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Although the basic accounting concepts define the assumptions underlying the preparation of financial statements and the process of preparation in the UK is well regulated, this does not entirely eliminate the need for judgements/estimations to be made by

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  1. Introduction
  2. The basic accounting concepts
  3. The assumptions underlying the preparation of financial statements
  4. The process of preparation in the UK is well regulated, this does not entirely eliminate the need for judgements/estimations to be made by preparers of accounts and in many areas still leaves significant choice in accounting treatments- Discuss
  5. Conclusion

The general purpose of financial reporting is to present information about specific company to investors or shareholders but also creditors, employees and tax authorities as well as the general public. The information is than to be used for decision making as well as planning in case of the information being used by the management of the company as overall assessment of the companies finances. For example investors do not only analyze the financial reports to understand the company's prospects of future profits or losses but also to understand how well are the assets managed by the management or how much debt was put upon the company as well as how efficient the operations taking place are.

According to IFRS Frameworks: ?'general purpose financial reports cannot provide all the information that users may need to make economic decision. They will need to consider pertinent information from other sources as well.'' Deloitte (2012) Therefore additional information has to be sought from sources such as press releases, Securities Exchange Commission, Accounting Regulators or ratings from Credit Rating Agencies.

[...] The meaning of a defined accounting concept: regulatory changes and the effect on auditor decision making. Accounting, Organizations and Society. 26 (2) 11. Elliot B. and Elliot J. (2011). Financial Accounting and Reporting. 14th ed. Harlow: Pearson Education Limited 12. O'Regan P (2006). Financial Information Analysis. 2nd ed. London: John Wiley & Sons. p35 13. Paterson R. (2002). Whatever happened to Prudence? Accountancy. 129 (1301), p105 14. Unnibhavi B (2005). Financial Accounting. New Delhi: Atlantic 15. Ward G. (2005). A Matter of Principle. [...]

[...] As previously mentioned accounting concepts, principles and regulation leave to some extent space for accountants' judgement or estimation as well as may conflict with each other. As there were multiple concepts and principles developed or updated in the past decades, some of the accounting bodies such as the FASB attempted to develop clear guidelines for using of those concepts in form of conceptual framework. Conceptual framework is defined by O'Regan (2006) as fallows: ?'a unified and generally accepted set of theories and principles that provide a foundation from which specific practices and methods can be deduced.'' These conceptual frameworks were meant to not only clarify and guide through use of various accounting practices but also to minimize the loopholes leaving space for personal judgements. [...]

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