Accounting

Principles and Standards

Excellence Workshop for

PTCL ADEs at TSC Haripur
Jan 2002
 Accounting
Information
Value Chain

Anybody who has any stake in

an organization draws value
from the accounting information
of that organization
 Major Users
• Owners/ Shareholders
• Bankers/ Financiers
• Suppliers/ Vendors
• Tax Collectors
• Corporate Regulators
• Employees
• Managers
 Essential Features that Make
Accounting Information Effective
• Relevance
• Comprehensibility
• Accuracy
• Timeliness
• Cost Effectiveness
 Limitations of Accounting
Information
• Focuses on monetary quantitative
things, ignores qualitative factors
• Normally ignores value volatility
• Relies on judgement and estimations
• Relies on verifiability / documentation
• Isolation syndrome
 Integration Synergy
Isolation Syndrome
Marketing Production
Marketing Production

Accounts

Accounts
Admn. & HR Sales

Admn. & HR Sales

All business functions must
integrate with Accounts
 Financial
Design Reporting and
Implement
Financial
Information
Analyze System (FIS)
 What is Financial System?

A Computerized system for generating

– Financial Statements
– Subsidiary Accounting Information
– Income Tax Returns
– Bills to Customers
– Payments to Suppliers
– Reports to Managers
– Generic correspondence with customers/
tax authorities
Reporting System - Generic Process

• Record economic activity on voucher forms.

• Classify recorded data
– according to division / products
– according to functions
– according to type of expense
• Posting voucher into Journals and Ledgers
• Aggregation of each type of economic activity
• Summarization in the form of final statements.
 Basic Accounting Law
• The sum of the balances of Assets is always equal
to the sum of the balances of Liabilities and
Equity
• The law is expressed in terms of Basic Accounting
Equation
Assets = Liabilities + Equity
• Using this law, the fundamental Accounting rules of
Debit and Credit have been devised
Rules of Debit (Dr.) and Credit (Cr.)
Account Type Increase Decrease
Assets Debit (Dr.) Credit (Cr.)

Liability Credit (Cr.) Debit (Dr.)

Equity Credit (Cr.) Debit (Dr.)

Income (increase in Equity) Credit (Cr.) Debit (Dr.)

Expense (Decrease in Equity) Debit (Dr.) Credit (Cr.)

Four Fundamental Assumptions

• Separate Entity
• Going Concern
• Accounting Period
• Monetary Measurement
Important Accounting Principles
1.Historic Cost
2.Realisation
3.Matching
4.Consistency
5.Disclosure
6.Materiality
7.Objectivity
8.Prudence
 Accounting Standards and Practice
• Due to globalisation and multinational business operations, need for harmonization of accounting
policies/ procedure is growing.
• Generally Accepted Accounting Principles (GAAP) and International Accounting Standards (IAS) are
the set of standards followed all over the world by followers of US and UK accounting regimes
respectively.
• Professional accounting bodies, globally, undertake research on new issues and problems that arise from
time to time in business transactions. Two widely recognised bodies are;
– International Federation of Accountants (IFAC): basically concerned with audit guidelines, and laying down
ethical standards
– International Accountant Standards Committee (IASC): Issues accounting standards on different aspects of
accounting.
– IASC is, now, a committee of IFAC
• Research produce and evolve accounting standards which form the underlying basis of accounting
practices.
• Fundamental accounting standards are similar world over; but different practices are followed in various
countries.
 Accounting in Pakistan
• Companies Ordinance 1984
– The companies law in Pakistan requires that accounts of all public limited
companies be audited by Chartered Accountants
– The law lays down the bases, procedures and formats of accounts
• Income Tax Act requires that all private companies having paid-
up capital of Rs.2 million or more have their accounts audited by
a Chartered Accountant or a Cost and Management Accounts.
• There are two professional accounting bodies in Pakistan;
– Institute of Chartered Accountants of Pakistan (ICAP)
– Institute of Cost and Management Accountant of Pakistan (ICMAP)
• Both the Institutes have legal status and recognition from the
Govt. of Pakistan
 Thank You
Any Questions?

Should you need further

clarification, most welcome to
send queries at
E mail: safdar_imam@excellence.com.pk
or
emailsafdar@yahoo.com