Enter your mobile number or email address below and we’ll send you a link to download the free Kindle App. The Companies Act requires every company, except for those exempted in accordance with the provisions in the Act, to appoint one or more auditors qualified for appointment under the Accountants Act to report on the company’s financial statements. The auditors are to ascertain whether proper books of accounts have been kept and whether the financial statements agree with the company’s records. They will then report on the trueness and fairness of the financial statements to the shareholders at the Annual General Meeting. Management accounting draws all financial information from financial accounting.
While financial accounting is used to prepare accounting information for people outside the organisation or not involved in the day-to-day running of the company, management accounting provides accounting information to help managers make decisions to manage the business. Materiality: information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. Understandability: accounting reports should be expressed as clearly as possible and should be understood by those at whom the information is aimed. Comparability can be ensured by applying the same accounting policies over time.
Comparability: financial reports from different periods should be comparable with one another in order to derive meaningful conclusions about the trends in an entity’s financial performance and position over time. For suppose in case of if you analyse the income or profit and loss statement that means you analyse the real meaning to how much earned or sustained loss when compare to last financial year to this year. IFRS requires entities to implement capital maintenance in units of constant purchasing power in terms of IAS 29 Financial Reporting in Hyperinflationary Economies. Financial accountants produce financial statements based on the accounting standards in a given jurisdiction.
These standards may be the Generally Accepted Accounting Principles (GAAP) of a respective country, which are typically issued by a national standard setter, or International Financial Reporting Standards (IFRS), which are issued by the International Accounting Standards Board (IASB). Ascertainment of the financial position of business: businessman is not only interested in knowing the result of the business in terms of profits or loss for a particular period but is also anxious to know that what he owes (liability) to the outsiders and what he owns (assets) on a certain date.
To know this, accountant prepares a financial position statement of assets and liabilities of the business at a particular point of time and helps in ascertaining the financial health of the business. Providing information to the users for rational decision-making: accounting as a ‘language of business’ communicates the financial result of an enterprise to various stakeholders by means of financial statements. Accounting aims to meet the financial information needs of the decision-makers and helps them in rational decision-making. The trial balance , which is usually prepared using the double-entry accounting system , forms the basis for preparing the financial statements.