Question

1. Briefly describe each of the following, and their role in determining how company accounts are prepared: (i) Legislation (ii) Accounting Standards (ii) Accounting Principles & Accounting Standlaren 161 [6]

Answer 1

(iii) Accounting Principles :- These refer to methods that should be applied or rules that should followed while preparing or disclosing an item in financial statement. These ensure correct recording of financial transactions while preparing company accounts. Fundamental examples of accounting principles are Accrual concept, Uniformity concept, going concern concept, prudence concept, etc.

(ii) Accounting Standards :- These refer to widely accepted set of accounting principles. In other words, these are also know as 'Generally Accepted Accounting Principles' (GAAP). These are the basic standards or policies that need to be followed while reporting financial statement. These form the basis of preparing company accounts because they ensure integrity, uniformity and reliability to company accounts.

(i) Legislation :- A legislation means a law framed by government that is mandatory required to be complied and non-compliance of which are subject to penal proceeding. Company law enacted by government governs all the operations, incorporation and other legal matters of company. Company accounts should be  prepared in conformity with Company law.