Rules and Guidelines Governing Accountant Record Entry and Keeping

1. ACCOUNTING CONCEPTS, CONVENTIONS AND PRINCIPLES
By HabibuAyuba, BSc; PGDE, MSc; ACA inview.
08030527135
By Habibu Ayuba, BSc; PGDE, MSc; ACA inview. 08030527135 4/8/2014 1

2. Aim and objectives the presentation
At the end of the sessions, the participants should be able to:
To understand accounting and reporting policies.
To define accounting concepts and convention.
To explain factors to be considered in selecting an appropriate accounting policies.
To examine changes in accounting policies.
To state the disclosure requirement of accounting policies.
To discuss the impact of accounting policies on the recognition of asset and liability..
By Habibu Ayuba, BSc; PGDE, MSc; ACA inview. 08030527135 4/8/2014 2

3. Understanding of Accounting and Reporting policies
Imaginethatyouareabusinessownerandyoutakecopiesofyourfinancialrecords(books)tosixdifferentaccountants,youaskeachonetocalculateyourprofitfortheyear.Afortnightlatertheyeachprovideyouwiththeiranswers.Therearesixdifferentprofitfigures,withverywidevariationsbetweenthem.
Whatwouldyoudo?
Whydoaccountantsgiveyousix(6)differentprofitsfigure?
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4. Thenwhatwillbeyourimpressionabouttheaccountingprofession.
Toavoidthiskindofsituations.Weneedtoknowwhythingsarelikethatinaccounting.
Variousrulesoracceptedwaysofgoingaboutthingshaveevolvedinaccountingprofession.Thesethingsarelikerulesofthegameandareknownas“ConceptsandConventions”
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5. Thereforetomaketheaccountinglanguagecapableofconveyingsimilarandthesamemeaningtoallitsstakeholders,concepts,methodsandpoliciesofpreparingfinancialaccountingstatementsarecoined.
Tomakeitmoremeaningful,accountantshaveagreedonanumberofconceptswhichareusuallyfollowedforpreparingthefinancialstatementsandarenowinternationallyrecognizedasinternationalreportingstandard(IFRS).
Theseconceptsprovideafoundationforaccountingprocess.Noenterprisecanprepareitsfinancialstatementswithoutconsideringtheseconcepts.
By Habibu Ayuba, BSc; PGDE, MSc; ACA inview. 08030527135 4/8/2014 5

6. Accounting and reporting policies
Reportingpoliciesconsistsoftheinterplayofthefollowing:
Accountingpolicies
Accountingconcepts
Accountingmethods
Accountingbases
Accountingassumptions
Accountingconventions
•Thesetermsarewhatarereferredtoasaccountingconceptsandconvention.
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7. Accounting policies
Accountingpolicyofagivingcompanyissimplymeansallthosespecificaccountingconcepts,accountingmethodsandaccountingbaseswhichareadoptedbytheentityinthepresentationofitsfinancialstatements.
AcompletesetoffinancialstatementscomprisesaccordingtoIFRSisthefollowing:
■StatementofFinancialPosition(formerlyBalanceSheet);
■StatementofComprehensiveIncome(formerlyIncomeStatement);
■Statementofchangesinequity;
■Statementofcashflows;
■Notestothefinancialstatementsthatcontainaccountingpoliciesandotherexplanatory-information;and
■Statementoffinancialpositionforthebeginningoftheearliestcomparativeperiodwhenanentityappliesanaccountingpolicyretrospectively,makesaretrospectiverestatementofitemsinitsfinancialstatements,orreclassifiesitemsinitsfinancialstatements
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8. Financial Statements According to CAMA, 1990
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9. Accounting concepts
Accountingconceptsaredefinedasathosefundamentalassumptionsorpostulatesthatunderliethepreparationandpresentationoffinancialstatements.
Theyareasfollows:
Goingconcernconcept
Legalentityconcept
Periodicityconcept
Realizationconcept
Matching/Accrualconcept
Historicalcostconcept
Consistencyconcept
Dualconcept
Monetarymeasurementconcept(quantitative)
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10. Going concern concepts
Itstatesthatacompanywouldoperate(neverdieorstop)foraforeseeablelongfuture.
Inthisconcept,itisassumedthatthebusinesswillcontinuetobeinoperationforanindefiniteperiodoftime.Ifthebusinessweregoingtobesold,thenitwouldbenecessarytoknowhowmuchtheassetswillfetch.
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11. Legal/Business entity concept
Itstatesthatamodernbusinessisalwaysseparate,distinctandindependentofitsowners/shareholders/managers/directors.
Thisconceptstatethatabusinessisanentity(perceivedtohaveitsownexistence)separatefromitsowner.Thereforebusinessrecordshouldbeseparatedandkeptdistinctfromthepersonalrecordofthebusinessowner.Attimelawmakesthesamedistinction,asinthecaseoflimitedcompanywhichisaseparatelegalentityfromtheshareholdersoritsDirectors.
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12. Periodicity concept
Itstatesthatineveryfinancialaccountingrecordskeptandprepared,theremusthaveatimeforitsreporting.Thetimeacceptedforthereportistheperiodof12months.
Theresultsofthebusinessmustbepreparedinashorterintervalnottobealloweduntilitsfinalliquidation.Thatiswhybusinessisdividedintoaccountingperiod.
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13. Realization concept
Itstatesthatruleforrecognizingtherevenueofthebusiness.
Periodicrecognitionofrevenueismadeassoonas:itiscapableofobjectivemeasurementandthevalueofassetsreceivedorreceivableintheexchangeisreasonablycertain.
Inaccounting;profitisnormallyregardedasbeingearnedatthetimewhenthegoodsorservicesarepassedtothecustomersandheincursliabilitiesforthem.
Revenueisrecognizedatavarietyoftimebutfour(4)instancesareprominentwhichare:
1.Atthetimeofsaleofasset
2.Duringproductionofasset
3.Atthecompletionoftheproductionofasset
4.Atapointofcashcollection.
Thechoiceofthetimeusuallyismoreofindustrialnorms.
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14. MONEY MEASUREMENT
ItstatesthateveryiteminaccountsshouldbemeasureableinmonetarytermssuchasNaira, Dollaretc.
Inthisconcept,accountingisonlyconcernedwithitemsthatcanbequantifiedinmonetaryterms.Thatisabusinessmayhavevaluableresourcelikeworkforceskill,morale,marketleadership,brandrecognition,qualifymanagementbutthesedonotgetrecordedinthefinancialstatementbecausetheycannotbequantifiedinmonetaryterms.
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15. THE HISTORICAL COST CONCEPT
Itstatesthatthepurchasingpriceasacostofanasset/liabilityistheappropriatebasisfortheinitialaccountingrecognitionofanassetacquired; servicesrendered;expensesincurred;creditorsandownersinterest.Itshouldberetainedthroughoutaccountingprocess.
Thisrequiresthatassetsofabusinessberecordedintheledgeraccountattheactualpricepaidtoacquirethem.Thismeansassetberecordedattheiroriginalpriceofacquiringthem.Thiscostservesthebasisforfurtheraccountingtreatmentoftheasset.
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16. THE DUAL ASPECT CONCEPT
ItstatesthateveryDebit(receive)EntrymusthaveacorrespondentCredit(give)Entry,viceversa.
Thisprinciplestatesthattherearetwoaspectofaccounting.Onerepresentedbytheassetsofthebusinessandtheotherbytheclaimsagainstthem.Thisisbasedontheaccountingequation:- Asset=Liabilities+OwnersEquity.alltransactionsrecordedintheaccountmustkeepthisequationinbalance.Todothisfinancialtransactionareallocatedtobothadebitsideandcreditsideofequalamounts.
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17. THE ACCRUAL/MATCHING CONCEPT
Itstatesthattheprofitofthebusinessshouldberecordedatapointofsaleirrespectiveofwhethercashisdueorinarrearsastheexpensesrelatedtoitissimultaneouslyrecognizedwhenincurrednotnecessarilywhencashispaid.
Theprinciplestatesthattheincomeandcostaccruingtotheownerofabusinessisnotnecessarilytheamountofcashactuallyreceivedinaperiodofaccount.Thatisrevenueandcostsarerecordedwhentheyoccurratherthanwhenthecashisreceivedorpaid.
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18. Accounting Methods
Theyarewaysormediathroughwhichatheaccountingconceptsareappliedinthepreparationandpresentationoffinancialstatement.
Examplesare:
1.Straightline/reducingmethodsofdepreciatingassets.
2.Closingrate/temporalmethodfortranslating.
3.Completedcontractmethodsorpercentageofcompletionmethodandsoon.
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19. Accounting Bases
Thesearetotalityofaccountingmethodsthatareemployedinthepreparationandpresentationoffinancialstatement.
Generally,accountingmethodsaregroupedinto:
CashBasis:statesthatallbusinesstransactionsarerecognizedonlywhentheactualcashispaidorreceivedbytheentity.
AccrualBasis:statesthatallbusinesstransactionsarerecognizedwhetherthecashhasbeenreceivedornot.
By Habibu Ayuba, BSc; PGDE, MSc; ACA inview. 08030527135 4/8/2014 19

20. Contents of accounting policy
Itemstobeincludedintheaccountingpoliciesofagivencompanyare:
1.Generalaccountingpolicies
2.Policiesonmeasuringfixedassets
3.Policiesonstockorworkinprogressvaluation
4.Policiesofdepreciatingassetsanddepreciationmethods
5.Policiesoninvestment
6.Policiesonlease
7.Policiesonresearchanddevelopment
8.Policiesonfranchises
9.Policiesonemployeeretirementmethods
10.Policiesonconsolidationetc.
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21. Accounting Assumptions
Thesearethebeliefsofwhichpreparationandpresentationoffinancialstatementisbuiltupon.
Inaccounting,therearetwoassumptions:
Stability:abeliefthatthemonetaryunitswhichisthebasisofvaluationandmeasurementofalltransactionremainthesameoveraforeseeablefutureperiodoftime.
continuity:Agoingconcernwhichsharethebeliefthatthebusinessentitywillsurviveandcontinueoperationinaforeseeablefuture.
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22. THE ACCOUNTING CONVENTIONS
Theaccountingconventionscanbeinterpretedinmanyways.Whatwerethereforegrownupinaccountingaregenerallyacceptedapproachestotheapplicationoftheconcepts.Theseapproachesareknownastheconventionsofaccounting(Regulation).Themainconventionsare:-
-Materiality
-Conservatism/prudence
-Consistency
-objectivity
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23. MATERIALITYCONVENTION
Itstatesthatafinancialstatementshouldpresentandreportallitemsoftransactionwhicharecapableofinfluencingthedecisionofstakeholdersandifsuchitemsomissioncompletelyorwronglystatedwouldsignificantlyalterthestakeholders’decision.
Thisisaconventionthatrecordsanythingthataresignificantenoughtojustifytheusefulnessoftheinformation.Onlyitemsthataredeemedsignificantforagivensizeofoperationshouldberecorded. Accountantsareguidedtoignoreinsignificantdetailsotherwisetheaccountwillbeburdeneddownwithminutedetails.Thereforematerialityisanissuerofjudgment.
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24. CONSERVATISM/PRUDENCE CONVENTION
Itstatesthatafinancialstatementsreportandrecognizeinstantlyandadequatelyknownlosesandgains/profitisignoreduntilitsfullrealizationiscertain.
Veryoftenanaccountanthastomakeachoiceastowhichfigurehewilltakeforagivenitem.
Conservatismmeansthattheaccountantwilltakethefigure,whichwillunderstateratherthanoverstatetheprofit.Allanticipatedlossesshouldberecordedbutallanticipatedgainsshouldbeignored.
Thereforeprovisionsismadeforalllosseseventhoughtheamountcannotbedeterminedwithcertainty.
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25. CONSISTENCY CONVENTION
Itstatesthatthefinancialstatementsshouldbepreparedinawaythatasimilaritemsoftransactionsaretreatedequallyandsimilarlysoastomaintainuniformpresentationformatadoptableoveratime.
Theconceptandconventionalreadylistedaresobroadthatinfacttherearemanydifferentwaysinwhichitemsmayberecordedintheaccounts.
Bythisassumption,accountantsareexpectedtorecordandreportaccountingactivitiesinthesamewayyearbyyearifanysensibleandmeaningfulcomparisonwouldbemadetofinancialreportofafirmfordifferentperiods.Havingaparticularmethodwouldgivethefirmthemostequitablepictureoftheactivitiesofthebusiness.
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26. OBJECTIVITY CONVENTION
Itstatesthatpreparationandpresentationoffinancialstatementsshouldbemadefreefromtheaccountants/preparersbias,undueinfluenceandconflictofinterest.
Allitemsoftransactionsreportedaresupportedbythedocumentaryevidenceandfacts..
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27. Factors to Consider when Choosing Accounting policies
Someconcepts,methodsandbasesconflictwithoneanother.Thus,judgmentisrequiredtoselectthegoodrelevantpoliciesforyourfinancialstatementsoastoensuretrueandfairviewofthereporting.Thesefactorsareasfollows:
Fairness
Materiality
Substanceoverform
Objectivity
prudence
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28. Disclosure Requirement of Accounting policies
IFRS-IAS/SAS1statesthatallaccountingpoliciesofareportedentityshouldbedisclosedtogetherunderonecaptionratherthanasnotestotheindividualitemsinthefinancialstatement.
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29. Changes in the Accounting Policies
Consistencyisrequiredtobeappliedinfinancialreporting,yet,instancesmaywarrantchangesofaccountingpolicies.
Thecircumstancesgivingrisetochangesare:
Wheretheexistingpoliciesnolongerensuretrueandfairviewoftheevent.
Wherethereisanewaccountingstandardthatrenderstheexistingpoliciesinvalid.
Wherethereinnewlegislation/regulationthatwouldensureabetterpresentationoftrueandfairviewoftheaccount.
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30. ACCOUNTING PRINCIPLES
Accountingisguidedbythefollowingprinciples:
Substanceoverform
Objectivity
Fairness
Materiality
Prudence
Substanceoverform:statesthatsubstance/uses/economicrealityofanitemoftransactionisalwaysreportedattheexpenseoflegalform.
Fairness:statesthatallstakeholdersofaccountingaretreatedwithequallywithoutfavoringagroupattheexpenseofanother.
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31. Impact of Accounting Policies on the recognition/measurements of Assets and Liability
Thevalueofassetsandliabilitiestobedisclosedinthefinancialstatementsaregreatlyaffectedbythepoliciesadopted.
AssetsandLiabilitiesaresubjecttoorexposedtothesemethodsofvaluationasproposedbyaccountingpolicies.
Themethodsinclude:
Historicalcostmethods
Realizationvaluemethods
Currentvaluemethods
Replacementcostmethods
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32. Impact of policies Cont….
Historicalcostvalueassetsandliabilitybasedontheactualcostoftheassetsacquiredortheliabilityincurred.
Realizationvaluemethodvalueassetsandliabilitybasedonwhattheassets/liabilitiescouldfetchatthepointofdisposalafterremovingdisposalexpenses.
Currentvaluemethodvalueassets/liabilitybasedonwhatanewbrandoneisbeingsoldinthemarketatanarmlengthtransaction.Itiscalledfairvalue.
Replacementcostmethodvalueassets/liabilitybasedonwhat,newbutsimilaronewouldcostintheopenmarketifacquiredtoreplacetheexistingasset/liability.
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33. ACCOUNTING BOOKS
There are various forms of accounting books depending on what the book is used for. The main books of accounting and financial statement known are:
a)Cash register
b)Cash book
c)Petty cash book
d)General ledger
e)Trading, profit and loss account
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34. f) Trial balance
g) Balance sheet
h) Bank reconciliation statement
The following are the subsidiary books of account:
a)Purchases day book
b)Sales day book
c)Purchases return day book
d)Sales return day book
By Habibu Ayuba, BSc; PGDE, MSc; ACA inview. 08030527135 4/8/2014 34

35. THANK YOU FOR YOUR PRESENCE
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