This section presents a brief report of the research conducted on local accountancy firms. It clarifies the accounting services offered to the clients. It begins by giving an in depth understanding of the various services offered and the utility added to the client. Services generally range from independent auditing, tax advisory and financial planning advisory.
A research on services offered by local accountancy firms indicates that most of local firms offer both managerial accounting services and financial accounting services. Under managerial accounting services, the firms aid clients with the understanding of how management decisions should be made for business performance. It gives an insight to the business owner managers, workers as well as to the clients’ auditors on how decisions should be made.
Besides the managerial accounting services, financial accounting services are being offered. It is generally aimed at giving the general picture of the client’s company to the outsiders. It entails the provision of just and accurate analysis of the locals’ financial standing. The services offered thus entail financial statements preparation, financial record keeping company’s ratio analysis and financial analysis. Information provided is of importance to the client as these calculations present to the company’s shareholders, debtors, creditors as well as the to the government agencies the liquidity position of the client.
The local accounting firms majorly assist the clients with the preparation of up to date financial statements and record keeping. The accounting companies provide clients with up to date financial position analysis and report, performance and the variations in financial positions. For instance, the clients seek consultancy services on matters relating to the understanding of resource base of their business and level of ownership by the owners and non-owners. This information is thus worked out by the accounting consultants via computing liquidity ratios, profitability ratios and the as well as the leverage ratios.
Local accountancy companies also offer guidance on business auditing. They offer Audit Services in line with the clients’ business and industry guidelines. For example, it was realized that most clients seek consultancy on matters relating their internal and tax auditing. They offer statutory, stock and concurrent audit. They carry out audit of clients’ financial statements.
Local accountancy firms offer assistance to the clients in the drawing and putting in place the management information systems in the clients’ businesses. They offer guideline on such matters as the design of decision support systems that is in line with the managerial accounting. They guide clients on the need for installing sound management information systems and the dictates of such systems.
The firms guide clients on the individual personal finance planning. They impart on the clients sound financial planning strategies. These firms also advice clients on how to best use their available resources.
Lastly, accounting firms do undertake internal audit and management of risks on behalf of their clients. For instance, having detected loophole source, these firms offer advice clients on general system reorganization to counter the re-occurrence of the anomaly. This is generally aimed at providing maximum cover to the client. Accounting firms undertake this initiative via engaging in near term or long term engagements with clients.
The UK Regulatory Framework
Concerning the financial reporting, the regulatory framework varies from country to country. The nature of such regulations depends on the influence of tax rules, the legal system type, and the history and influence of the profession, among other factors. In this section, the set of rules and regulations governing the financial accounting practices in UK are considered. This forms the UK Regulatory Framework (Accounting Standards Board (United Kingdom), 1999).
The statutory legislation
This is derived from the Companies Act 1985 and Companies Act 1989 (revised). The European Union (EU) initiated a harmonization programme that involved the issuance of a variety of directives aimed at harmonizing the accounting practices of the companies within the region.
In January 1, 2005, the European Union adopted regulations which required the companies in the region to use the universally accepted international accounting principles during the preparation of the group accounts. The principles included the International Accounting Standards (IASs) that were developed originally by the Accounting Standards Committee (IASC) and adopted by the International Accounting Standards Board (IASB) (Robert, 2000).
This legislation includes the acceptable format of accounts, certain accounting principles, the disclosure of information, and the valuation rules.
The Mandatory Regulation
These are the Statements of Standard Accounting Practice (SSAP) developed originally by the Accounting Standards Committee (ASC) and adopted by the Accounting Standards Board (ASB), and Financial Reporting Standards (FRSs) issued by the ASB since 1990 (AICPA, 1994).
The Stock Exchange Listing Rules
These rules govern the companies listed on the London Stock Exchange, which includes the compliance with the Combined Code of Corporate Governance (2003).
The International Regulatory Framework
International Accounting Standards Board issued the framework for the preparation and presentation of the internationally accepted financial statements for external use in 1989. The framework helps various individuals in differently i.e. it helps the preparers of the financial statements to apply the International Accounting Standards; it helps the auditors in evaluating whether the given financial statements conform to the International Accounting Standards; it helps the users of the financial statements in interpreting the information presented in the statements; and helps in providing information about the various approaches in formulation of the standards (Cairns, 2001; Baxter, 1981; Scott, 2003).
The framework covers the objectives of the financial statements which includes the financial position, the financial performance and the changes in the company’s financial position; the assumptions which includes the accruals basis and the going concern; the qualitative characteristics of the financial information which includes reliability, relevance, understanding and comparability; the elements of the financial statements which includes assets, liabilities, equity, expenses, among others; the recognitions of the elements of the financial statements; the measure of these elements; and the concepts of the capital maintenance like the financial concept and the physical concept.
The IASB Conceptual Framework and why we need a Conceptual Framework
The International Accounting Standards Board Conceptual Framework is the Framework for the preparation and presentation of the financial statements. It was adopted in late 1980s. Many of the framework’s concepts have since been foreshadowed.
The reasons why a conceptual framework is needed is the fact that (Cairns, 2001):
1. The IASs needs to apply to the published financial statements of the companies.
2. The financial statements need to provide information to a range of users internationally.
3. The need of the financial statements to provide information that helps the users to evaluate the decisions and performance of the companies.
The companies’ financial statements can be prepared in a number of ways as the management deems usable. However, for the purposes of international management, a conceptual framework is needed.
The users of the financial statements require these statements as the major source of the information for various purposes, one of which is for the making and evaluation of the financial decisions. The conceptual framework states that the main objective of the financial statement is the provision of information that can be used by a wide range of users in the process of making mature economic decisions.
The Reflective Statement
This assignment gives clear information on the roles and functions of financial statements to the external and internal users. Both the UK Regulatory Framework and the International Regulatory Framework are very important to the preparers and the users of the financial statements. Based on these standards, a financial statement can be interpreted in a similar manner internationally, thus uniformity. The assignment has enabled me carry out an intensive research on the financial accounting regulations, and I am happy that I can perfectly prepare financial statements of companies. I am also in a position to analyze the financial statements and extract the important information for mature decision making. Given the financial statements of a given company, I am able to evaluate the performance of the company and advise the investors appropriately. This assignment could not be completed without difficulties. The changing regulations and the constant amendments of the frameworks posed the major challenge. Be that as it may, companies should ensure that their financial statements conform to the regional and the international regulations so that the information presented in the statements can be useful to the wide range of users.
This work has made me understand the reasons why the financial statements are prepared in the way they are. Also, I have greatly learned the impacts of the accounting legislations and the regulatory frameworks on the companies’ policies and procedures. The assignment has also made me conduct a literature review research on the relevant materials.
Accounting Standards Board (United Kingdom), 1999. Statement of Principles for Financial Reporting, ASB, London
American Institute of Certified Public Accountants Special Committee on Financial Reporting, 1994. Improving Business Reporting – A Customer Focus, AICPA, New York.
Baxter, W.T., 1981. “Accounting Standards – Boon or Curse”, Accounting and Business Review, Winter 1981, pp. 3–10.
Beaver, W.H., 1981. Financial Reporting: An Accounting Revolution. Harlow: Prentice- Hall.
Bromwich, M., 1992. Financial Reporting, Information and Capital Markets. London: Pitman Publishing.
Cairns, D., 2001. The Conceptual Framework- the International Experience. Retrieved at http://www.cairns.co.uk/pdf/ConceptualFramework-InternationalExperience.pdf
Horton J., 2007. Financial Reporting. Retrieved at http://www.londoninternational.ac.uk/current_students/programme_resources/lse/lse_pdf/further_units/fin_reporting/91_fin_reporting_3chs.pdf
Lewis, R. and D. Pendrill, 2004. Advanced Financial Accounting. 7th edition. Harlow: Financial Times Prentice Hall.
Robert G. D., 2000. UK Accounting Regulation: An Historical Perspective. Retrieved at http://eprints.bournemouth.ac.uk/3074/1/296.pdf
Scott, W., 2003. Financial Accounting Theory. London: Prentice-Hall.