Level 4 QUALIFI Certificate in Business

Management
Bus1.3: Financial Awareness

1.1 Discuss the need for financial information, its purpose, limitations and
the main stakeholders interested in the information.

1.2 Identify accounting arrangements and conventions used by

organisations.
 Nature and use of financial information

The need of financial information was increased in the aftermath of international trade
and global capital markets.
Financial information

Internal External

Internal: Financial information utilised by External: The information intends to satisfy the
the organisation for assisting the efficient responsibilities deemed to statutory and
running of firm entailing asset schedules, public accountability focusing on
forecasts and internal reports (O'Regan, widespread consumption. Annual report of
2015). the organisation is an example for the notion
Financial Information Needs and purposes (O'Regan, 2015).
Prediction: Assisting in predicting the future of company (Future dividends, supplies, wages,
economic prospects and interest payments)
Evaluation of company profitability, solvency and liquidity (Lee, 2007)
 Financial statements limitations
Historical cost dependence
Intangible assets not recorded
Inflationary effects
Based on a specific time period
Not comparable to other companies

Main stakeholders interested in the financial information

Customers: Taking decision on single and repeat transaction, assuring the company survival
Suppliers: interest in the company ability to meet the obligations
Bankers: To assess the ability to repay the overdraft and interest under terms and conditions
Employees: Ability of company in paying the employees and amendments in the wage policy
Government: AS apart of economic review and determining the corporation tax liability
Others: Other users of financial statements include the professional analysts serving investors and
lenders and the competitors.
 Accounting arrangements and conventions
The notion refer to common practices that are followed university in the recording and
presenting of financial information.

Accounting standards

Accounting arrangements
and conventions
Costing
Accounting standards
The term denotes discipline, providing guidelines and evaluation yardsticks. As a general rule,
accounting standards are applicable to all corporate enterprises. the International
Accounting Standards Committee (IASC) was set up in
1973, with its headquarter in London (U.K.)

Convention of consistency

Accounting Convention Convention of full disclosure

Convention of materiality
Convention of conservatism
Convention of consistency
The convention of consistency means that same accounting principles should be
used for preparing financial statements year after year. A meaningful conclusion can
be drawn from financial statements of the same
enterprise when there is comparison between them over a period of time.
Convention of full disclosure
Convention of full disclosure requires that all material and relevant facts concerning
financial statements should be fully disclosed. Full disclosure means that there should
be full, fair and adequate disclosure of accounting information.
Convention of materiality
The convention of materiality states that, to make financial statements meaningful, only
material fact i.e. important and relevant information should be supplied to the users of
accounting information.
Convention of conservatism
This convention is based on the principle that “Anticipate no profit, but provide for all
possible losses”. It provides guidance for recording transactions in the books of
accounts
 Costing
Costs can be simply defined as the money or resources associated
with a purchase / business transaction or any other activity.
Different industries adopt different methods of ascertaining costs of
their products depending on the nature of the production and the
type of output.
Terms associated with costing
• Fixed cost • Opportunity cost
• Variable cost • Sunk cost
• Total cost
• Direct and indirect cost

Marginal Costing: Through this method only the variable

cost is allocated i.e. direct materials, direct expenses,
direct labour and variable overheads to production. It
does not include the fixed cost of production
Standard Costing:
When the costs are predetermined on certain standards in a given set of
operating conditions, it is called standard costing

Historical Costing:
In this method the costs are determined in terms of actual costs and not
predetermined standard costs. Costs are determined only after it is incurred.
Almost all organizations adopt this method of costing

Absorption Costing:
It is the technique to absorb the fixed and variable costs to production. In this
method, full costs i.e. fixed and variable costs are absorbed to the production.
References
O'Regan, P. (2015) Financial Information Analysis: The Role of Accounting
Information in Modern Society. London: Routledge.
Lee, T.A. (2007) Financial Reporting and Corporate Governance. Chichester:
John Wiley & Sons.