Accounting Principles Quiz

Accounting Principles

• Accrual Principle: Financial transactions are recorded when they occur, not when cash is exchanged. Revenue is recognized when earned and expenses when incurred, regardless of cash flow.

• Revenue Recognition Principle: Revenue is recognized when it is earned, not when payment is received. This ensures revenue is recorded in the correct period. For example, if a company delivers goods in December but receives payment in January, the revenue is recorded in December.

• Matching Principle: Expenses should be recorded in the same period as the revenues they help generate. This ensures a proper match between income and related costs. For example, if a business sells goods in December, the cost of those goods should also be recorded in December.

• Historical Cost Principle: Assets are recorded at their original cost, not market value. This provides a reliable and verifiable record for transactions. For example, if a company buys a building for RM500,000, it will record the building at that cost, even if the market value changes over time.

• Full Disclosure Principle: All relevant financial information must be disclosed, including any additional details that impact financial data. For example, if a company is involved in a lawsuit, it should disclose this information in the notes to the financial statements, even if it has not yet affected the financial figures.

• Materiality Principle: Information is material if its omission could influence decisions. Only significant items are disclosed. For example, a small expense that would not impact the overall financial decision-making of users may be ignored, while large expenses must be reported.

Accounting Assumptions

• Separate Business Entity: The business is treated as a separate entity from its owners or other businesses. This means the financial transactions of the business are recorded separately from personal or other organizational transactions.

• Monetary Unit: Financial transactions are recorded in a stable currency. This assumption assumes that the value of money remains stable over time, ignoring the effects of inflation or deflation. It does not permit the recording of transactions or events that are not measurable in monetary units.

• Time Period: Financial reports are prepared for specific periods to allow timely reporting and analysis of financial performance. Examples include monthly, quarterly, and annually.

• Going Concern: The business is expected to continue operating in the foreseeable future unless there is evidence to suggest otherwise. This assumption allows the deferral of recognizing certain expenses and revenues until future periods.

Accounting Standards

• International Financial Reporting Standards (IFRS): Issued by the IASB, IFRS promotes global harmonization of financial reporting, making it easier for investors to compare financial statements across borders. It is widely used in over 140 countries, including Malaysia. It's a principle-based standard.

• Generally Accepted Accounting Principles (GAAP): In the United States, accounting standards are based on GAAP, which is developed by the Financial Accounting Standards Board (FASB). There's an ongoing effort to converge U.S. GAAP with IFRS to create a unified global accounting framework. It's a rule-based standard.

• Malaysian Financial Reporting Standards (MFRS): Based on IFRS, these standards govern the preparation of financial statements in Malaysia. The Malaysian Accounting Standards Board (MASB) plays a key role in issuing these standards.

Ethical Standards

• Code of Ethics: Accounting bodies uphold ethical practices in the profession. Codes of Ethics guide professional behavior, ensuring accountants act with integrity, objectivity, and professionalism. Ethical behavior in accounting is critical in promoting transparency and restoring public trust in financial information.

Accounting Bodies

• International Federation of Accountants (IFAC): Promotes international convergence of accounting standards, supports professional accountancy organizations worldwide, and focuses on sustainability reporting and ethical practices.

• International Accounting Standards Board (IASB): Establishes global accounting standards for financial reporting, aims to ensure transparency and comparability in financial statements across borders.

• Malaysian Institute of Accountants (MIA): A statutory body regulating the accounting profession in Malaysia. It ensures compliance with local laws and regulations, develops ethical and professional standards. All accountants practicing in Malaysia must be registered with MIA.

• Association of Chartered Certified Accountants (ACCA): Provides a globally recognized accounting qualification. Emphasizes both financial and management accounting expertise, and promotes international career mobility.

• Institute of Chartered Accountants in England & Wales (ICAEW): Offers the ACA qualification and supports members through continuous development via seminars, conferences, and courses. It focuses on financial reporting, audit, assurance, and advisory services.