Accounting analysis Essay Example | Topics and Well Written Essays - 750 words

Accounting analysis - Essay Example For other transactions substance and form diverge and the choice of treatment can give different results due to non-recognition of an asset or a liability even though benefits or obligations result.Full disclosure is not enough:all transactions must be accounted for correctly,with full disclosure of related details as necessary to give the user of accounts a full understanding of the transactions.The interaction of the framework with other standards is also an important issue. Whichever rules are the more specific should be applied, given that IAS's should be consistent with the framework. Leasing provides a good example: straight forward lease which fall squarely within the terms of IAS 17 should be accounted for without any need to refer to the framework, but where there terms are more complex, or the lease is only one element in a large series of transactions, then the framework comes into play. In addition, the framework implicitly requires that its general principle of substance over form should apply in the application of other existing rules.How does the frame work enforce the substance over from rule Its main method is to define the elements of financial substance and therefore to give rules for their recognition. The key considerations are weather a transaction has given rise to new assets and liabilities.A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. (http://www.iasplus.com/standard/framewk.htm) Identification of those who have risks related to an asset will generally indicate who has the benefits and hence who has the asset. if an entity is in certain circumstances unable to avoid an outflow of benefits, this will provide evidence that it has liability. The definitions given in IASC framework of income and expenses are not as imp as assets and liabilities. This is because income and expenses are described in terms of changes in assets and liabilities, i.e. they are secondary definitions Income is increases in economic beniufit5s during the accounting period in form of inflows or enhancements of assets or decreases of liabilities that result in decrease in equity, other than those relating to contributions from equity participations. Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletion of assets or increases of liabilities that results in decrease in equity, other than those relating to distributions to equity participants. (http://www.iasplus.com/standard/framewk.htm) The real importance then is the way the Framework defines assets and liabilities regardless of the legal status. It is not sufficient, however, that the asset or liabilities fulfils the above definition; it must also satisfy recognition criteria in order to be shown in an entity's accounts