Accounting Standards Lecture Notes

Accounting Standards Lecture The divorce of ownership and control in businesses leads to a need for some form of assurance of the information presented by the business to the owners. The owners or shareholders of a business are generally reliant on the financial statements and annual report to satisfy themselves of the value or return from their investment in the business. In addition, there is a need for investors, be they shareholders, banks and other creditors or suppliers to be able to assess the viability of one business as compared to another and this is only possible if there is some consistency across the financial statements and reporting requirements. Furthermore, accounting standards should remove subjectivity that could lead to inaccurate information. Examples of this go back a long time in history from 1967 and the GEC takeover of AEI which saw a forecast profit on £10 million at acquisition change to a loss of £4.5 million post acquisition. This huge variation was mainly due to differences in judgement. This acquisition, along with other cases such as the Pergamon Press misstatements in 1968 where it was revealed that the auditors had radically disagreed with the timing of profit recognition on sales, led to the public and investors calling for action and as such the introduction of Statements of Standard Accounting Practice. Prior to this, there had been no professional mandatory standards. The purchase price plus import duties and any non-refundable purchase taxes less trade discounts or rebate plus any costs incurred in getting the item to the location or making it operable which includes labour, delivery and handling costs, installation and professional fees.

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