Judgement in Accounting Essay Example | Topics and Well Written Essays - 1500 words

Judgement in Accounting - Essay Example Secondly, accounting follows a framework popularly known as â€Å"The Conceptual Framework for Financial Reporting†. In addition, the overall accounting structure and basic formation of reporting, assists in conceptualizing accounting better. The knowledge of accounting principles, procedures, and rules is valuable to business and its eventual success in any given financial period. Financial records are made numerically and any accounting analysis on them should be numerical (Anthony, 1993). The â€Å"International Public Sectors Accounting Standards Board† sets standards and Recommended Practice Guidelines in accounting. They are used by government agencies in the national, regional, and local governments. According to this board, the Conceptual Framework for Financial Accounting is mainly used for preparation and presentation of general purpose financial reports (Needles & Powers, 2012). The Conceptual Framework also extends its authority to public sectors social secu rity funds, trusts, statutory authorities, as well as, international governmental organizations. However, the general purpose financial reporting has the main objective of providing financial information about a business that comes in handy when looking for current investors; reports to creditors when requesting for loans; and decision making regarding purchases, sales, equity holding and debts in line with the profits or returns. There are two types of financial reports. They include general Purpose Financial Reports and Special purpose Financial Reports. General Purpose Financial reporting refers to a central component of enhancement and support, of the financial reports by public sector entities. The intentions of these reports is to satisfy the information requirements, for users who may be in a position that lacks enabling factors for preparation of financial reports that are tailor-made, to meet their information needs. They also contain a number of reports each of which gives a response that is within the scope of financial reporting, with respect to the objectives of financial reporting. However, the scope of financial reporting also includes guidelines on how other various events and activities can be reported in the financial report. On the other hand, Special Purpose Financial Reports (SPFRs) are financial reports whose sole purpose is to respond to specifications for users that bear authority, to make such requirements and for a specific purpose (Piper, 2013). There are characteristics that guide the qualitative nature of important financial information. These characteristics include comparability, timeliness, verifiability and comprehensibility. However, the basic qualitative characteristics include relevance and faithful representation. For financial information to display relevance, it should influence the decision made by the user (Balakrishnan & sprinkle, 2008). Failure to consider the importance of the relevance of the information will create a niche, even after the decision is made. However, the financial information must display a predictive value and a confirmatory value to attain relevance. Moreover, the confirmatory value should either confirm or differ with the evaluations that were previously made. On the other hand, financial information that exhibits a predictive value must also exhibit a confirmatory value because these two values are interrelated. For instance, a company’s financial report can be used to project future earnings for the company (Gupta, 2009). However, it should also be verified that the method of prediction