Ethics and assumptions Flashcards
Ethics
The principles/values that govern a person’s or business’s behaviour
What should a business consider?
- Human impact
- Safety of employees others in manufacturing
- Environmental issues
- Reliability and quality product
- Fair pay
Benefits of ethical considerations
- Attract customers
- Lead to greater sales
- Increased brand loyalty
- Less negative publicity
Costs of ethical considerations
- Financial costs to operate ethically
- Time consuming
What are the 4 accounting assumptions?
- Period assumption
- Accrual basis assumption
- Going concern assumption
- Accounting entity assumption
Period assumption
Reports are prepared for a particular period of time, such as a month, or a year, in order to obtain comparability of results.
Accrual basis assumption
Elements of the report are recognised when they satisfy the definitions and recognition criteria, meaning profit is calculated as revenue earned in a particular period less expenses incurred in the same period
Going concern assumption
Assumption that the business will continue to operate in the future, and its records are kept on that basis
Accounting entity assumption
Assumption that the records of assets, liabilities and business activities of the entity are kept separate from those of the owner of the entity as well as from those of other entities
What are the 6 qualitative characteristics?
- Timeliness
- Understandability
- Relevance
- Faithful representation
- Comparability
- Verifiability
Timeliness
Financial information should be available to decision makers in time to be capable of influencing their decisions
Understandability
Financial information should be understandable or comprehensible to users with a reasonable knowledge of business and economic activities, and presented clearly and concisely
Relevance
Financial information must be capable of making a difference to the decisions made by users by helping them form predictions and/or confirm or change their previous evaluations
Faithful representation
Financial information reported is a faithful representation of the real world economic event it claims to represent : complete, free from material error and neutral (without bias)
Comparability
Useful information is provided when the financial reports of a business can be compared over time and compared with similar information of other businesses.
