UCLA Different Characteristics that A Company Financial Balance Sheets Should Possess Discussion You should explain the different characteristics that a co

UCLA Different Characteristics that A Company Financial Balance Sheets Should Possess Discussion You should explain the different characteristics that a company’s financial balance sheets should possess, as presented in the three texts of Sources pack and analyse two of the main characteristics. You should refer only to the 3 text in your source pack. Write about 300 words (+-5%)(285-315 words total)Attached a marking criteria, source pack and an example below. Written Sources
• Key ideas identified and
exploited fully
Outstanding
A++
• Sources represented
90-100%
accurately throughout
• Source use highly
Excellent
A+
80-89%
• Key ideas identified and
exploited fully
• Sources represented
accurately throughout
• Source use highly
pertinent and relevant
throughout
pertinent and relevant
throughout
• Key ideas identified and
• Key ideas identified and
exploited to a good
degree
exploited to a good
degree
• Apart from some very
• Apart from some very
minor lapses in
supporting ideas, sources
represented accurately
throughout
• Source use relevant
throughout
Very good
A
70-79%
Spoken Sources
minor lapses in
supporting ideas, sources
represented accurately
throughout
• Source use relevant
• Key ideas identified, but
may be explored with
insufficient detail (minor
oversights)
may be explored with
insufficient detail (minor
oversights)
represented accurately,
with no lapses in key ideas
• Source use mostly relevant,
but some minor
irrelevancies or
redundancies may occur
• Task requirements
addressed in every respect
• Critical analysis is always
insightful and as
appropriate
• Sources paraphrased and
acknowledged effectively
throughout, and
quotations (if any)
extremely well chosen
• Task requirements
addressed thoroughly
• Critical analysis is often
insightful and as appropriate
• Sources paraphrased and
acknowledged effectively
almost throughout, and
quotations (if any) well
chosen
Coherence & Cohesion
• Coherent response
with clear paragraphs
and logical progression
throughout
• All aspects of cohesion
are managed expertly
throughout
• Apart from some very
limited sections, a coherent
response with clear
paragraphs and
logical progression
• All aspects of cohesion
managed well
throughout
• Key ideas identified, but
• Sources are generally
Task Fulfilment &
Critical Analysis
• Sources are generally
represented accurately,
with no lapses in key
ideas
• Source use mostly relevant,
but some minor
irrelevancies or
redundancies may occur
• Task requirements
generally addressed
• Critical analysis is
sometimes insightful and
as appropriate
• Sources paraphrased and
acknowledged effectively
with very limited lapses
and quotations (if any)
generally well chosen
Academic Style, Use of
Lexical & Gram.Features
• Style is appropriately
academic throughout
• Outstanding control of an
• Cohesive devices used
appropriately although there
may be some under-/overuse
citations
contain
no errors
extensive range of high
level lexical and
grammatical features,
with comprehension or
fluent reading completely
unimpeded
• Apart from some minor
lapses, style is
appropriately academic
throughout
• In-text citations
contain hardly
any errors
• With only minor
exceptions, excellent
control of an extensive
range of high level lexical
and grammatical features,
with comprehension or
fluent reading unimpeded
• Generally coherent with clear • Style is generally academic
paragraphs and progression
throughout
Academic
Conventions
• In-text
with few lapses
• Very good control over a
range of lexical and
grammatical features with
comprehension or fluent
reading very rarely impeded
• In-text citations
contain few
errors
Written Sources
• Most key ideas are
Good
B/B+
60-69%
identified, but with
significant oversight;
points supporting
position may lack
some detail
• Inaccuracies in the
representation of
sources may occur but
not in key ideas
• Source use mostly
relevant, but some
significant irrelevancies
or redundancies may
occur
• Some key ideas are
Satisfactory
C/C+
50-59%
identified, but with
significant oversights;
points supporting
position regularly lack
detail
• Representation of
sources often
inaccurate, sometimes
significantly in key ideas
*
Spoken Sources
• Most key ideas are
identified, but with
significant oversight(s);
points supporting
position may lack some
detail
• Inaccuracies in the
representation of
sources may occur but
not in key ideas
• Source use mostly
relevant, but some
significant irrelevancies
or redundancies may
occur
• Some key ideas are
identified, but with
significant oversights;
points supporting
position regularly lack
detail
• Representation of
sources often
inaccurate, sometimes
significantly in key ideas
• Source use sometimes
• Source use sometimes
relevant but significant
irrelevancies or
redundancies common
relevant but significant
irrelevancies or
redundancies common
Please add 5% to UG responses in this criterion only
Task Fulfilment &
Critical Analysis*
• Task requirements
generally addressed, but
some parts may be more
covered than others
• Critical analysis in
evidence, but only
occasionally in-depth
• Sources paraphrased and
Coherence & Cohesion
Academic Style, Use
of Lexical & Gram.
Features
Academic
Conventions
• Generally coherent but
• Style is generally academic
• In-text
paragraphs and
progression may be
illogical in places
• Cohesive devices used
effectively, but cohesion
within and/or between
sentences may be faulty or
mechanical
although some lapses occur
• Reasonable control over a
range of lexical and
grammatical features but
comprehension or fluent
reading may be impeded in
places
citations
contain a
number of
errors
acknowledged
ineffectively in a number
of places, and/or some
overuse of quotations
• Task requirements
partially addressed
• Very limited examples of
critical analysis, none of
which is in-depth
• Mostly ineffective
paraphrasing and source
acknowledgement,
and/or excessive use of
quotations
• Coherent only in
stretches with frequent
inadequate paragraphs
or illogical progression
• Cohesive devices
sometimes used
inaccurately or
inadequately
• Some appropriate use of
academic style but with
frequent lapses
• Limited control over a
modest range of lexical
and grammatical features,
with comprehension or
fluent reading impeded
quite regularly
• In-text
citations
contain
frequent
errors
Written Sources
• Key ideas are
Basic/Fail
D
40-49%
superficially exploited;
ideas listed with no
development
• Sources are only rarely
• Sources are only rarely
• Source use relevant only
rarely
• Most key and supporting
represented accurately in
key ideas
• Source use relevant only
• Most key and supporting
ideas are overlooked
• Sources are consistently
• Sources are consistently
and significantly
misrepresented in key
ideas
and significantly
misrepresented in key
ideas
• Relevant source use
• Relevant source use
almost non-existent
almost non-existent
• No evidence of source use
Please add 5% to UG responses in this criterion only
Task Fulfilment &
Critical Analysis*
• Task minimally
addressed with serious
omissions
• Little or no critical analysis
• Paraphrasing and source
acknowledgement rare,
and/or with excessive use
of quotations
Coherence & Cohesion
Academic Style, Use
of Lexical & Gram.
Features
Academic
Conventions
• Coherent in some
• Academic style is evident in
• Frequent
stretches but
paragraphs and
progression are usually
difficult to detect and/or
illogical
• Basic cohesive devices
used but these may be
inaccurate or repetitive
few places and includes
very frequent lapses
• Limited control over a
oversights
in in-text
citations
narrow range of lexical
and grammatical features
with comprehension or
fluent reading impeded
regularly
rarely
ideas are overlooked
Fail
FF
0-29%
*
• Key ideas are
superficially exploited;
ideas listed with no
development
represented accurately in
key ideas
Fail
F
30-39%
Spoken Sources
• No evidence of
source use
• Task inadequately
addressed
• No critical analysis in
evidence
• No paraphrasing and
source
acknowledgement,
and/or with excessive
use of quotations
• No real attempt at a
response
• Breaks down almost
throughout due to lack of
coherence and/or
illogical content; position
may not be offered
• A very limited range of
cohesive devices evident,
and those used may not
indicate a logical
relationship between
ideas
• Fails to communicate any
message
• Academic style is evident
only very rarely
• Very limited control over a
• In-text
citations are
inadequate in
all respects.
narrow range of lexical
and grammatical features
with comprehension or
fluent reading extremely
difficult
• Non-existent
• No in- text
citations
Contents
1. Accounting and Finance for Non-Specialists
(Atrill and McLaney 2011)….……………………………………………………………….…………..…3
2. Qualitative Characteristics of Accounting Information [Hierarchy of Accounting
Qualities] (Dharma Putra 2009)……………………………………………………………………….…8
3. Considerations on the treatment of qualitative characteristics of accounting
information at the international level and in various national accounting systems
(Breahna-Pravat 2014)………………………..……………………………………….……………………14
4. UoS Task Citation Guide …………………………….……………………………………………………..23
1
2
(Atrill and McLaney, 2011)
Adapted from:
Accounting and Finance for Non-Specialists
Peter Atrill & Eddie McLaney (2011, 7th edition, Prentice Hall) pp.3-6, 30-34
Who are the users of accounting information?
For accounting information to be useful, the accountant must be clear for whom the information is being
prepared and for what purpose the information will be used. There are likely to be various groups of
stakeholders (known as ‘user groups’) with an interest in a particular organization, in the sense of
needing to make decisions about it. Figure 1.1 lists possible user groups for a typical private sector
business and outlines some of the decisions for which they might need accounting information.
Figure 1.1. Ptarmigan Insurance plc (PI) is a large motor insurance business.
User group
Customers
Decision
Whether to take further motor policies with PI. This might involve an assessment of
PI’s ability to continue in business and to meet their needs, particularly in respect of
any insurance claims made.
Competitors
How best to compete against PI or, perhaps, whether to leave the market on the
grounds that it is not possible to compete profitably with PI. This might involve
competitors using PI’s performance in various respects as a benchmark’ when
evaluating their own performance. They might also try to assess PI’s financial
strength and to identify significant changes that may signal PIS future actions (for
example, raising funds as a prelude to market expansion).
Employees
Whether to continue working for PI and, if so, whether to demand higher rewards for
doing so. The future plans, profits and financial strength of the business are likely to
be of particular interest when making these decisions.
Government
Whether PI should pay tax and, if so, how much, whether it complies with agreed
pricing policies, whether financial support is needed and so on. In making these
decisions an assessment of PI’s profits, sales revenues and financial strength would
be made.
Community
Representatives
Whether to allow PI to expand its premises and/or whether to provide economic
support for the business. When making such decisions, PI’s ability to continue to
provide employment for the community and its willingness to use community
resources and to fund environmental improvements are likely to be important
considerations.
Investment
analysts
Whether to advise clients to invest in Pl. This would involve an assessment of the
likely risks and future returns associated with Pl.
Suppliers
Whether to continue to supply PI and, if so, whether to supply on credit. This would
involve an assessment of PI’s ability to pay for any goods and services supplied.
Lenders
Whether to lend money to PI and/or whether to require repayment of any existing
loans. PI’s ability to pay the interest and to repay the principal sum would be
important factors in such decisions.
Managers
Whether the performance of the business needs to be improved. Performance to date
would be compared with earlier plans or some other ‘benchmark’ to decide whether
action needs to be taken. Managers may also wish to decide whether there should be
3
a change in PI’s future direction. This would involve looking at PI’s ability to perform
and at the opportunities available to it.
Owners
Whether to invest more in PI or to sell all, or part, of the investment currently held.
This would involve an assessment of the likely risks and returns associated with Pl.
Owners may also be involved with decisions on rewarding senior managers. The
financial performance of the business would normally be considered when making
such a decision.
Providing a service
One way of viewing accounting is as a form of service. Accountants provide economic information to
their ‘clients’, who are the various users identified in Figure 1.1. The quality of the service provided is
determined by the extent to which the needs of the various user groups have been met. To meet these
users’ needs, it can be argued that accounting information should possess certain key qualities, or
characteristics: relevance, reliability, comparability and understandability.
Relevance
It must be possible for accounting information to influence decisions. Unless this characteristic is
present, there is really no point in producing the information. The information may be relevant to the
prediction of future events (for example, in predicting how much profit is likely to be earned next year)
or relevant in helping to confirm past events (for example, in establishing how much profit was earned
last year). The role of accounting in confirming past events is important because users often wish to
check the accuracy of earlier predictions that they have made. The accuracy of earlier predictions may
help users to judge the accuracy of current predictions. To influence a decision, the information must,
of course, be available when the decision is being made. Thus, relevant information must be timely.
Reliability
Accounting should be free from significant error or bias. It should be capable of being relied upon by
managers to represent what it is supposed to represent. Though both relevance and reliability are very
important, the problem that we often face in accounting is that information that is highly relevant may
not be very reliable. Similarly, that which is reliable may not be very relevant. When seeking to strike
the right balance between relevance and reliability, the needs of users should be the overriding
consideration.
Comparability
This quality will enable users to identify changes in the business over time (for example, the trend in
sales revenue over the past five years). It will also help them to evaluate the performance of the
business in relation to similar businesses. Comparability is achieved by treating items that are basically
the same in the same manner for accounting purposes. Comparability may also be enhanced by making
clear the policies adopted in measuring and presenting the information.
Understandability
Accounting reports should be expressed as clearly as possible and should be understood by those at
whom the information is aimed.
The major financial statements – an overview
The major financial accounting statements aim to provide a picture of the financial position and
performance of a business. To achieve this, a business’s accounting system will normally produce three
financial statements on a regular, recurring basis. These three statements are concerned with
answering the following questions relating to a particular period:
•
•
•
What cash movements took place?
How much wealth was generated?
What is the accumulated wealth of the business at the end of the period and what form does it
take?
To address each of the above questions, there is a separate financial statement. Together they provide
an overall picture of the financial health of the business. The financial statements are:
4
•
•
•
the statement of cash flows,
the income statement (also known as the profit and loss account), and
the statement of financial position (also known as the balance sheet).
Perhaps the best way to introduce these financial statements is to look at an example of a very simple
business. From this we shall be able to see the sort of information that each of the statements can
usefully provide. It is, however, worth pointing out that, while a simple business is our starting point, the
principles for preparing the financial statements apply equally to the largest and most complex
businesses. Thus, we shall frequently encounter these principles again in later chapters.
Example Part 1:
Paul was unemployed and unable to find a job. He therefore decided to embark on a business
venture. With Christmas approaching, he decided to buy gift wrapping paper from a local supplier
and to sell it on the corner of his local high street. He felt that the price of wrapping paper in the high
street shops was too high. This provided him with a useful business opportunity. He began the
venture with £40 of his own money, in cash. On Monday, Paul’s first day of trading, he bought
wrapping paper for £40 and sold three-quarters of it for £45 cash.
What cash movements took place in Paul’s business during Monday?
For Monday, a statement of cash flows showing the cash movements (that is, cash in and cash out)
for the day can be prepared as follows:
Statement of cash flows for Monday
• Opening balance (cash introduced) £40
• Cash from sales of wrapping paper £45
• Cash paid to buy wrapping paper
(£40)
• Closing balance of cash
£45
The statement shows that Paul placed £40 cash into the business. The business received £45 cash
from customers, but paid £40 cash to buy the wrapping paper. This left £45 of cash by Monday
evening. Note that we are taking the standard approach found in the financial statements of showing
figures to be deducted (in this case the £40 paid out) in brackets.
How much wealth (that is, profit) was generated by the business during Monday?
An income statement (profit and loss account) can be prepared to show the wealth (profit) generated
on Monday. The wealth generated arises from trading and will be the difference between the value
of the sales made and the cost of the goods (that is, wrapping paper) sold.
Income statement (profit and loss account) for Monday
Sales revenue
£45
Cost of goods sold (¾ of £40)
(£30)
Profit
£15
Note that it is only the cost of the wrapping paper sold that is matched against (and deducted from)
the sales revenue in order to find the profit, not the whole of the cost of wrapping paper acquired.
Any unsold inventories (in this case 1/4 of £40 = £10) will be charged against the future sales revenue
that they generate.
What is the accumulated wealth on Monday evening and what form does it take?
To establish the accumulated wealth at the end of Monday’s trading, we can draw up a statement of
financial position (balance sheet) for Paul’s business. This statement will also list the forms of wealth
held at the end of that day.
Note the terms ‘assets’ and ‘equity’ that appear in the above statement. ‘Assets’ are business
resources (things of value to the business) and include cash and inventories. ‘Equity’ is the word
used in accounting to describe the investment, or stake, of the owner(s) — in this case Paul — in the
business.
5
We can see from the financial statements in Example 2.1 that each statement provides part of a picture
of the financial performance and position of the business. We begin by showing the cash movements.
Cash is a vital resource that is necessary for any business to function effecti…
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