Question

QUESTION ONE (15 Marks)
a. State advantages and disadvantages of regulating Accounting through standards.
b. State and explain the characteristics of good accounting information.

Answer 1

a. Advantages of regulating Accounting through standards

· It gives uniformity in reporting of financial information

· It gives consistency in reporting of financial information from one period to another

· It helps in comparison of financial statements across entities since there is common standards adopted

· It helps in improving credibility of financial statements for external users

Disadvantages of regulating Accounting through standards

· The cost of compliance is higher for the firms

· It needs specialised application of accounting knowledge

· Non –Financial users will find difficult to apply standards to financial information

· There is some judgement involved in application of standards and achieving total uniformity may be difficult

b. The following are characteristics of good accounting information

Understandability: The information in the accounting should be easy to understand. It should be simple and easy in the way it is presented

Relevance: The information presented in the accounting should be relevant to end users for their use like decision making

Consistency: The information provided by accounting should be consistent across period

Comparability: The information provided should be comparable across firms in the same industry.

Reliability: The information provided should be reliable based on which decisions can be taken. In other words the information should be useful to end users of accounting information.

Objectivity: The accounting information prepared and presented should be in a neutral and unbiased way.

Timeliness: The information should be given based on certain timeliness so that it useful for the intended purpose

Verifiability: The information provided should be verifiable based on the facts and should be backed up in case of verification needed

Conservatism: The information provided should be based on accounting principles and concepts applied

Materiality: The information provided should be based on materiality concept. It means only that information which affects end users should be provided.