Apply Principles of Professional Practice To Work in The Financial Services Industry
Apply Principles of Professional Practice To Work in The Financial Services Industry
Apply Principles of Professional Practice To Work in The Financial Services Industry
Variable Range
External forces May include but not limited to :
economic climate
interest rates
media, press and public relations reports
political climate
exchange rate
Main sectors May include but not limited to :
Accounting
banking
credit and lending services
credit management
finance and mortgage broking
financial markets
financial planning
insurance
loss adjusting
mercantile management
retail financial services
risk management
personal injury management
Legislation, May include but not limited to :
regulations and codes Business Names legislation
of practice Credit directives
Electronic Funds Transfer code of conduct
finance law
Financial Services Reform manuals
Financial Transaction Reports manuals
industry codes of practice
legislation covering competition, prudential regulation
occupational health and safety (OHS) legislation
Policies, guidelines May include but not limited to :
and procedures best practice guidelines
organisation and customer charters
organisation codes of practice
complaint and grievance procedures
customer services statements
franchise agreements
induction program
industry policy documents
industry procedures manuals
operating manuals
Ethical approach to May include but not limited to :
workplace practice conflict of interest
and decisions duty of care
full disclosure of remuneration and fees and other conflicts of
interest which may influence recommendations
good faith
guidance from supervisor
maintaining confidentiality
mission statements
non-discriminatory practices
correct use of organisation:
property
resources
authority
Triple bottom line social
principles economic
encompass: environmental
goals of sustainability for:
people
planet
profit
Calculations may be bank balances and reconciliations
required for: forecasts of capital growth
income expected
insurance premiums
interest
payments
profits forecasts
tax
Feedback may refer formal/informal gatherings between team members where there is
to: communication on work related matters
informal communication of ideas and thoughts on specific tasks,
outcomes, decisions, issues or behaviours
Format appropriate may include but not limited;-
for the audience Forms
by telephone, facsimile or other electronic means
in person
written documentation
Professional may include but not limited;-
development coaching and mentoring
opportunities community courses
conferences
e-learning
in-house programs
professional workshops
Lo1:- Identify the scope, sectors and responsibilities of the
industry
Objectives
of
Financial accounting
Qualitative Elements
Characteristics of financial
of accounting statements
Information
Recognition and
Measurement guide lines
Conceptual Framework
Objectives of financial reporting relate to the type of information that is helpful far
external users in investment and credit decision making. The major interest being
"who needs, what kind of information and for what purposes"
In general FASB suggested for the following information to be disclosed in general
purpose financial reporting in order to provide decision makers with better
information that, in tern enables efficient allocation of scarce resources:
In response eight objective of financial reporting are identified enlisted from more
general to specific as follows:
Decision usefulness
Ingredients of
Primary
Qualities
Productive Timeliness Verifiability Representation
Value of faithfulness
A. Comparability
This involves the quality of information being compared with similar
information about another enterprise. This is inter-company comparison that
enables user to identify and explain similarities and differences between
enterprises. It also enable to identify favorable and unfavorable trends
happening in a given enterprise over periods.
Cost-effectiveness-pervasive constraints
This is a pervasive constraint affecting all informational qualities. For
information to be considered, It should be ensured that the benefits to be
achieved from using the information should exceed the cost of obtaining the
information given if the information meets all the qualitative characters tics
mentioned.
Equity:-is the residual interest in the assets of an entity that remains after
deducting its abilities. In business enterprises, the equity is the ownership interest.
This assumes on indefinite life existence of a business entity, long enough to carry
out its presented plans and contractual commitments. But, it doesn’t imply that a
business entity would remain permanently.
Hence, this assumption provides the basis:
1. To record probable future economic benefits as assets and probable future
outlats as liabilities.
2. To classify assets and liabilities in the balance sheet as current and non
current on the basis of their ultimate disposition or legal priority.
3. To report assets and liabilities at their historical cost amounts.
Normally, it is assumed that assets will be used in the future operations of the
business and allocated as expense (as depreciation and amortization for instance)
only when consumed. Thus, no need arises to express them in terms of their
current market values.
A. Objective Principle
Data entered into the accounting records and later reported on the financial
statements must be supported by objectively determinable evidence.
B. Historical cost principle
This deals with when revenues should be recognized and, thus, determining the
critical event that indicates revenue is realized and justifies recoding the changes in
net assets. Revenue is recognized when it is realizable or realization and earned.
Both features should be met before
Realization of revenue
Revenues are realized when products (goods or services), merchandize, or other
assets are exchanged for cash or claims to cash. Revenuers are realizable when
assets received or held are readily convertible when they are salable of
interchangeable in a market at readily determinable prices with significant
additional cost.
Earning of Revenue
Revenue is said to be earned when the seller substantially accomplishes its
performance or obligations that would entitle the seller to the benefits represented
by the revenues.
Revenue realization principle is related with valuation principle for the case it
suggests that assets (such as inventory) should be carried at their historical cost
until appreciation in value in realized through sales. After realization, valuations of
monetary assets received in exchange for productive assets approximate their
current fair values.
D. Matching Principle
In an attempt to measure the periodic income properly, appropriate recognition of
revenues and exposes should be made. Thus, after revenue for a given period is
determined in the line with revenue recognition principle, the next crucial point
follows to be when expenses should be recognized. This indicates that expense
recognition is closely tied to revenue recognition.
The matching principle states cost should be recognized as expenses when the
goods or services represented by the cost actually make contribution to revenue:
dictating, “let the expense follow revenues”. The basic for this being creating cause
and effect association of accomplishments achieved (revenue) and efforts
expended (expenses). This addresses the "issue" what caused the revenues
generated (the effect)? This is referred as direct matching that involves associating
expenses with revenues on the basis of a presumed causes and effect relationship
some expenses recognized under this approach include:
E. Accrual principles
Revenue should be recorded when earned regardless of collection of cash.
Expenses should be recorded when incurred or when assets are consumed
regardless of payment of cash. In short, revenues or expenses are recognized at a
time earned or incurred.
F. Disclosure Principle
Financial statements should be complete. by disclosing all information that is
significant enough to influence the judgment and decisions of users. This is
essential This is essential as omission of certain information misleads financial
statement users.
Notes to the financial statements explain the items ,presented in the body of the
financial statements; such as:
Significant subsequent events that occur after the balance sheet date until
financial statements are issued.
The disclosure principle doesn't require listing all available information. Further,
precision (reporting exact dollar amounts) is not necessarily expected. Rather only
significant items to influence the decision of information users are disclosed and
approximation of figures is possible
Conservatism
This is a modifying convention to be applied in times of doubt or uncertainties
dictating to choose the alternative that is least likely to overstate assets and income.
Uncertainties influence pessimism rather than optimism.
Conservatism is not deliberate understatement of net income and net assets.
Rather, it is the case to l1;nderstate net income and net assets in cases of
uncertainties in order to be prudent and less risky in measurement. This helps to
avoid legal consequences. The major issue is: if the matter is in doubt, it is better
to understate than overstate. If there is no doubt prevailing, the conservatism
constraint is not to be applied. Companies are not allowed to select the most
conservative accounting treatment in all situations.
Some examples of conservatism
Lower-of-cost-or-market valuation of inventories and marketable equity
securities;
Recognition of losses before they are incurred;
Immediate expensing of research and development costs and advertisement
even if future benefits are likely;
Self Test
1. What is the most important qualitative chrematistic of accounting
information according to the financial Accounting standards Board?
2. Are generally accepted accounting principles applicable to both financial
accounting and Managerial accounting? Explain.
3. What is comprehensive income as defined by the financial Accounting
standards Board?
4. Define the revenue realization principle.
5. What meant by the continuity or going-concern principle of accounting?