Case Study Importance of Accounting Standards Essay

The importance of be measuring sticksA termswaterho intakeCoopersCase StudyIntroductionPricewaterhouseCoopers was created in July 1998 by the merger of two firms Price Waterhouse and Coopers & Lybrand each with historical arrive going back some cl course of studys and o instalinating in London. PricewaterhouseCoopers, the worlds largest professed(prenominal) de thunder mugcel organization, helps its clients build repute, portion unwrap risk and improve their per kneadance. Drawing on the talents of more than 140,000 people in 152 countries, it stands a full range of billet consultative services to leading spherical, national and topical anesthetic companies and to public institutions. These services include examine, accounting and tax advice do itment, instruction engine room and clement resource consulting pecuniary advisory services including mergers & acquisitions, subscriber line recovery, project pay and litigation support business lick pl acesourcing services and legal services d wizard a global elucidatework of consort law firms. Five things you didnt see virtuall(a)y PricewaterhouseCoopers1. To meet their growth targets they imply to hire 1,000 people a workweek across the world. 2. They allow for be the largest professional services firm in critically important emerging markets Russia and the Former Soviet Union, India, China, Singapore, Malaysia and Latin America. 3. The high engine room practice bequeath yield revenues in superfluity of $1 billion with over 2,500 technology clients. 4. Work with Financial go clients pass on represent more than 20% of PricewaterhouseCoopers world(prenominal) revenues. 5. They argon already investing $cc million a year in new technology. A global effortThe new, combined organization is the result of the continue growth in the international economy. Companies ar seeking to re-define themselves to thrive in the market-place where mergers and acquisitions are increa singly important and m whatsoever companies straightway operate without geographical boundaries. A large global enterprise such as PricewaterhouseCoopers havefully a solid fundament to meet its clients expectations. One element is a powerful  infobase developed by PricewaterhouseCoopers that shares trounce practice data with all its world powers some the world. PricewaterhouseCoopers is alike harnessing all available technology to ensure any of their advisers can work with their clients anywhere in the world, allowing them to be fully effective in serving the clients takes immediately. They cater businesses around the world two(prenominal) a wider range of services and a more integrate service than has forever been possible. This service also provides a event to business problems of a scale and complexity that are greater than ever before. An integrated team approachThey provide a fully integrated team to swindle a unions several(a) problems. At Pricewaterho useCoopers, in that respect are sextet service lines or departments which cover distinguishable areas of specialization. They are confidence & business concern Advisory serviceManagement Consulting ServicesTax & Legal ServicesFinancial Advisory Services spheric Human Resource Solutions melodic line act Outsourcing.PricewaterhouseCoopers may work on one of these areas and find that the client requires help and solutions to identification numbers in unlike areas. They are able to provide an integrated team of experts to give advice and offer a range of possible solutions. The initial and largest of these service lines, the Assurance & traffic Advisory Service is now considered in more depth. ABAS Assurance & Business Advisory ServicesAt PricewaterhouseCoopers the global practice they call ABAS provides a wide-cut range of services which fulfill triple core business inevitably 1. Assurance They conduct audits and provide assurance to clients on the pecuniar y writ of execution and operations of their businesses. 2. international Risk Management Solutions They help clients to manage their business risks and thereby improve financial performance. 3. Transaction Services They offer advice to clients about their significant performances such as mergers & acquisitions activity. Some of the most kindle organizations from the world of banking, commerce and government set out to them for advice. The client list is dominated by household names, with particular strengths in communications, financial services, retail, energy and manufacturing sectors. AssuranceAssurance is the largest part of the UK practice for PricewaterhouseCoopers and generates income from a combination of audit and business advisory assignments. In annex to an audit, many clients require business advisory services. For modelling, they may provide advice on adjunction ventures or mergers, helping companies to float their bon ton on the Stock Exchange or a ssess whether the technology or systems in place provide an accurate direction of inform the financial data. AuditingIn stage that shareholders and other enkindle parties can present informed judgments as to the financial health of a caller, it is a legal prerequisite that all companies have their financial facts and figures checked. This is cognize as an audit and moldiness be performed by an independent registered firm of auditors. The auditors use guidance from the account statement Standards Board to bring up whether in their opinion the financial randomness presented by the alliance is a uncpetroleumed and sporting representation of that go withs financial health. The primary reporting duty of the auditors is, however, to the shareholders, not to the keep confederations directors. It is fire to note the difference between genuine and fair and 100% accurate. It is not the part of the auditors to check every individual transaction performed by a fraternity and thence the auditors cannot state that the figures are 100% correct, and that, in their opinion, they are true and fair. Legislation and regulation of companiesThe accounts of a gild are designed to show both the performance and its current financial position. in all company accounts in this country take up to be green groceriesd in accordance with 1. The Companies Act, 1985 for UK, for Pakistan Companies economy 1984 and 2. chronicle StandardsStatement of Standard accounting system Practice (SSAPs)Financial coverage Standards (federal officials).In essence these standards set outWhat information should be included in a companys accounts How this information should be presented.The Companies Act / Ordinance, decrees that companies must build up accounts for publication. The Accounting Standards Committee devised SSAPs. In 1991 the Committee was replaced by the Accounting Standards Board, which develops FRSs. The Board is gradually transposition SSAPs with FRSs, which a re issued when the Board identifies a need. These two sets of standards encourage greater clarity so that the reader can fully view the information represented. Accounting standardsFRSs are pass judgment as business becomes more complex. How these distinct standards are applied varies with the fictitious character of business conducted by a company. As for any company the shareholders interests must be protected. The undermentioned examples of SSAPs and FRSs demonstrate the consideration that must be given in drawing up financial accounts in coordinate that interested individuals, such as financial analysts, can clearly judge a companys performance and position. Key standards go forth be considered in this and the following section. SSAP 12 Accounting for derogationCompanies invest in summations (such as machinery) in order to dumbfound goods or services to take. These are cognise as bushel pluss. In the grammatical case of the plash or anoint assiduity, an inunc t rig is a set asset the company must own an petroleum rig to cut oil or gas. All companies have some form of fixed assets although the dependence on these assets varies with the cause of business. Another example could be machinery for manufacturing a car, or a building in which employees work. In this example, Global fossil oil has built an oil rig for 50m. In its labyrinthine sense tab, notes will be trim back by 50m and fixed assets will incr residue by 50m. In 20 years time (the economical life), the company knows that the oil rig will need to be replaced. By the 20th year, the hold dear of the oil rig in the companys agreement sheet will be zero. then, the value of the oil rig will reduce each year by a set heart and soul (2.5m in this example). This is known as depreciation and the one-year depreciation figure is shown in the pull ahead and bolshy account. SSAP 12 states that the economic life of a fixed asset should be reviewed regularly and should be say in the notes to the accounts, together with how the rate of depreciation was determined. FRS 11 Impairment of fixed assets and goodwillFRS 11 is a new standard and deals with any handout in value to a fixed asset, for example through damage or downturn in the economy. This is known as impairment. For example, if a pipeline from Global petroleums oil rig is damaged, the supply of oil or gas is trim or stopped until repairs are make. Thus the ability of the oil rig to discover oil or gas is less(prenominal) than anticipate and the fixed assets value is bring down. Global Oil must therefore make a global reduction in the value of the asset and charge the going to the pull in and loss account. FRS 11 states that all companies must reassess the value of their fixed assets on a regular basis to piddle whether the figure in the symmetry sheet is a fair value. FRS 1 Cash flow statements in that location are three main statements in a companys yearbook report and accounts th e profit and loss account, the balance sheet and the cash flow statement. For example, succession Global Oil may be passing profitable, without any cash it will be unable to pay its employees or suppliers. Clearly, when Global Oil sells oil to its customers, it needs to ensure it receives prompt payment. Cash is the lifeblood of a business and it is therefore important for a company to issue a cash flow statement. FRS 1 sets out the format and contents of a companys cash flow statement. Accounting standards continuedFRS 3 Reporting financial performanceThis is a highly complicated standard. Essentially FRS 3 serves to make sure the information presented in a set of accounts is clear. Companies must issue a report stating the financial performance for review by its shareholders. Consistency and ease of apprehensiveness these reports allows the reader to compare the data for similar companies. This would allow a electromotive force investor to compare competing oil or gas companie s before deciding which companys shares to buy. In this example of Global Oil, there are three subsidiaries internationalistic Gas, International Oil and International Petrochemicals. Each of these contrasting companies or subsidiaries must also produce their own set of accounts as should the enkindle company, Global Oil.FRS 3 states how a company must set out the financial reports and accounts, the type of information that should be provided and where it should be categorized in the company statement of accounts. FRS 3 surpassing itemsFRS 3 consists of several other sections including a note on particular(a) items. These are one-off situations and may result in either a profit or loss to the company. These are included in a affiliate section in the profit and loss account. The reasons for incurring an especial(a) item are various. Examples include the usual costs involved in carve up up or de-merging a value company, such as telecommunications or gas, into their separate c omponents. In this case study, Global Oil decided to move its head office to Edinburgh. As this move is not judge to happen regularly in the pattern course of business, the cost is regarded as an extraordinary cost. Although this cost is included in the profit and loss account, it is clearly marked as exceptional so that shareholders realize that a marginal reduction in profit is not a result of a reduction in revenues. FRS 3 also states that exceptional charges must be shown separately in the profit and loss account and detailed in the notes to financial statements. SSAP 25 segmented reportingSegmental information gives a breakdown of the unalike industrial sectors in which a company is involved and allows the reader of the accounts a ofttimes better understanding of where the money is made within the different parts of the company. This information may also be provided on a geographical basis if this is relevant. This standard is mostly applicable to the biggest public part icular(a) companies or if the company has a banking or insurance division. So for Global Oil, the financial information should detail the amount of business generated in oil refining, gas and petrochemicals. It should also provide information on the different geographic areas in which it operates. SSAP 25 states that the annual report and accounts for a company needs to provide a geographical and industrial breakdown of the following information turnover rateOperating profit and loss terminal assets.SSAP 9 Stocks and long-term contractsStock is an asset on the balance sheet and is fundamentally the product that a company will sell. In the case of Global Oil, its inventorying is oil and gas. SSAP 9 deals with how to value this received on the balance sheet. Typically the value on the balance sheet would be the cost to produce and refine the oil into a marketable state. However, if the price of oil drops to a value below these outturn costs, then Global Oil cannot sell the oil at a profit. In these circumstances, the value of the oil stocks on the balance sheet must be reduced to the sale price minus all transaction costs. This is known as the net realizable value. SSAP 9 states that a company must value its stock at whichever is the lower value the cost to produce versus the net realizable value. ConclusionThe example of Global Oil demonstrates the financial reporting standards that must be considered when preparing a companys accounts. More standards are expected as the complexities of business transactions grow and accounting practice adapts to keep up with these changes. Such changes already observed in business are the use of derivatives and financial instruments. At PricewaterhouseCoopers, the ABAS teams are experts in their orbital cavity of knowledge and exercise their judgment in interpreting how these standards apply to different companies. The slaying of the standards can vary according to the type of industry and even between companies in the s ame industrial sector. In order to ensure the best possible interpretation, the ABAS teams need to have a good understanding of the clients business and industry sector.