Accounting Standard of Bangladesh

8/10/2019 Accounting Standard of Bangladesh

1/9

North South University Intermediate Accounting

ACT-330Sec: 06

Group Assignment #1Conceptual Framework

Submitted To:

Shabbir Mubin

LecturerSchool Of Business Administration

Submitted By:

Date: 25.02.14

Name IDMd. Rayhan Azad 1210118030Najiba Nuren Khan 1230119630Amrita Das 1120064030Sufia Akter Suma 1130043030Reasat Azim Zunnun Zahid 1130041030


2/9

Conceptual Framework

Introduction

Conceptual framework is the sole part of financial accounting and financial reporting. It is a

coherent system of interrelated objectives and fundamentals that can lead to consistent rules and

that prescribes the nature, function, and limits of financial accounting and financial statements.

It is a kind of constitution.

Roles

Conceptual framework is to be useful and rule-making should build on and relate to an

established body of concepts and objectives. It increases financial statement users

understanding of and confidence in financial reporting. It results a coherent set of GAAP.

It is used to solve new and emerging practical problems by referring to an existing

framework of basic theory.

It provides guidance to identify the boundaries of financial reporting, selects the

transactions, other events, and circumstances to be represented. It also helps to

reorganization, measurement, summarization and the reporting of financial accounting.

Developments

The IASB and FASB both of these two have a conceptual framework. The IASBs conceptual

framework is described in the document, Framework for Preparation and Presentation of

Financial Statements.

Numerous published their own conceptual framework, but no single framework was universally

accepted and relied on the practice. In 1976 the FASB began to develop a conceptual framework

that would be a basis for setting accounting rules and for resolving financial reportingcontroversies. The FASB issued six Statements of Financial Accounting Concepts (SFACs) that

relate to financial reporting for business enterprises. These concept statements provide the basis

for the conceptual framework.


3/9

i. SFAC No. 1- Objectives of Financial Reporting by Business Enterprises: First, the

objective of financial reporting is to provide information about the company that is useful

to potential investors, creditors and lenders in making decisions about the company.

Because these parties cannot require that companies provide this information about

company resources and claims on the company's assets, they rely on financial reports to

give summaries of this information.

ii. SFAC No. 2- Qualitative Characteristics of Accounting Information: The second

section provides information on what makes financial information useful and how to

balance usefulness with cost considerations. This section of the conceptual framework

tells financial statement users that information should be relevant and faithfully represent

the underlying economics of the company. Additionally, the section provides guidelines

for how to enhance these characteristics.

iii. SFAC No. 3- Elements of Financial Statements of Business Enterprise, provides

definitions of items in financial statements, such as assets, liabilities, revenues, and

expenses. This section might be the most useful for a small-business owner.

iv. SFAC No. 5- Recognition and Measurement in Financial Statement, sets forth

fundamental recognition and measurement criteria and guidance on what information

should be formally incorporated into financial statements.

v. SFAC No. 6- Elements of Financial Statements, provides information about the

accounting for not-for-profit entities and some of the differences between for-profit and

non-for-profit accounting.

vi. SFAC No. 7- Using Cash Flow Information and Present Value in Accounting

Measurements, provides a framework for using expected future cash flows and present

values as a basis for measurement.

Objectives


4/9

The Financial Accounting Standards Boards Statements of Financial Accounting Concepts No. 1

states the objective of business financial reporting, which is to provide information that is useful

for making business and economic decisions. Specifically, the information should be useful to

investors and lenders, be helpful in determining a company's cash flows, and report the

company's assets, liabilities, and owners equity and the changes in them.

With these objectives in mind, financial accountants produce financial statements based on the

accounting standards in a given jurisdiction. These standards may be the generally accepted

accounting principles of a respective country, which are typically issued by a national standard

setter, or International Financial Reporting Standards, which are issued by the international

accounting standards Board.

The broad objects of Accounting may be briefly stated follows:1. To maintain the cash accounts through the Cash Book and to find out the Cash balance on

any particular day.

2. To maintain various other Journals for recording day-to day non cash transactions.

3. To maintain various Ledger Accounts to find out the exact amounts of incomes and

expenses or gain and losses or receivables and payables.

4. To furnish information regarding Purchases and Sales, both Cash and Credit.

5. To find out the net profit or net loss or surplus or deficit for any particular period.

6. To find out the total capital on a particular date.

7. To find out the positions of assets on a particular date.

8. To find out the position of liabilities on a particular date.

9. To detect any defalcations and to check the frauds and misappropriations of money.

10. To detect the various errors and to rectify those through entries in the journal proper.

11. To confirm about the arithmetical accuracy of the books of accounts.

12. to help the management by supplying accounting ratios, reports and relevant data.

13. To calculate the cost of productions.

14. To help the management formulate policies for controlling cost, preparation of

quotation for competitive supply etc.

Qualitative Characteristics


5/9

The main purpose of maintaining financial reports is to provide useful information to the existing

or potential investors, creditors or other entities that are either associated with the organization or

requires to take decision regarding the reporting institute by assessing information available in

the financial report. A financial report or statement should include every essential data that a

range of users may look for while taking decisions or evaluating the performance of the

organization. It is necessary for financial reports and statements to acquire four chief

characteristics:

Primary Qualities

Relevance:

The information that is presented in a financial report must be relevant to the users concern andrelate to the decision making.

Predictive Value: The details available in the report will assist in forecasting the

possibility of a particular goal of an activity to be achieved.

Timeless: The information should be obtained in the right time to take a good

decision.

Feedback Value: Information and opinion gathered in relation to a prior activity

can help assess the past decision and assist in improving the current decision.

Reliability:

The information provided should be correct and dependable in order to take a good decision.

Verifiable: The data presented should be verifiable which means it has to be

attestable with information or backed up with evidence.

Faithful Representation: The information should provide the right picture so that

the user can get a true depiction about its point of concern.

Neutrality: The reporting organization must not have any hidden agenda or biasness in preparing the report in order to provide true information to the users.

Secondary Qualities


6/9

Comparability:

If different corporations use similar methods to measure and report, then the information can be

considered comparable. It is an important attribute in useful decision making and should be

included in conceptual framework. It allows users to recognize similarities and dissimilarities

between economic activities and helps in making proper decisions.

Consistency:

Consistency is using the same accounting methods constantly for several periods. It provides a

simpler and better basis for the users to make decisions.

Convergence

International accounting standards converge when differences between international and U.Sstandards are eliminated. There are differences in issues such as when companies should

recognize and measure assets, liabilities, revenues and expenses. The FASB and IASB

formalized their commitment to the convergence of U.S GAAP and iGAAP by issuing a

memorandum of understanding, which is often known as the Norwalk Agreement. The two

boards agreed to use their best efforts to:

Make their existing financial reporting standards fully compatible as soon as practicable,

and Coordinate their future work programs to ensure that once achieved, compatibility is

maintained.

Primary reasons for convergence:

Multinational corporations: Companies like Coca-Cola, Intel view the entire world as their

market. They put substantial effort to attract international customers to their product.

Mergers and Acquisitions: Nowadays companies around the world from different countries are

merging together to make a single company e.g. Vodafone/Mannesmann.

Information Technology: Communication barriers are continuously falling which enhances the

buying and selling of goods and services between countries.


7/9

Financial Market: Financial markets are some of the most significant international markets

today. Thus, billions of dollars are transferred from one market to other using computers.

Many companies find it costly to comply with different reporting standards in different countries.

Investors, attempting to diversify their holdings and manage their risks, have become very

interested in investing overseas.

There are certain challenges to convergence that must overcome before setting international

standards. Besides FASB and IASB, there are many national standard setters such as AASB in

Australia, CNC in France and ASBJ in Japan. Institutional and legal barriers exist e.g. any time a

standard is issued that affects debt versus equity classifications, loan covenants may have to be

changed. In some countries, changing loan covenants is very difficult to implement.Furthermore, political parties often oppose such changes in the accounting standards.

Reference:

http://www.journalofaccountancy.com/Issues/2013/Feb/20126984.htm

http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156245663

Nortwestern Journal of International Law & Business (Vol. 25, Issue 3 Spring)

Intermediate Accounting (13 th Edition) (Interantional Student Version), Kieso, Weygandt,

Warfield
http://www.journalofaccountancy.com/Issues/2013/Feb/20126984.htmhttp://www.journalofaccountancy.com/Issues/2013/Feb/20126984.htmhttp://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156245663http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156245663http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156245663http://www.journalofaccountancy.com/Issues/2013/Feb/20126984.htm


8/9

Discussion on Bangladesh Accounting Standards

Accounting standards determines the country's accounting regulations and policies which

recommends the content that should be reported in a company's financial statements within that

expanse. The core reason for implementing accounting standards is to ensure nationwide

adaptation of dependable and consistent accounting approaches. The benefit of applying

accounting standards is that it reduces the chances of material misstatement in accounts. Also, it

provides comparable information which helps the investor in making better decisions.

Accounting standards are set out by a country's law and all the companies existing within the

country must maintain them.

In Bangladesh, the accounting and reporting standard followed by the companies are BFRS and

BAS. Every company within the country, except few exceptions is entailed to apply thestandards. Both private and public companies in Bangladesh are controlled by the companies

Act 1994, which holds the fundamental rules to be followed by the companies. The institute of

chartered Accountants in Bangladesh has set down the financial reporting standards which are

called Bangladesh Financial Reporting standards (BFRS) that also includes Bangladesh

Accounting standards (BAS). BFRS is a close representation of International Accounting

Standards (IAS) which was issued by the International Accounting Standards Board. Initially, the

BFRS was built up using older International standards as a basis. At recent times, it has accepted

the more updated IASB standards as BFRS.

Bangladesh Accounting Standards (BAS) suggests the foundation for the preparation of financial

statements as to ensure the information is comparable with the organizations financial statements

from prior years of operations and as well with other companies. It provides the requirements of

presenting financial statements, principles and rules for the structure and the minimum requisite

for the content.

In accordance to the BAS, a complete set of financial statement must include:

A statement of financial position at period end A statement of comprehensive income for the period A statement of changes in equity for the period A statement of cash flows for the period


9/9

Notes, comprising a summary of significant accounting policies andother explanatory

information

A statement of financial position as at the beginning of the first period when the company has applied an

accounting policy or makes a display of restatement of items in its financial statements, or when it re

categorizes items in its financial statements

A company should clearly identify each of the required financial statement along with the notes.

Furthermore, in order to make the information provided useful and easily understandable, an

entity must give significance to including the following information:

Name or other identification of the reporting organization and any change from previous

year must be notified.

It should be mentioned whether the reports belong to an entity or a group of entities. Date of the end period Presentation in currency The rounding that has been used to present the values in preparing the financial accounts.

Bangladesh accounting standards plays a vital role in regulating the accounting system in our

country. It is important for the procedures to run smoothly and it is greatly helpful to the users of

financial reports. The standards displayed by BAS have been modified much more from the timeof its commencement and the standards are expected to advance even more in the future

Accounting Standard of Bangladesh

Documents

Transcript of Accounting Standard of Bangladesh