ACCOUNTING STANDARDS
Enable investors to make financial decisions
STAKEHOLDERS
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shareholders/investors – BS, P&L
managers – P&L
employees – P&L
creditors – CF
banks – BS
IR – CF
auditors – BS, P&L, CF
Accounting policies
Valuation – how much something is worth
Measurement – determining how big something is
1. GAAP (USA) – Generally Accepted Accounting
Principles
2. IFRS – International Financial Reporting
Standards
(International Accounting Standards Board)
Historical cost principle
• recording the original purchase price of
assets
• The current value is not important if the
business is a going concern (making
profit)
Replacement cost accounting
Inflation accounting (countries with
regular high inflation)
Values all assets at their current
replacement cost
Accounting assumptions
(generally accepted as being true)
 business entity – separate from its owners
 time period – year, quarter
 going concern – continuity (current value not important)
 unit-of-measure – financial transactions are in a
single currency (consolidated
statements)
Replacement cost accounting
Inflation accounting (countries with
regular high inflation)
Values all assets at their current
replacement cost
Accounting principles
 Full-disclosure – all significant information
 Going concern – ability to repay debts and other obligations
 Conservatism – choose the method that is least likely
to overstate or over-estimate assets or income
 Objectivity –
based on facts – verifiable
 Consistency –
using the same principles from one year to the next
 Revenue recognition – the revenue is recorded when
service is provided or goods delivered
 Matching –
relating amounts of money paid and received
to the accounting period in which they occur
Depreciation and amortization
Fixed assets – wear out, become obsolete
Charge against profits - part of the cost of
the asset is deducted from
the profits each year
Valuation of assets
Land – is usually not depreciated (tends to appreciate)
Revaluation – a) at current replacement cost
(like buying the new ones)
b) at net realizable value (NRV)
(how much they could be sold for)
Depreciation systems
 straight-line method – charging equal annual
amounts against profit during
the lifetime of the asset
 accelerated depreciation – deducting the whole
cost of an asset in a short time
(reducing profit and the amount of tax)
We have learnt
Multinationals can choose how to present financial information to
_______________. Accounts can have different values depending on
whether they follow local _________________standards, _______,or US
___________.
It all depends on the __________of the country where the company is
registered.
Accountants worldwide are familiar with the basic principles:
 the g_______________concern principle
 the m______________ principle
 the c_______________ principle
Multinationals can choose how to present financial information to stakeholders
(or outside parties). Accounts can have different values depending on
whether they follow local accounting standards, IFRS, or US GAAP.
It all depends on the laws of the country where the company is registered.
Accountants worldwide are familiar with the basic principles:
 the going concern principle
 the matching principle
 the consistency principle
Some accounting practises
Flexibility is important in accounting.
If we want to attract ________________on the
capital markets we may want to report bigger
_____________ . On the other hand, to pay
____________tax, smaller profits may be better.
Flexibility is important in accounting.
If we want to attract investors on the capital markets
we may want to report bigger profits . On the
other hand, to pay less tax, smaller profits may be
better.
How much accounting vocabulary you have learnt
1.
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3.
4.
5.
6.
The capital value of an asset goes down over time.
___________________________________
Another word for land or buildings.
____________________________________
The process of including the figures of subsidiaries and affiliates in the
account of a holding company. ______________________________
The money that a company or organization receives from its business.
_______________________________
The person who examines the business and financial records of a
company. ___________________________________________
A person who is considered to be an important part of an organization or
of society because they have responsibility within it and receive
advantages from it. _______________________________________
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2.
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3.
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5.
6.
The capital value of an asset goes down over time.
depreciation
Another word for land or buildings.
property
The process of including the figures of subsidiaries and affiliates in the
account of a holding company. consolidation
The money that a company or organization receives from its business.
revenue
The person who examines the business and financial records of a
company. auditor
A person who is considered to be an important part of an organization or
of society because they have responsibility within it and receive
advantages from it. staeholder