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(A) As per assignment topic we have to appreciate the "True and fair value" which is shown by financial statements. The main object of audit is to discover out whether the financial statements prearranged by a company show the true and fair view of the financial state of dealings of a company and if not then in what respect they are not showing.
It will be said that the financial statements and the books of account disclose true and fair view of the business when the following conditions are satisfied:
The books of account have recorded all the business process correctly.
The books of account have been prepared according to the conventional principles of accountancy and have followed accounting values issued by different rigid bodies.
There are no errors and frauds at hand in the books of account.
The financial statements that have been organized by the company are in constancy with the books of account.
In the preparing the financial statements, all compulsory provisions of companies Act and other suitable laws have been followed:
When all the above particulars are taken care by a distress in preparing the financial statements, it will be said that these statements show true and fair view of the affairs of that business anxiety. The purpose of financial statements is to offer in rank about the financial position, presentation and changes in financial position of an effort that is useful to a wide assortment of users in making economic resolutions. Financial statements should be intelligible, relevant, reliable and analogous. Reported assets, liabilities and justice are straight related to an organization's financial position. Reported income and outflows are straight linked to an organization's financial performance.
Accounting aspects of the recent financial crisis:
There have been some denigrations of accounting through the current financial disaster and those will have to be cautiously measured. My observations by learning on the course are projected to be a donation to that consideration. The number of criticisms that the financial statements of financial institutions have overstated their losses arising appears to be intimately matched by the number of criticisms that they have modest the losses.
For example, it was trendy, in some quarters; this time last year for people to argue that mark-to-market accounting was inappropriate. The basis for this criticism was that the market prices were "wrong" and that the assets were really worth more than the market invented.
Assets on the balance sheet are always shown at the original acquire price (historical cost) even though the current value may be dissimilar.
Pattern : XYZ Company started their business five years ago and at that time; they purchased some ground for AED 200,000. Today, the same land is worth AED 500,000. However, the land will be shown on the balance sheet at AED 200,000.
Implication: The value of the land is not realistic.
Some figures on the financial statements are based on biased estimates and assumptions. Management could possibly change net proceeds by changing these estimates.
Depreciation is one pattern where estimates and assumptions are used.
Example: Alpha Company is in the business of manufacturing 'ball-point' pens. It requires a particular machine to make these pens. This machine is used continuously for 20 hours everyday.
The cost of this machine is AED 10,000. It is expected to last for 5 years gone which it needs to be replaced.
The machine will lose value each year as it is used to manufacture pens. These pens are sold to manufacture revenue for the company.
Therefore, this loss in value or reduction is considered to be an outlay of the business.
One of the sort of the growth of the financial services industry in topical years has been the extraordinary speed and range of innovation in products, services and indeed in organizational structures during which financial services are delivered. For some time novelty in financial services was regarded as being unquestionably a "good thing". The credit crunch has led to this scheme being called into question. There are questions about whether accounting techniques have been competent to keep up with the rate of modernism. For example, there clearly are implementation issues in those cases where there is not a fluid market. But some of the innovation has been motivated to conquer regulatory arbitrage, such as exploiting the large diversity in the capital requirements which relate to those assets required to be held in the banking book compared to those which could be held in the trading book. It is not astonishing that this has resulted in some accounting clumsiness. Some commentators have also criticized the accounting standards boards for increasing the obligation to make use of mark-to-market accounting in current years.
Mark-to-market accounting is an subject which has generated a lot of disagreement in the last year or so and on which there come into view to be very strongly held but opposing views. The critics of mark-to-market accounting have normally argued that it is a bad thing and should be stopped without going on to lucid what would be a better system of accounting for these assets and liabilities. As a broad generality the management of banks are keen to have larger flexibility to go away from the mark-to-market obligation as they suppose that the market values are not envoy of the intrinsic value of the assets (although these points were made with much less force during the years in which markets were generally rising) whereas investors are not fervent about the use of mark-to-model (or, as we should perhaps call it, mark-to-management) techniques. In truth it is hard to be explicit which of these two views is the most correct. Perhaps we should think whether investors would find it useful to have disclosure of both market and sculpt valuations. Given the uncertainty around the assessment bases, investors may also hit upon it useful to information in future periods to assist them assess which is the more consistent dimension basis. This could be done, for example, by requiring the surprise in subsequent years of the diversity between the proceeds for assets which have been sold and the market and model valuations at the previous yearend. This would also make available an inducement for running not to be too violent in the assumptions used in their models.
According to the essay, I have to discuss the mentioned Statement with relevant and perfect examples.
"Materiality, relevance and reliability make information useful." I want to use different websites for obtaining relevant information. That is why I want your permission to do such kind of work.
The financial in sequence
The point of this announcement is to inspect the quality that make accounting information valuable.Â The financial in sequence is very useful to both inside and peripheral festivities of a company. Financial information is offered about the result of past recital and the present financial lay of a company.
Those who organize, check, and use financial reports, as well as the Financial Accounting Standards Board, must often select or appraise accounting alternatives.Â The sort or qualities of information discussed in this Statement are the ingredients that make information useful and are the qualities to be sought when accounting choices are made
The external parties are foiled in the financial information because, they can plan their future targets and also they can make prospect decisions. The internal parties are attracted in the financial information, because they can plan their future their targets and they can also make decisions.
All financial reporting is troubled in altering degrees with decision making .The require for information on which to base investment, credit, and similar decisions underlies the objectives of financial treatment.Â The expediency of information must be evaluated in relation to the purposes to be served, and the objectives of financial reporting are focused on the use of accounting information in decision making.
Relevant accounting information is capable of making a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct prior expectations.Â Information can make a difference to decisions by improving decision makers' capacities to predict or by providing feedback on earlier expectations.Â Usually, information does both at once, because knowledge about the outcomes of actions already taken will generally improve decision makers' abilities to predict the results of similar future actions.Â Without a knowledge of the past, the basis for a prediction will usually be lacking.Â Without an interest in the future, knowledge of the past is sterile. .Â
The reliability of a measure rests on the faithfulness with which it represents what it purports to represent, coupled with an assurance for the user that it has that representational quality.Â To be useful, information must be reliable as well as relevant.Â Degrees of reliability must be recognized.Â It is hardly ever a question of black or white, but rather of more reliability or less.Â Reliability rests upon the extent to which the accounting description or measurement is verifiable and representational faithful
Constraints on relevance and reliability
âˆ† Cost of benefit analysis
The company has to pay wages to the decision makers. But if financial information is not relevant and reliable, they give wrong feedback. Thus the cost which is paid to the decision makers is wasted.
Timeliness, that is, having information available to decision makers before it loses its capacity to influence decisions, is an ancillary aspect of relevance.Â If information is not available when it is needed or becomes available so long after the reported events that it has no value for future action, it lacks relevance and is of little or no use.Â Timeliness alone cannot make information relevant, but a lack of timeliness can rob information of relevance it might otherwise have had.
Materiality is a pervasive concept that relates to the qualitative characteristics, especially relevance and reliability.Â Materiality and relevance are both defined in terms of what influences or makes a difference to a decision maker, but the two terms can be distinguished.Â A decision not to disclose certain information may be made, say, because investors have no need for that kind of information (it is not relevant) or because the amounts involved are too small to make a difference (they are not material).Â Magnitude by itself, without regard to the nature of the item and the circumstances in which the judgment has to be made, will not generally be a sufficient basis for a materiality judgment.Â The Board's present position is that no general standards of materiality can be formulated to take into account all the considerations that enter into an experienced human judgment.Â Quantitative materiality criteria may be given by the Board in specific standards in the future, as in the past, as appropriate.
âˆ† Characteristics that make financial information useful
â™¯ Understand ability
In the description, I have tried to show the usefulness of the financial information and the qualities which help to make such financial statements useful. I have used several web pages to get information for this discussion.