The MBA at the Lagos business school has opened the eyes of a lot of non-accountants to the nitty-gritty of accounting. I remember while in secondary school, friends would make comments about how we were always accounting for money we cannot see. It all began to make sense when I started my career as an accountant although I still have lots more to learn.
I am sure we all know what accounting is hence I am not going to bore us about definitions. However, we should also understand that financial reporting is guided by certain standards called International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS). Let me educate us briefly about one of the standards.
IAS 1 – Presentation of financial statement
These standard states the number of financial statements an organization should have which are stated below:
- Statement of Profit or Loss.
- Statement of Financial Position.
- Statement of Cashflows.
- Statement of Changes in Equity.
- Notes to the account.
It also prescribes that these financial statements should be prepared based on some principles. Below are some of these principles:
Going Concern: Managers must assess the ability of a business to continue as a going concern that is the ability to continue in business till the foreseeable future.
Accrual Concept: This principle states that revenue and expenses should be recognized when they are earned and incurred respectively and not necessarily when cash is received.
Consistency of Presentation: It also states that items should be classified and presented in the same manner from period to period.
Materiality And Aggregation: Information is material if omitting, misstating, or obscuring it could reasonably be expected to influence decisions that the primary users of general-purpose financial statements make based on those financial statements, which provide financial information about a specific reporting entity.
Each material class of similar items must be presented separately in the financial statements. Dissimilar items may be aggregated only if they are individually immaterial.
Offsetting: Assets and liabilities, and income and expenses, may not be offset unless required or permitted by an IFRS.
Comparative information: IAS 1 requires that comparative information be disclosed in respect of the previous period for all amounts reported in the financial statements, both on the face of the financial statements and the notes unless another Standard requires otherwise. Comparative information is provided for narrative and descriptive where it is relevant to understanding the financial statements of the current period.
Reporting Period: There is a presumption that financial statements will be prepared at least annually. If the annual reporting period changes and financial statements are prepared for a different period, the entity must disclose the reason for the change and state that amounts are not entirely comparable.
Judgments And Key Assumptions: An entity must disclose, in the summary of significant accounting policies or other notes, the judgments, apart from those involving estimations, that management has made in the process of applying the entity’s accounting policies that have the most significant effect on the amounts recognized in the financial statements.