I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

 

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EXAMPLE 

An accountancy training firm has an excellent reputation among students and employers. How would 

you value this? The firm may have relatively little in the form of assets that you can touch; perhaps a 

building, desks and chairs. If you simply drew up a statement of financial position showing the cost of 

the assets owned, then the business would not seem to be worth much, yet its income earning potential 

might be high. This is true of many service organisations where the people are among the most valuable 

assets.  

 

Other examples of areas where the judgement of different people may vary are as follows. 

(a) 

Valuation of buildings in times of rising property prices 

(b) 

Research and development: is it right to treat this only as an expense? In a sense it is an 

investment to generate future revenue. 

(c) 

Accounting for inflation 

(d) 

Brands such as 'Dr Pepper' and 'Cadbury Dairy Milk'. Are they assets in the same way that a fork 

lift truck is an asset? 

Working from the same data, different groups of people produce very different financial statements. If 

the exercise of judgement is completely unfettered, there will be no comparability between the accounts 

of different organisations. This will be all the more significant in cases where deliberate manipulation 

occurs, in order to present accounts in the most favourable light. 

1.4 Accounting standards 

In an attempt to deal with some of the subjectivity, and to achieve comparability between different 

organisations, accounting standards were developed. These are developed at both a national level (in 

most countries) and an international level. The FFA/FA syllabus is concerned with International