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Principles and practices
By the end of this chapter you will be able to:
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Understand what is meant by ‘ﬁnancial accounting’. Contrast ﬁnancial accounting with management accounting. Identify the ‘user groups’ of accounting information. Understand the underlying principles and concepts of ﬁnancial accounting. Appreciate the role of standard setting in a national and international context. Consider the application of principles and policies to published annual reports.
It is rare for accountancy to be worldwide news, talked about nightly on TV discussion shows and written about by editors of both serious and tabloid newspapers. Accountancy and scandal are words which are rarely seen in the same sentence—but in recent years, journalists throughout the world have been writing articles on what they perceived to be a meltdown in accounting procedures and reliability. The collapse of a major US energy supply group, Enron Corporation, was blamed on dubious accounting rules, whilst in the UK many employees were ﬁnding that their pension beneﬁts were being downgraded by companies citing as justiﬁcation a new ‘accounting standard’. In the courts, previously well-respected company directors were being charged with ‘false accounting’, and governments of several countries decided to order inquiries into the role of the accountancy profession. New accounting rules in the USA were cited as being responsible for the writing off of $60bn of assets by two telecoms groups, whilst the body responsible for devising global accounting rules was itself accused of being part funded by the same companies it was trying to regulate. Accountants would claim that their role is not to portray a ﬁnancial picture which is unique in its perfection, honesty, and reliability. What they do attempt is to present often highly complex data that can be relied upon as a reasonably truthful and fair summary of...