Accounting for decision making

Part 1

Generally Accepted Accounting Principles - consist of a number of principles that financial accounts to external users should abide with Examples of such principles encompass the principle of consistency prudence , accruals , integrity in report and going concern . It is imperative that organizations abide with such principles in their reporting in to ensure that the qualitative characteristics of financial statements are met . Indeed an important function of the external auditor during his assessment is to provide reasonable assurance that the annual report complies with these generally accepted accounting principles . Failure

to abide will lead to a qualified audit report that will shake the confidence of external stakeholders in the management of the organization

Historical Cost - this accounting concept states that assets should be valued at their historical cost in the accounts . Such historical cost comprises the acquisition price charged the date the transaction occurred . In the accounting environment this premise led to substantial debate among authors hindering its applicability . For instance , it is contended that long-term resources like land and buildings appreciate in value over time and if they are reported at historical cost , they would not reflect their true economic value . In this respect , the accounting profession had to allow revaluation of such assets , provided the valuation was carried out by a technically competent and independent individual to abide with the qualitative feature of reliability . In addition , tangible fixed assets , like machinery and motor vehicles lose their value over time due to wear and tear . Therefore again , allowance...