Day 162 The accounting principle framework

The accounting principle framework

The accounting is the subject, which involves identifying, recording and communicating the economic events in an entity to interested users. It allows the users to make relevant decisions using the information. The vital element in communicating process represents the accountant’s ability to interpret and analyze the accounting data. This ability is important since the accountant should be able to translate the data into business language. Consequently, it becomes the means of measuring the business activity, and the information will be processed into accounting reports to communicate the results to users.

There are many different users for accounting information, and these users can be divided into two groups: internal and external. The internal users of accounting reports are the managers who direct the business. So the accounting information is crucial for them to make management decisions. For examples, the sales manager would like to know the profit margin for the company sales, hence a sales journal and relative ratio analysis could provide him the sales figure on the timely basis. On the other hand, user outsider the business are the external users. Since the accounting reports efficiently translate the business activity into a concise and understandable format, these users may rely on this information to evaluate the company’s conduct and performance. To illustrate, the investors want to use the information to decide the trading strategy on the company’s stock; the creditor wants to monitor the business’ ability to cover its debts; and the Australian Taxation Office or ASIC would use the information to scrutiny the conduct of the company in accordance with the laws and regulations.

In order to ensue the quality of the report, the general accepted accounting principles (GAPP) were established and adopted by many professional organizations such as Australian Accounting Standard Board(AASB) and Financial Reporting Council(FRC). As an accounting participant, it is critical for use to comprehend the GAPP and the International Financial Reporting Standards(IFRS).