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Accounting Rules

Qualitative characteristics and Accounting principles

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SAC3 Qualitative Characteristics

• Nationally and internationally accepted rules worked out by accountants.

• Designed so all accountant do the same thing.

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Comparability

• Reports are made on the changes in the performance of a business over a number of years.

• The same accounting methods are used each year to make it easy to compare this year to last year.

• Then accurate decisions can be made.

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Comparability

• A football coach has to choose a team and he wants to know:– Who kick the most goals?

– Who took the most possessions?

– Who assisted with the play?

• But the coach is too busy playing on Saturday to notice how well any one else is playing…

• and the trainer only recorded the final score and cannot remember how well the players performed.

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Comparability

• The coach prepares a grid for the trainer to fill in for every match.

• During the next game, the trainer records every thing but the coach still has nothing to compare it to.

• After the next few game, the coach has the right information and in a form that he can use to make decisions.

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Relevance

• The information used to make decisions must be relevant.

• All significant items must be reported in accounting reports.

• However, if they do not affect any decision when left out, they can be ignored.

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Relevance

• If the coach is given a list of food eaten by the team’s players, it will not help him select a team so he will ignore what is not relevant or significant.

• He needs to know more relevant details like how well they played over the last few games.

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Reliability

• Any information used in accounting report must be able to be check or verified using source documents e.g. receipts, cheque butts or invoices.

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Reliability

• If the coach and the trainer were away from a match, how reliable is the report from the club president who socialized all afternoon, took no notes and who wants his 16 year old son to play in the seniors.

• The coach has no way of checking because there was no grid filled out.

• The president’s opinion is not reliable.

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Understandability

• Accounting reports must be prepared so members of the public can understand them easily and make accurate decisions.

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Understandability

• If the coach makes his reports to the committee full of useless, distracting or misleading information, the committee can’t make accurate decisions about continuing his contract next season.

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Accounting Principles

• Basic rules which have become accepted over time.

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Accounting Entity Principle

• The personal transactions of the owner/s must be kept separate from the business.

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Accounting Entity principle

• What the coach does during the week at work has nothing to do with his ability to coach the football team on the weekend.

• His paid job as a teacher and coaching job are two separate things.

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Monetary Unit Principle

• Accounting reports are expressed are in Australian dollars $AUD.

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Monetary Unit Principle

• The coach is paid in Aussie dollars – not American.

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Conservatism Principle

• Accountants are cautious.

• Losses are recognised immediately or even before they occur.

• Gains are not reported until after they happen.

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Conservatism Principle

• The coach does not play his star forward until that player has fully recovered from his injuries and is fit.

• But the coach is happy to play the Under 17 who has been playing brilliantly over the passed few weeks.

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Historical Cost Principle

• All transactions are recorded at their original value.

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Historical Cost Principle

• If the Club purchased a new tractor to mow the grass, its value in the Club’s records would be at what it was purchased for.

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Going concern principle

• A business can last forever.

• This allows long term or non current assets to be reported in the Balance Sheet instead of being written off as expenses as soon as they are purchased.

• Also allows for transactions that take longer than one year e.g. Prepaid Insurance for 18 months.

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Going Concern Principle

• The team will continue to play year after year even though the members of the team and the coach retire or are replaced by younger members.

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Reporting Period Principle

• If a business can last for ever, how does the owner find out how much profit has been made?

• Selling up will show this but setting up again is costly and inefficient.

• So the life of the business is divided into reporting periods e.g. one year.

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Reporting Period Principle

• Each football season last for six months and finishes with a grand final.

• Everyone knows how well the team did by the end of the season.

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Matching Process

• Revenue earned less expenses incurred equals profit for a reporting period.

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Matching Process

• The coach must look at the points scored by the home team less the points scored by the opposition to work out the winning or losing margin.

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Consistency Principle

• Accounting methods used are applied consistently from one year to the next.

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Consistency Principle

• The coach times the players at training over 100 metre sprint every week to judge their fitness.

• He does not vary the length of the sprint.

SIREN

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