Accounting Regulation
Aim: To show the rules Accountants have to follow to ensure compliance with the
Companies Acts
The Accounting Profession
You will remember from the Junior Cert that the Companies Office is the government
office which controls the setting up and operations of Limited Companies. One
obligation companies have is to submit their accounts each year. The amount of detail
to be submitted depends on the size of the company. The Stock Exchange also
requires regular reporting of financial information.
The Accounting Profession is self regulated, meaning Accountants developed a series
of rules called Statements of Standard Accounting Practice (SSAPs’). The Accounting
Standards Board (ASB) is the current regulatory body and has produced Financial
Reporting Standards (FRS’) which are rules Accountants should comply with, though
they are not legal binding. But if an Accountant does not comply, they could be
punished by the ASB. The ASB aims to ensure consistency in how Accountants
report.
The Book keeper in a firm enters daily transactions in the books. The Accountant
takes that information to produce documents which are used to judge how the firm is
being run (Final Accounts, Cash Flow Statements etc). The Auditor is independent
experts who inspect the books to ensure the accounts show a “True and Fair View”
of the financial position of the firm. The Auditor issues a report after their work. An
unqualified report states that the accounts are “True and Fair”, but a qualified report
shows the Auditor is not satisfied as information is either missing, incorrect, or
questionable.
Accounting Concepts
These are the rules which govern the way accountants report financial information:
1. Prudence Concept: be conservative, ie anticipate losses but don’t reckon on
incomes until they are certain
2. Accruals Concept: incomes and expenses should be matched to the period
when they are incurred
3. Consistency Concept: treat items in the same way each year eg depreciate
straight line 15% every year
4. Going Concern Concept: items are valued as if the business is not likely to
close in the immediate future
5. Entity Concept: the firm is legally separate from the owners
Accounting Bases and Policies
An Accounting Base is a way of implementing the concepts. There may be a number
of different bases for how to handle a situation. Eg depreciate Straight Line 15% or
Reducing Balance 20%. The base a company chooses to use is known as its
Accounting Policy.