THE IMPORTANCE OF ACCOUNTING CONCEPTS AND CONVENTIONS IN FINANCIAL STATEMENT PREPARATION
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- NGN 3000
BACKGROUND OF THE STUDY
Every single commercial organisation, regardless of whether it operates in the public or private sphere, was founded with the intention of accomplishing a certain set of goals. This may involve the maximising of profits, as is the situation in the private sector; alternatively, it may involve the timely and effective supply of critical services at a lower cost, as is the case in the public sector (Alexander & Britton 2021).
The owners of the company are entitled to receive a report detailing, in monetary terms, the performance of the business organisation in question. (For instance, stockholders in a private business, or the government in the case of a public institution) (Dyckman, Dukes, & Davis, 2021).
The management of a company or organisation is greatly aided by the profession of accountancy. The process of recording, categorising, reporting, and understanding the financial data of an organisation is what is referred to as accounting (Kiabel, 2022). Although it is essential for the accountant to have a solid understanding of this phase of the accounting process, the accountant will often only devote a relatively small portion of his full focus to the management reporting and interpretation of the significant consequence of the data. (Welgenbad and Dittrich 1973:4)
As a result, accounting is often considered to be a language of communication in an organisation; the primary goal of accounting, similar to that of any other kind of communication, is to provide various kinds of information to those who are interested in receiving it. Because of this overarching goal, accounting is a significant portion of the overall information system in every organisation, regardless of whether it is commercial or not (Kiabel, 2022).
However, in order to communicate this knowledge effectively, the following challenges must be overcome.
Conflicts of interest might arise among the many consumers of financial statements due to the fact that the information requirements of the various user groups do not align with one another.
The issue of subjectivity that arises while compiling the financial accounts is a challenge. Therefore, in order to achieve a high level of standardisation in financial reporting, it is required for the accountant to be led by some fundamental assumptions, ideas, concepts, and conventions while compiling the financial statement. This is necessary since it has become necessary.
The process of compiling a history of financial transactions is known in the industry as "stewardship accounting," and it is one of the components of financial accounting. These historical records will be used to construct the financial statement. The financial statements of a reporting entity are the mechanism by which information may be communicated to parties so that they can be understood regarding the resources, liabilities, and performance of the reporting company. (SAS2).
According to Alexander and Britton (2021), the creation of these financial statements involves the utilisation of specific assumptions, ideas, conventions, and principles that serve as the fundamental structure for the communication of accounting information. Included in this are:
The idea of money as a unit of measurement
"The notion of a running concern."
The idea of a company as a legal entity
"The notion of coming to terms"
The idea of the dual aspect
The principle of accumulating losses
Prudence notion
The idea of consistency (Frame word 1998:82-85)
These accounting concepts and conventions are generally accepted as being the undertaking of periodic preparation and presentation of financial statement; however, if in the preparation and presentation of this financial statement, the fundamental concepts and conventions are not followed, problems will arise in analysing, interpreting, and reporting financial statements. These accounting concepts and conventions are rarely disclosed on the financial statement because they are generally accepted as being the undertaking of periodic preparation and presentation of financial statement (Dyckman, Dukes, & Davis, 2021). It is therefore essential for the understanding that the interpretation and meaningful analysis of financial statement that these fundamental concepts, assumptions, principles, and conventions used in the preparation must always be borne in mind. This is essential for the understanding that the interpretation and meaningful analysis of financial statement (Dyckman, Dukes, & Davis, 2021).
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