Accounting and Legislation

10 Questions

What does the Balance Sheet primarily show?

The position of the business on the day of its preparation

What is a limitation of accounting?

It ignores changes in some money factors like inflation

What may occur when applying accounting principles?

They may conflict with each other

What is a factor in certain accounting estimates?

Personal judgement of the accountant

What is a consequence of different accounting policies for the same item?

Increased probability of manipulations

What is an area in which accountants are taking an active role?

Company laws and corporate legislation

What is a domain of accountancy that has been expanded beyond its traditional scope?

General management problems

What is a traditional role of accountants?

Preparing financial statements and auditing

What is an area in which accountants are taking an active role, beyond their traditional scope?

Taxation laws and matters

What is a limitation of financial statements prepared by accountants?

They are only relevant for a specific point in time

Study Notes

Accounting and Law

Accounting influences law, and law also influences accounting, as legislation about accounting systems is a product of developments in accounting knowledge.
Banking, insurance, and electric supply undertakings may have to produce financial statements as prescribed by respective legislations.

Accounting and Management

Accountants play a key role in management and are well-placed in the management team.
A large portion of accounting information is prepared for management decision-making.
Accounting data are used as basic source documents, and accountants understand the data requirements and can mould the accounting system to serve management purposes.

Limitations of Accounting

There are misconceptions regarding financial statements.
Accounting ignores changes in some money factors like inflation.
There are occasions when accounting principles conflict with each other.
Certain accounting estimates depend on the sheer personal judgement of the accountant.
Different accounting policies for the treatment of same item add to the probability of manipulations.
A Balance Sheet shows the position of the business on the day of its preparation, not on a future date, but users of the accounts are interested in knowing the position of the business in the near future and long run.

Role of Chartered Accountants

Chartered Accountants play a positive role in determining proper fiscal policies and advancing trade, commerce, and industry.
They should develop new techniques and prepare themselves for new fields of service towards their commitment to the concept of public goods and services.
It is a social obligation for accountants to disclose greater information regarding corporate results.