Conceptual Frameworks

Essay by wongbunUniversity, Bachelor'sC-, July 2004

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The Accounting Standard Board (ASB) in UK aims to establish and to improve the Standard of Financial Accounting and Reporting for both the users and preparers of the financial statements. The Statement of Principles for Financial Reporting (SoP) plays a fundament role in standard setting and intended to set out an approach and a framework that can be used for setting the up-to-dated Financial Reporting Standards. The SoP, although not a legal requirement for preparation of company's financial statement and it doesn't override the Company Act, it greatly provides a clearly guideline for the preparers. This essay is going to discuss how the SoP and FRS help the ASB in achieving their aims.

In the chapter 2 of SoP, it states the reporting entity. Financial statement on all the activities and resources under the control of the entity that has prepared them. An entity which has indirect control of the activities, assets and liabilities if a subsidy should prepared consolidation financial statements.

According to Companies Law, control means firstly, there is ability to deploy the economic resources involved and, secondly, the ability to benefit (or to suffer) from this development. Controlling over another entity occur when one company owns more than 50 per cent of the other one, subsidiaries must be consolidated in group accounts, which means all the subsidiary's asset and liabilities must be added together, one line in time, with a deduction at the end of the balance sheet to reflect any minority interests belonging to outside shareholders.

However, if a company only owns between 20 and 50% of another company that second company is called an associate, and the accounting treatment changes. Associate are not consolidated instead they are account for in a single line entity in the group balance sheet, and Profit...