Meaning:
According to the committee on Accounting concepts and Standards ,American Accounting Association ,The primary function of accounting is to accumulate and communicate information essential to an understanding of the activities of an enterprise whether small or large ,corporative or non corporative,profit or non profit, public or private.
Objectives:
1. To provide information to the investors ,creditors and other users in making rational investment ,credit and other similar decision.
2. To assess the amount ,timing and uncertainty of prospective net cash inflows to the related enterprise.
To provide information about an enterprise financial performance during a period.
3. To provide information about an enterprise performance provided by measuring of its earnings and its components.
4. To provide information about how an enterprise obtains and spends cash ,about its borrowings and repayment of borrowings and also about other factors that may affect an entreprise liquidity or solvency.
5. •To provide information that is useful to managers and directors in making decisions in the interest of owners.
Reports:
1. Statutory Report
2. Non-Statutory Report
1. Statutory Report: Statutory Reporting is that which is to be done as per provisions of the law Sections 210, 216 and 217 of the companies act 1956.
It is compulsory for the Board of Directors to lay before the company’s annual meeting a copy of the Profit and Loss Account, Balance Sheet together with the directors’ and auditors’ reports.
2. Non-Statutory Report: In Non- Statutory reporting , reporting may not be required legally but a company may be voluntarily reporting to shareholders on some matters which may be important to them and other members of the public.
In an annual report of a company there may be a description of social accounting, human resource accounting, impact of price level accounting ratios, highlights of the information contained in the financial statements, etc.
Published Accounts: Sections 210, 216 and 217 of the companies act 1956 , make it compulsory for the BOD to lay before the company’s AGM a copy of the P/L account and balance sheet together with director’s and auditor’s reports.
These documents are popularly known as PUBLISHED ACCOUNTS because all companies print and publish these reports .
These are mandatory for all registered companies.
Objectives of Published Accounts:
1. Giving information about the performance of the company during the year usually comparing it with the previous year.
2. Giving information about the problems faced by the company during the year and steps taken to overcome the problems .
3. Information about sources and applications of funds.
4. Information about the products of the company .
5. Giving information about employees whose emoluments are more than 3000 a month.
Recent Trends in Corporate Accounting or Published Accounts (2016)
This voluntary information may include:
1. P&L account and balance sheet drawn in summarized manner in a columnar form
2. Presentation of the ‘highlights’ of the information contained in the published accounts
3. Preparing cash flow statements
4. Preparing fund flow statement
5. Provision of important accounting ratios
6. Disclosure of accounting policies
7. Use of charts, graphs and diagrams
8. Use of schedules
9. Impact of price level accounting
10. Rounding-off of figures
11. Disclosures of post statement events
12. Segmental reporting
13. Social accounting
14. Human resource accounting
15. Corporate governance
16. Value added statement
Profit and Loss & Balance Sheet
Nowadays companies are discarding the preparation of traditional two sided balance sheet and P&L account and are following the columnar forms/ vertical forms
Highlights
Highlights are usually shown at the beginning of the annual report so that the reader come across the important facts as he opens the report .
Highlights usually cover information about sales, production, profit before and after tax, shareholder’s equity etc.
Cash Flow Statement
A enterprise should disclose together with a commentary by management, the amount of cash and cash equivalents balances held by the enterprise.
Information about the cash flow of an enterprise is useful in providing users of financial statements with a basis to assess the ability of the enterprise to generate cash and cash equivalents and its utilization.
Fund FlowStatement
This statement discloses how a business enterprise has been financed and how it uses its funds. It refers to the change in working capital.
Use of Schedules
Nowadays efforts are being made to make the balance sheet and profit and loss account as compact as possible.
For this purpose , separate schedules for different heads like:
Share capital, reserves and surplus, secured loans, unsecured loan, current liabilities and so on.
This is done to make the accounts manageable within limited space.
Use of Graphs, Charts & Diagrams
Nowadays many companies include charts , graphs and diagrams in their published in their published accounts.
It is known as graphic method of presentation.
It is more effective and appealing to the eye.
Impact of Price Level Changes
Prices do not remain constant, they go on changing each day. Financial statements or reports based on historical costs fail to reflect the effect of price level changes on the financial position and the profitability of the company. Financial statements are wrongly interpreted unless adjustments are made to place the data on the current price level.
Keeping this in view, accounting for price-level changes has been engaging the attention of the accounting authorities of almost al the countries in a supplementary statement in addition to the conventional statements which are prepared under the historical accounting system.
Rounding of the Figures
The Sachar Committee has recommended that the companies should be given the option to round off the figures in the balance sheet to nearest thousands or hundred or ten rupees. This will facilitate the publications of accounts in an intelligible form.
Disclosure of Post-Statements Events
It is possible that the events might have occurred after closing date of the accounting year for which financial statements are to be prepared affecting the interpretations of these statements and the resulting decisions based on the information contained in such information. To the extent such events become known before the annual report is printed, the objective of the corporate reporting requires the information relating to these events should be given in the annual reports so that the users of the annual report may not be misguided.
Segmental Reporting
The Institute of Chartered Accountants Of India has issued Accounting Standards 17 “ Segment Reporting” which is effective and mandatory in respect of accounting periods commencing on or after1 Apr 2001. This is applicable to:
A) Enterprises whose equity or debt securities are listed on a recognized stock exchange.
B) All other commercial, industrial and business reporting enterprises whose turnover for the accounting period exceeds Rs. 50 crores.
Social Accounting
The main emphasis for evaluation of a business unit was on commercial aspects; the social aspect has so far been ignored. Businesses today cannot strictly adhere to only one objective of maximizing profit. Business today function under a particular political, economic and social environment.
Many rules, regulations and laws relating to social responsibilities of the business have been framed by the government and as a result people have become conscious of their rights and cannot tolerate the socially irresponsible behavior of business units.
Human Resource Accounting
The success of an organization depends on the quality, caliber and character of the people working in it. Employees are thus, the greatest asset of an organization and the success or failure depends on the skill and performance of the employees.
HRA is an effort to identify and report investments in human resources of a firm that are not accounted for in conventional accounting practice. Basically it is an information system that tells the management and shareholders what changes are occurring to the human resource of the firm.
Corporate Governance
It is a system by which companies are directed and controlled. Corporate governance us linked with power and accountability. Who exercises power on behalf of whom and how the exercise of power is controlled. Annual report should contain a separate section of Corporate Governance with a detailed compliance report thereon.
