Accounting And Financial Reporting
An understanding of the basic principles and theory of accounting is essential to appreciate corporate financial statements which form an integral part of corporate financial reporting.
The double entry system of accounting, as it is understood today, is believed to have originated in the last quarter of the 13th Century. The oldest surviving records include those of Rinerio and Baldo Fini between 1296 AD and 1305 AD and the branch ledger of Giovanni Forolfi for the years 1299 AD and 300 AD. The first record of complete double-entry system is massari accounts of the city of Genoa in 1340.
As an information system, accounting is concerned with communicating information about the business entity to others. It involves the measurement, accumulation, classification, summarization, analysis and interpretation of business transactions of a business entity during a defined period of time. Thereafter, it is transmitted to various users in order to enable them to study and base decisions on the conclusions reached by them.
According to Kenneth S Most, “a theory is a systematic statement of the rules and principles which underlie or govern a set of phenomena. A theory may be viewed as a frame work permitting the organization of ideas, the explanation of phenomena and the prediction of future behavior. Accounting theory may also be used to explain existing practices to obtain a better understanding. But the most important goal of accounting theory is to provide a coherent set of logical principles for the evaluation and development of accounting practices.
Accounting point of view has described accounting as a service activity. But the crucial question is to serve whom or whose interest? It is to be from whose point of view? Many theories and explanations have been advanced in this regard. There are different sets of stake holders when it comes to accounting principles, e.g. Proprietor, Entity, and Investor. Accounting has to ensure that it serves the interest of all. It has to be “all or none” i.e. all the stake holders should be able to take the maximum benefit possible from the accounts. If it serves the interest of only one of the above it has no meaning. All the stake holders mentioned above place their reliance on the accounts. The other important stake holder other than the above three is the Government and the regulatory agencies.
Accounts of an organization or a company are no longer sacrosanct, they are to be made available to all. The old accounting system hence has to give away to a more structured and organized way of presenting accounts. The accounting Standards put forth by various accounting bodies are a step in that direction.
Accounts of an organization or a company cannot be read and understood by a layman and hence we have the various theories and tools of financial management that help us in understanding the numbers. Hence it is important for the companies/organizations to follow the Accounting Standards set-forth, now with the implementation of IFRS, we will be moving into a new world where in the regulatory organizations will be, hopefully catch a fraudulent transaction before it is leads to loss of public money.