The document discusses accounting concepts, conventions and principles. It defines accounting concepts as the fundamental assumptions underlying financial statement preparation and presentation. Some key concepts discussed include going concern, monetary measurement, historical cost, consistency and accrual. Accounting conventions ensure uniform application of concepts over time, through principles like materiality, conservatism and consistency. The document also examines accounting policies, methods, bases and assumptions that guide financial reporting.

1. ACCOUNTING CONCEPTS, CONVENTIONS AND PRINCIPLES
By HabibuAyuba, BSc; PGDE, MSc; ACA inview.
08030527135
By Habibu Ayuba, BSc; PGDE, MSc; ACA inview. 08030527135 4/8/2014 1

2. Aim and objectives the presentation
At the end of the sessions, the participants should be able to:
To understand accounting and reporting policies.
To define accounting concepts and convention.
To explain factors to be considered in selecting an appropriate accounting policies.
To examine changes in accounting policies.
To state the disclosure requirement of accounting policies.
To discuss the impact of accounting policies on the recognition of asset and liability..
By Habibu Ayuba, BSc; PGDE, MSc; ACA inview. 08030527135 4/8/2014 2

3. Understanding of Accounting and Reporting policies
Imaginethatyouareabusinessownerandyoutakecopiesofyourfinancialrecords(books)tosixdifferentaccountants,youaskeachonetocalculateyourprofitfortheyear.Afortnightlatertheyeachprovideyouwiththeiranswers.Therearesixdifferentprofitfigures,withverywidevariationsbetweenthem.
Whatwouldyoudo?
Whydoaccountantsgiveyousix(6)differentprofitsfigure?
By Habibu Ayuba, BSc; PGDE, MSc; ACA inview. 08030527135 4/8/2014 3

4. Thenwhatwillbeyourimpressionabouttheaccountingprofession.
Toavoidthiskindofsituations.Weneedtoknowwhythingsarelikethatinaccounting.
Variousrulesoracceptedwaysofgoingaboutthingshaveevolvedinaccountingprofession.Thesethingsarelikerulesofthegameandareknownas“ConceptsandConventions”
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5. Thereforetomaketheaccountinglanguagecapableofconveyingsimilarandthesamemeaningtoallitsstakeholders,concepts,methodsandpoliciesofpreparingfinancialaccountingstatementsarecoined.
Tomakeitmoremeaningful,accountantshaveagreedonanumberofconceptswhichareusuallyfollowedforpreparingthefinancialstatementsandarenowinternationallyrecognizedasinternationalreportingstandard(IFRS).
Theseconceptsprovideafoundationforaccountingprocess.Noenterprisecanprepareitsfinancialstatementswithoutconsideringtheseconcepts.
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6. Accounting and reporting policies
Reportingpoliciesconsistsoftheinterplayofthefollowing:
Accountingpolicies
Accountingconcepts
Accountingmethods
Accountingbases
Accountingassumptions
Accountingconventions
•Thesetermsarewhatarereferredtoasaccountingconceptsandconvention.
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7. Accounting policies
Accountingpolicyofagivingcompanyissimplymeansallthosespecificaccountingconcepts,accountingmethodsandaccountingbaseswhichareadoptedbytheentityinthepresentationofitsfinancialstatements.
AcompletesetoffinancialstatementscomprisesaccordingtoIFRSisthefollowing:
■StatementofFinancialPosition(formerlyBalanceSheet);
■StatementofComprehensiveIncome(formerlyIncomeStatement);
■Statementofchangesinequity;
■Statementofcashflows;
■Notestothefinancialstatementsthatcontainaccountingpoliciesandotherexplanatory-information;and
■Statementoffinancialpositionforthebeginningoftheearliestcomparativeperiodwhenanentityappliesanaccountingpolicyretrospectively,makesaretrospectiverestatementofitemsinitsfinancialstatements,orreclassifiesitemsinitsfinancialstatements
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8. Financial Statements According to CAMA, 1990
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9. Accounting concepts
Accountingconceptsaredefinedasathosefundamentalassumptionsorpostulatesthatunderliethepreparationandpresentationoffinancialstatements.
Theyareasfollows:
Goingconcernconcept
Legalentityconcept
Periodicityconcept
Realizationconcept
Matching/Accrualconcept
Historicalcostconcept
Consistencyconcept
Dualconcept
Monetarymeasurementconcept(quantitative)
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10. Going concern concepts
Itstatesthatacompanywouldoperate(neverdieorstop)foraforeseeablelongfuture.
Inthisconcept,itisassumedthatthebusinesswillcontinuetobeinoperationforanindefiniteperiodoftime.Ifthebusinessweregoingtobesold,thenitwouldbenecessarytoknowhowmuchtheassetswillfetch.
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11. Legal/Business entity concept
Itstatesthatamodernbusinessisalwaysseparate,distinctandindependentofitsowners/shareholders/managers/directors.
Thisconceptstatethatabusinessisanentity(perceivedtohaveitsownexistence)separatefromitsowner.Thereforebusinessrecordshouldbeseparatedandkeptdistinctfromthepersonalrecordofthebusinessowner.Attimelawmakesthesamedistinction,asinthecaseoflimitedcompanywhichisaseparatelegalentityfromtheshareholdersoritsDirectors.
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12. Periodicity concept
Itstatesthatineveryfinancialaccountingrecordskeptandprepared,theremusthaveatimeforitsreporting.Thetimeacceptedforthereportistheperiodof12months.
Theresultsofthebusinessmustbepreparedinashorterintervalnottobealloweduntilitsfinalliquidation.Thatiswhybusinessisdividedintoaccountingperiod.
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13. Realization concept
Itstatesthatruleforrecognizingtherevenueofthebusiness.
Periodicrecognitionofrevenueismadeassoonas:itiscapableofobjectivemeasurementandthevalueofassetsreceivedorreceivableintheexchangeisreasonablycertain.
Inaccounting;profitisnormallyregardedasbeingearnedatthetimewhenthegoodsorservicesarepassedtothecustomersandheincursliabilitiesforthem.
Revenueisrecognizedatavarietyoftimebutfour(4)instancesareprominentwhichare:
1.Atthetimeofsaleofasset
2.Duringproductionofasset
3.Atthecompletionoftheproductionofasset
4.Atapointofcashcollection.
Thechoiceofthetimeusuallyismoreofindustrialnorms.
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14. MONEY MEASUREMENT
ItstatesthateveryiteminaccountsshouldbemeasureableinmonetarytermssuchasNaira, Dollaretc.
Inthisconcept,accountingisonlyconcernedwithitemsthatcanbequantifiedinmonetaryterms.Thatisabusinessmayhavevaluableresourcelikeworkforceskill,morale,marketleadership,brandrecognition,qualifymanagementbutthesedonotgetrecordedinthefinancialstatementbecausetheycannotbequantifiedinmonetaryterms.
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15. THE HISTORICAL COST CONCEPT
Itstatesthatthepurchasingpriceasacostofanasset/liabilityistheappropriatebasisfortheinitialaccountingrecognitionofanassetacquired; servicesrendered;expensesincurred;creditorsandownersinterest.Itshouldberetainedthroughoutaccountingprocess.
Thisrequiresthatassetsofabusinessberecordedintheledgeraccountattheactualpricepaidtoacquirethem.Thismeansassetberecordedattheiroriginalpriceofacquiringthem.Thiscostservesthebasisforfurtheraccountingtreatmentoftheasset.
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16. THE DUAL ASPECT CONCEPT
ItstatesthateveryDebit(receive)EntrymusthaveacorrespondentCredit(give)Entry,viceversa.
Thisprinciplestatesthattherearetwoaspectofaccounting.Onerepresentedbytheassetsofthebusinessandtheotherbytheclaimsagainstthem.Thisisbasedontheaccountingequation:- Asset=Liabilities+OwnersEquity.alltransactionsrecordedintheaccountmustkeepthisequationinbalance.Todothisfinancialtransactionareallocatedtobothadebitsideandcreditsideofequalamounts.
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17. THE ACCRUAL/MATCHING CONCEPT
Itstatesthattheprofitofthebusinessshouldberecordedatapointofsaleirrespectiveofwhethercashisdueorinarrearsastheexpensesrelatedtoitissimultaneouslyrecognizedwhenincurrednotnecessarilywhencashispaid.
Theprinciplestatesthattheincomeandcostaccruingtotheownerofabusinessisnotnecessarilytheamountofcashactuallyreceivedinaperiodofaccount.Thatisrevenueandcostsarerecordedwhentheyoccurratherthanwhenthecashisreceivedorpaid.
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18. Accounting Methods
Theyarewaysormediathroughwhichatheaccountingconceptsareappliedinthepreparationandpresentationoffinancialstatement.
Examplesare:
1.Straightline/reducingmethodsofdepreciatingassets.
2.Closingrate/temporalmethodfortranslating.
3.Completedcontractmethodsorpercentageofcompletionmethodandsoon.
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19. Accounting Bases
Thesearetotalityofaccountingmethodsthatareemployedinthepreparationandpresentationoffinancialstatement.
Generally,accountingmethodsaregroupedinto:
CashBasis:statesthatallbusinesstransactionsarerecognizedonlywhentheactualcashispaidorreceivedbytheentity.
AccrualBasis:statesthatallbusinesstransactionsarerecognizedwhetherthecashhasbeenreceivedornot.
By Habibu Ayuba, BSc; PGDE, MSc; ACA inview. 08030527135 4/8/2014 19

20. Contents of accounting policy
Itemstobeincludedintheaccountingpoliciesofagivencompanyare:
1.Generalaccountingpolicies
2.Policiesonmeasuringfixedassets
3.Policiesonstockorworkinprogressvaluation
4.Policiesofdepreciatingassetsanddepreciationmethods
5.Policiesoninvestment
6.Policiesonlease
7.Policiesonresearchanddevelopment
8.Policiesonfranchises
9.Policiesonemployeeretirementmethods
10.Policiesonconsolidationetc.
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21. Accounting Assumptions
Thesearethebeliefsofwhichpreparationandpresentationoffinancialstatementisbuiltupon.
Inaccounting,therearetwoassumptions:
Stability:abeliefthatthemonetaryunitswhichisthebasisofvaluationandmeasurementofalltransactionremainthesameoveraforeseeablefutureperiodoftime.
continuity:Agoingconcernwhichsharethebeliefthatthebusinessentitywillsurviveandcontinueoperationinaforeseeablefuture.
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22. THE ACCOUNTING CONVENTIONS
Theaccountingconventionscanbeinterpretedinmanyways.Whatwerethereforegrownupinaccountingaregenerallyacceptedapproachestotheapplicationoftheconcepts.Theseapproachesareknownastheconventionsofaccounting(Regulation).Themainconventionsare:-
-Materiality
-Conservatism/prudence
-Consistency
-objectivity
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23. MATERIALITYCONVENTION
Itstatesthatafinancialstatementshouldpresentandreportallitemsoftransactionwhicharecapableofinfluencingthedecisionofstakeholdersandifsuchitemsomissioncompletelyorwronglystatedwouldsignificantlyalterthestakeholders’decision.
Thisisaconventionthatrecordsanythingthataresignificantenoughtojustifytheusefulnessoftheinformation.Onlyitemsthataredeemedsignificantforagivensizeofoperationshouldberecorded. Accountantsareguidedtoignoreinsignificantdetailsotherwisetheaccountwillbeburdeneddownwithminutedetails.Thereforematerialityisanissuerofjudgment.
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24. CONSERVATISM/PRUDENCE CONVENTION
Itstatesthatafinancialstatementsreportandrecognizeinstantlyandadequatelyknownlosesandgains/profitisignoreduntilitsfullrealizationiscertain.
Veryoftenanaccountanthastomakeachoiceastowhichfigurehewilltakeforagivenitem.
Conservatismmeansthattheaccountantwilltakethefigure,whichwillunderstateratherthanoverstatetheprofit.Allanticipatedlossesshouldberecordedbutallanticipatedgainsshouldbeignored.
Thereforeprovisionsismadeforalllosseseventhoughtheamountcannotbedeterminedwithcertainty.
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25. CONSISTENCY CONVENTION
Itstatesthatthefinancialstatementsshouldbepreparedinawaythatasimilaritemsoftransactionsaretreatedequallyandsimilarlysoastomaintainuniformpresentationformatadoptableoveratime.
Theconceptandconventionalreadylistedaresobroadthatinfacttherearemanydifferentwaysinwhichitemsmayberecordedintheaccounts.
Bythisassumption,accountantsareexpectedtorecordandreportaccountingactivitiesinthesamewayyearbyyearifanysensibleandmeaningfulcomparisonwouldbemadetofinancialreportofafirmfordifferentperiods.Havingaparticularmethodwouldgivethefirmthemostequitablepictureoftheactivitiesofthebusiness.
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26. OBJECTIVITY CONVENTION
Itstatesthatpreparationandpresentationoffinancialstatementsshouldbemadefreefromtheaccountants/preparersbias,undueinfluenceandconflictofinterest.
Allitemsoftransactionsreportedaresupportedbythedocumentaryevidenceandfacts..
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27. Factors to Consider when Choosing Accounting policies
Someconcepts,methodsandbasesconflictwithoneanother.Thus,judgmentisrequiredtoselectthegoodrelevantpoliciesforyourfinancialstatementsoastoensuretrueandfairviewofthereporting.Thesefactorsareasfollows:
Fairness
Materiality
Substanceoverform
Objectivity
prudence
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28. Disclosure Requirement of Accounting policies
IFRS-IAS/SAS1statesthatallaccountingpoliciesofareportedentityshouldbedisclosedtogetherunderonecaptionratherthanasnotestotheindividualitemsinthefinancialstatement.
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29. Changes in the Accounting Policies
Consistencyisrequiredtobeappliedinfinancialreporting,yet,instancesmaywarrantchangesofaccountingpolicies.
Thecircumstancesgivingrisetochangesare:
Wheretheexistingpoliciesnolongerensuretrueandfairviewoftheevent.
Wherethereisanewaccountingstandardthatrenderstheexistingpoliciesinvalid.
Wherethereinnewlegislation/regulationthatwouldensureabetterpresentationoftrueandfairviewoftheaccount.
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30. ACCOUNTING PRINCIPLES
Accountingisguidedbythefollowingprinciples:
Substanceoverform
Objectivity
Fairness
Materiality
Prudence
Substanceoverform:statesthatsubstance/uses/economicrealityofanitemoftransactionisalwaysreportedattheexpenseoflegalform.
Fairness:statesthatallstakeholdersofaccountingaretreatedwithequallywithoutfavoringagroupattheexpenseofanother.
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31. Impact of Accounting Policies on the recognition/measurements of Assets and Liability
Thevalueofassetsandliabilitiestobedisclosedinthefinancialstatementsaregreatlyaffectedbythepoliciesadopted.
AssetsandLiabilitiesaresubjecttoorexposedtothesemethodsofvaluationasproposedbyaccountingpolicies.
Themethodsinclude:
Historicalcostmethods
Realizationvaluemethods
Currentvaluemethods
Replacementcostmethods
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32. Impact of policies Cont….
Historicalcostvalueassetsandliabilitybasedontheactualcostoftheassetsacquiredortheliabilityincurred.
Realizationvaluemethodvalueassetsandliabilitybasedonwhattheassets/liabilitiescouldfetchatthepointofdisposalafterremovingdisposalexpenses.
Currentvaluemethodvalueassets/liabilitybasedonwhatanewbrandoneisbeingsoldinthemarketatanarmlengthtransaction.Itiscalledfairvalue.
Replacementcostmethodvalueassets/liabilitybasedonwhat,newbutsimilaronewouldcostintheopenmarketifacquiredtoreplacetheexistingasset/liability.
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33. ACCOUNTING BOOKS
There are various forms of accounting books depending on what the book is used for. The main books of accounting and financial statement known are:
a)Cash register
b)Cash book
c)Petty cash book
d)General ledger
e)Trading, profit and loss account
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34. f) Trial balance
g) Balance sheet
h) Bank reconciliation statement
The following are the subsidiary books of account:
a)Purchases day book
b)Sales day book
c)Purchases return day book
d)Sales return day book
By Habibu Ayuba, BSc; PGDE, MSc; ACA inview. 08030527135 4/8/2014 34

35. THANK YOU FOR YOUR PRESENCE
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