Accounting Both Influences and Is Influenced by the Environment

Topics: Balance sheet, Financial statements, Decision making Pages: 34 (8962 words) Published: March 20, 2011
Accounting Notes
Accounting both influences and is influenced by the environment which is operates in these which shape the development on accounting include * Regulatory (regulations related to the) environment

Accounting regulations form the rules and principles that govern the structure, content, audit disclosure of financial information. These regulations stop accounts from practicing fraudulent activity and impose penalties and fines, in order to protect investors, creditors etc. In Australia for example there are three main sources of accounting regulation: 1. Requirements of company legislation (corporations act2001- require that company directors present to shareholders at the annual general meeting an audited income statement and balance sheet. 2. Australian Stock Exchange listing requirements for public companies (information being disclosed to the public and includes Aust. Accounting standards. 3. Accounting standards issued by the standard-setting body *Explain how different types of assets should be valued and how they should be set out and disclosed in the financial statements *Help to ensure that an entity’s income statement and balance sheet represent a ‘true and fair’ representation of its performance and financial postion.

* Economic decision-making environment
Economic decisions are based upon financial statements.
Investors- Usually owners or shareholders of the company. Shareholders look for the return of their investment in two firms: 1- Dividend payments (distribution of profits)
2- Capital gain (increase in share price)
Lenders (creditors)- May be long term or short term and their loans may or may not contain a fixed rate of interest. Short term lenders- suppliers of inventory commonly demand payment within 30 days. Might be for electricity, telephone, other utilities and various services. Longterm lenders- May offer assets as security there are three types of long term loans 1-Land and building (Mortgage if payments are not made)

2-Debentures (are financial instruments offered to the public or to financial institutions in exchange for large amounts of money-usually fixed rate) 3-Unsecured notes(which are effectively debentures without security: often issued for shorter periods, these notes may be convertible into shares at some later date.

* International environment
Countries have different cultural, political, economic and legal systems, so too they have different accounting regulations and practices. At least four factors can contribute to differences in accounting regulations- 1-State of economic development:

2-State of business complexity
3-Shades of political persuasion (centrally controlled to market controlled economy) 4-Reliance on some particular system of law- All systems depend on some law (unfair trade and competition laws)

Traditionally accounting has been defined as the process of ‘recording, classifying and reporting’ the financial activities and transaction of a business enterprise. The Modern Context states that ‘the process of identifying, measuring, and communicating the economic information to permit informed judgments and decisions by users of the information”. As communicators, accountants are mainly interested in conveying ‘economic information’- that is, the results of financial transactions and events involving a firm, mostly presenting in summary form. Key Financial Statements are

* income statements (expenses, profits, loss)
* Balance sheet (financial position- assets, resources controlled by company) * Cash flow statement
Accounting Entity-
Area of activity in which users of accounting information have an interest (Individual, a company, a practice. The owners are called shareholders, partners or owners depending on the form of legal organisation they adopt. Types of Entities

Sole ownership- Mostly small business, most business decisions are made by the owner liable for debt however the acc. records are treated...
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