Not all financial accounting practices in the United States have to comply with generally accepted accounting principles (GAAP). Transition to IPSAS as an accounting framework is designed to improve the quality and consistency of financial reporting, enhance transparency and accountability; facilitate better decision making, financial management and good governance in our entire public sector. The above reform in financial reporting will mean that the Government will now be able to produce a consolidated set of general purpose financial statements — it will be interesting and encouraging seeing the Government’s consolidated financial statements just like those that companies listed on the Nairobi Stock Exchange prepare.
These organizations have a need for special reporting to financial statements users that show how money is spent, rather than how much profit was earned. Under the theory, assets, obligations, revenues, and expenses and other financial aspects of the business entity are accounted for separately from its owners. The course emphasizes the construction of the basic financial accounting statements – the income statement, balance sheet, and cash flow statement – as well as their interpretation.
The Accounting Framework defines qualitative characteristics of financial statements as the attributes that make the information in financial statements useful to users.” The four principal attributes rely on fundamental accounting assumptions such as consistency and fair presentation. In such cases, a financial accountant usually exercises discretion in resolving such conflicts.
Financial statements can appear like a foreign language to those who are unfamiliar with it. However, a closer look at the layout, annotations and overall design of financial statements suggest that they are designed for users to understand them (if not interpret them comprehensively). Indeed, users should be able to get a clear idea of the performance and financial position of an enterprise by reading it. Although understandability is important, it is not an excuse to omit complex matters or information from financial statements.
Relevant information does not only apply to the present, since information in financial statements should allow users to assess historic or future events. Materiality (whether the information affects the economic decisions of information users) and the nature of information are critical to ascertaining relevance in a financial accounting context. Financial statements are not uniform, especially as different accounting methods might be employed among different organizations. It is important to know and understand the theoretical framework for accounting.