Words Mar 24th, 2010 9 Pages
Accounting for Managers

Discuss the strengths and weaknesses of the accounting concepts and conventions and of the regulatory framework (SSAPs and FRSs) that govern published financial statements. Do the criticisms of the concept and the regulatory framework mean that published financial statement do not provide investors with useful information?

Introduction

Strengths

Weaknesses

Information needs of investors

Conclusion

Discuss the strengths and weaknesses of the accounting concepts and conventions and of the regulatory framework (SSAPs and FRSs) that govern published financial statements. Do the criticisms of the concept and the regulatory framework mean that published financial statement do not provide investors with useful
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In order to prevent manipulation of figures by preparers of accounts or directors to enhance or darken the financial position of a company to their utmost advantage, financial statements are regulated by accounting standards to give a true and fair view. Hence, the interests of different user groups are protected.

3. Disclosure of information
Moreover, accounting standards require the disclosure of accounting policies used by the company so as to give more accounting information. The standards aim at reducing flexibility in the observance of accounting principles and to compel directors to select and adhere to specific accounting policies which should be disclosed by way of note to the accounts. FRS 18 introduces the principles to be followed in selecting accounting policies and disclosures to help users to understand more clearly the accounting policies adopted and how these have been applied. Estimation techniques are also to be disclosed so as to explain the methods adopted to arrive at estimated monetary amounts. The standards mention a number of matters for which different estimation techniques are recognised for example depreciation of fixed assets (FRS 15), treatment of research and development expenditure (SSAP 13) and stock and work in progress (SSAP 9).

In line with the above, the Financial Reporting Standards goes further as far as

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