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Financial accounting is one of the most important subjects that help in recording the financial events of an organization and provides the essential report as per the needs of the users. It implies that the financial accounting provide the facility to record the financial transactions of an organization and provide the necessary information to the stakeholders of the organization at the time of required the important information by the stakeholders of the company (Elliott, 2010). The financial reports are mainly of three types, balance sheet or financial position statement, profit and loss statement or income statement and cash flow statement, which are prepared as per the data of the financial event or transactional information and provides necessary information about the financial position or financial health of the organization. There are various different types of principles, which are adopted in order to record the financial data and the preparation of the financial reports. There are different rules and regulation adopted by the different countries in order to perform the tasks of the financial accounting. In order to perform the tasks of financial accounting there are several standard maintained by the countries across the world; such as in UK they use the generally accepted accounting principle or GAAP and the standard is used by the listed entities of European union (Financial Accounting and Reporting Standards for Private Entities, 2006). In the Australia the IFRS standard and principles use to be applied for the recording of the financial information, as well as to prepare the reports from the recorded financial information.
There are several regulatory bodies in different countries across the world, which provide various different accounting standards and principles and that should be obeyed by the entire business entities as per the nature and structure of the business entities. The business can be carried out in either a form of sole trader, partnership business, joint venture business or a limited company (Wolk, 2009). Moreover, as per the nature of the company the business entities have to abide by the rules and regulation set up the governing body of the respective country. The important decisions on which medium the business must be carried depend on several different factors. Conducting the business activities via every single type of the business entities has the both benefits and drawbacks. The requirement for the accounting regulation only become visible at the time one individual owns the business. Below all the different entities concepts and rules are discussed in detail;
Sole trader: The sole traders businesses are usually small business as well as the business use to be operated in informal way. In the case of sole trader the income statement and balance sheet use to be produced at the ending of every single month or year so that the business can be formalize. In case of sole traders the financial information required only for the tax return or for the loan purpose. Sole traders are liable to pay the tax on the profit earned by the sole traders (Duska and Duska, 2003). Sole trader and the business are recognized as a single legal entities thus, the sole traders have unlimited liability.
Partnership firm: The partnership firms are the business entities, which ownership is alienated between as a minimum two individual. Generally a partnership firm can include only 20 individual partners. Like the sole traders in partnership also the partners tend to be associated with the day to day business activities of the business. Moreover, the financial information of the business also needed to the partners only and the financial statement is only required for the taxation purpose or for loan purpose (Byrd and Megginson, 2013). Like sole trader partners of a partnership firm also have unlimited liability the exception is the Partnership LLPs firms, which have limited liability. The partners are liable to pay tax on the income from the partnership firm as per the taxation rule of the country.
Unlimited companies: The unlimited companies are almost same as the limited companies. The only exception is that the liability, which is unlimited for the members of the unlimited companies. Moreover, this specific fact uses to be stated in the memorandum of the company and the Articles of association. There is an advantage of the unlimited company, the company not need a court order for return the company’s capital to the members of the company and currently it has become most common to the certain groups of companies to forma unlimited company in the group structure due to this particular reason.
Limited companies: The term limited is derived from the fact that for the limited company the owners of the company only liable to the funds they have invested thus, the liability is limited for the owners of the limited company, for the fraudulent activities the Directors are personally responsible for the debt of the company, though it would be the court’s matter and it would be decided by the court (Rezaee, 2004). Therefore, for the maximum cases primary advantages enjoyed by the owners of the limited company is that their personal wealth use to be protected to a great extent in comparison to the sole traders and partners of the partnership firm. The limited company can be either Private Limited Company or Public Limited Company. The private limited company does not sell the shares of the company to general public; whereas the public limited company can sell its shares to the general public. There are few limited companies, which liability is limited by the guarantee (PRATT and Salimi, 2010). For the limited company there are more rules and regulations compared to the sole traders, partnership firm and unlimited company. Therefore, the owners of the limited companies have to produce more documents and have to maintain more regulations for gaining some assurance that the management will look after the interest and loan providers of the company.
There are different entities, which perform business activities and the business entities have to prepare accounting report or financial statement as per the nature and size of the entity (Nobes, 2010). According to the perceptions of financial accounting there are vast as well as diverse groups of people, who use financial information. The users, who use the information, need the financial information for a wide range of reasons. It is not that the every users of the financial information have the common need. The information must be relevant, fairly presented so that understandable as well as comparable. A wide range of regulations has been developed to the end in order to make as well as present the range of financial statement. Jointly these are called to the regulatory framework for accounting or Generally Accepted Accounting Practices (GAAP). The term GAAP is widely used regarding the accounting rules and regulation; however, the term never referred in the company’s Act as well as it is not defined as well. Generally Accepted Accounting Practices (GAAP) is formulated by the entire accounting rules as well as the regulations within a specific jurisdiction. The principles of GAAP can differ by the countries as the different countries obey different rule and regulation as per the needs of the accounting tasks and natures of the accounting information (Makhota, 2015). However, the sources of the regulation of the different GAAP are normally same. Here, the example US GAAP and UK GAAP can be given, as both are different however, is remain composed of US professional Regulations. There are professional regulations which provide the norms and rules for the preparation of accounting reports for different entities some are domestic regulation authorities, whereas some are international authority. For the example the UK GAAP that regulates the preparation of accounting reports for different entities of UK that perform their business activities in UK. In addition to that the international regulation provides rules and regulation to preparation of accounting reports for different entities perform business activities internationally. In the year of 1973, the International Accounting Standard Committee was established (Libby, Libby and Short, 2011). International Accounting Standard (IAS) is the accounting standard issued by the International Accounting Standard Committee (ISAC). The members of the ISAC are recruited from the professional entities of accounting from different part of the world. In the year of 2001 International Accounting Standard Board (IASB) has been establish, replaced the former ISAC, at present the IASB play the responsibility of ISAC, and work as standard setting entity. Moreover, the IASB has introduced the International Financial Reporting Standards (IFRS) that should be followed by the company which perform business globally. As currently all most all the companies want to take the advantages of globalization and proceed to spread their existing business globally, the need of a widely accepted financial reporting standard has been emerged (Homulyak, 2015). Moreover, in this situation the entire countries across the world feel pressure to adopt the standard of accounting reporting as per the standard of IFRS.
There are different analytical and problem solving techniques in order to detect the financial accounting issues and solve the issues. The creative problem solving techniques is most useful in this matter, which provide appropriate solution to the accounting problem face by the accountant thus, all the accountants or accounting professional must have acquired knowledge about the creative problem solving techniques (Byrd and Megginson, 2013). The creative problem solving is a process that aids the accountant to go from the goal to action or else from problem to solution. The procedure is most efficient and effective in order to solve complex problems. The creative problem solving is ideal at the time it provides solution of the previously unsolved problem.
The financial accounting is one of the most important elements for the business organization. The key purpose of an accounting system is to record and classify the monetary transaction done by an organization (Albu and Albu, 2009). The accounting system is a part of the information system of an organization it can be referred as a service system that secure that the presented financial information will meet the requirement of the users of the financial information presented in the financial statement. In order to accomplish this, the accountants of the organization must ensure that the provided information are accurate, reliable as well as timely, besides this, it should be relevant for the required purposes (Brüggen and Moers, 2007). Apart from this, the information provided by the accountant must be consistent and must provide clear information about the financial condition of the company.
Ethics in financial accounting mainly concern with process of making good as well as moral choice regarding the making, presenting and disclosing of the financial information of the company (Financial Statement Fraud: Prevention and Detection, 2004). There are several issues raised in last few years for the unethical accounting practice and the accountants or accounting bodies are convicted for cheating huge numbers of investors. The accountants prepare fraudulent financial statements in order to mislead the investors and shareholders of the company. Besides this, they produce misappropriation of assets in the balance sheet of the company.
The financial accounting plays important role for the business entities it provides the facility of classifying the financial information or data and recording in accurate way. The monetary information about the financial transaction are recorded by the accountant of the organization and on the basis of the information the accountants prepare the financial reports that provide important information about the financial condition or financial health of the business organization. I order to perform the functions of financial accounting the organization has to main some standards and accounting principles prescribed by the IASB and domestic regulatory authority.
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