The Basic Concepts Upon Which Financial Accounting is Based Essay

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The Basic Concepts Upon Which Financial Accounting is Based Terms of Reference To prepare a short report, which will explain the basic concepts upon which financial, accounting is based. The need for accounting standards and why companies must comply with them. The Need for Accounting Standards In order for the Profit and Loss and Balance Sheets accounts to make sense to users who rely on them for their decision making purposes, there has to be consistency in the way items are treated in the financial statements. Without this agreement it would be impossible to use them to compare business performance. Limited companies have a statutory duty to comply with these rules and it is the job of…show more content…
What are accounting standards? Accounting standards are authoritative statements of how particular types of transaction and other events should be reflected in financial statements. Accordingly, compliance with accounting standards will normally be necessary for financial statements to give a true and fair view. Accounting standards issued by the Accounting Standards Board are designated "Financial Reporting Standards" (or FRSs). Those issued by its predecessor bodies, and adopted by the Board when it was created in 1990, are designated "Statements of Standard Accounting Practice" (or SSAPs). Adoption by the Board gave the SSAPs the status of "accounting standards" within the terms of Part VII of the Companies Act 1985. The Board reviews these SSAPs individually as appropriate opportunities arise during the course of its work: so far, of the 22 SSAPs adopted in 1990, four have been withdrawn and superseded by FRSs. For example the statement that talk about the disclosure of accounting policies is now called FRS 18. Five more are in the process of withdrawal. Are accounting standards mandatory? Company's legislation does not directly require compliance with accounting standards. However, the Companies Act 1985 requires accounts (other than those prepared by small or medium-sized companies) to

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