302 accounting standard and budgeting

Accounting Principles and Practices

• Learning outcomes after completing chapter allows students to explain the purpose and function of Financial Accounting, differentiate between financial accounting and management accounting, describe the nature and purpose of financial statements, identify the wide range of users of financial information, appreciate the issues of accountability and financial reporting, describe the nature and function of double-entry bookkeeping, discuss the objectives and limitations of annual company accounts, identify the users of annual reports, describe their information needs, and list the legislation and other rules governing the contents of company annual reports
• This topic is important because accounting principles and practices provide a framework for preparing financial statements. Accounting principles are the basic operating assumptions and characteristics that make up the framework for financial statements.
• Financial statements offer businesses, owners, investors, shareholders, and other businesses an opportunity to have accurate information on company performance, which is crucial for informed decision-making
• Accounting principles are like the rules of a game, accounting information needs to be dependable, practical, consistent, and comparable. Dependable information is unbiased, accurate, verifiable, and predictable, timely, and provide meaningful feedback
• There are basic assumptions of financial information; the information relates to the business entity, the business is a going concern; there are no unrelated information, and financial information is measured based on specific time intervals (month, quarter or year), using a unit of measure such as Ringgit, Dollars, etc., presented at historical cost, and "double-entry" accounting method

The Purpose and Function of Accounting

• Defined as processing financial information for all stakeholders and shareholders.
• Aims to record and report company financial transactions, performance, and cash flows accurately
• Improves reliability of financial statements
• Important for making informed financial decisions

Management Accounting

• Analyses financial information and creates reports about business operations to help management make strategic and tactical decisions
• Examples include cost accounting for effective cost control

Financial Statements

• Include the income statement, balance sheet, cash flow statement, and statement of retained earnings, which are essential tools for stakeholders to assess company performance.
• Financial statements provide information about financial position, financial performance, and cash flows
• These statements provide information on assets, liabilities, equity, income, expenses, gains, and losses, and cash flows, which is crucial for investors, lenders, and other creditors
• All financial statements should be prepared on an accrual basis

Basic Accounting Concepts and Principles

• Going concern
• Accruals basis
• Business entity
• Materiality
• Relevance
• Reliability
• Neutrality
• Faithful representation
• Substance over form
• Completeness
• Single economic entity concept
• Matching concept
• Duality concept
• Comparability concept

Accounting Transactions

• Recording of transactions relating to business activities and operations in a structured manner
• Helps maintain accurate and complete records of financial transactions
• Typically recorded in an accounting journal and then a ledger
• Double-entry bookkeeping system is employed to ensure accuracy

Other Financial Reports and Analyses

• Use of ratios to evaluate profitability, activity, solvency, and liquidity
• Efficiency allocation of resources
• Statutory documents submitted to the SSM, which includes annual returns and financial statements provided to the stakeholders and regulators

Filing of Statutory Documents Through MBRS

• Beginning 1st March 2021, SSM introduced MBRS (Malaysian Business Reporting System).
• Documents required are financial statements, annual returns, and exemption applications.
• Guiding principles are based on the Companies Act 2016 and MASB approved accounting standards (MFRS and MPERS).

BNM Policy Document on Financial Reporting

• Details and sets minimum standards for accounting disclosures by financial institutions
• Aims to improve comparability for users of financial statements
• Issuers submit audited annual financial statements and reports to comply and maintain proper standards and expectations.

Minimum Disclosure Requirements

• Financial statements must comply with MASB accounting standards and specific disclosure principles
• Clear, sufficient, and meaningful information for users

Receipts and Payments—Systems for Recording and Monitoring

• Accounting cycle is a series of steps used to record and monitor the company’s financial transactions
• Events such as payment of wages, purchase of materials, and sales of goods are recorded based on the accounting cycle

The Construction of Statement of Financial Position

• Also known as the balance sheet, it presents the financial position of an entity at a specific date.
• Reports on a company's assets, liabilities, and equity, and helps investors, creditors, and others assess the financial soundness of a business

The Construction of Statement of Profit or Loss and Other Comprehensive Income

• Shows a company's operating results, including revenue, expenses, and the resulting net income or loss
• Uses the accrual basis of accounting

Cash Flow Statements—their Uses, Format, and Presentation

• Shows the movement of cash within the company over a specific period
• Reports cash inflows and outflows from operating, investing, and financing activities
• Useful to assess liquidity and solvency

The Purpose of the Statutory Notes to the Financial Statements

• Provide additional insights, computations and explanations for various financial factors.

Financial Strength of Insurance Companies

• Important for assessing the company's financial strength and their ability to fulfil obligations
• Covers User of Credit Ratings, Rating Agencies, and their Ratings, Establishment & Maintenance of Insurance Funds, Financial Conditions Report, Risk-Based Capital Framework, and includes case studies and review questions

Test your knowledge on the Financial Reporting Act 1997 and its implications for accounting standards. This quiz covers key aspects such as the relationship between the MASB and the Act, as well as the purpose of budgeting in organizations. Challenge yourself with questions regarding the definitions and purposes defined in the legislation.