The financial reporting model is based on many assumptions and all of the assumptions help in the decision making process for investor, creditors, regulators, employees and upper management (Horngen, Sundem, Elliott, & Philbrick, 2011). The first assumption is economic entity which is when the stakeholders business transactionsare kept separate from their personal transactions. This means the business is its own entity (Accounting Coach, n.d). The next assumption would be going concern which is; the assumption that a company will continue indefinitly. This means a company is saying that it has the assets necessary to continue to meet demands and has no intenitions to sell its assets and close its doors (Horngen, Sundem, Elliott, & Philbrick, 2011). The thid assumption is monetary units which means; foreign money converted to US dollars on financial reporting (Horngen, Sundem, Elliott, & Philbrick, 2011). The monetary unit is based off the value of oney which ahs to do with inflation over years and currency (Horngen, Sundem, Elliott, & Philbrick, 2011). What the monetary unit is saying is a dollare ten years ago has the same value as a dollar today (Accounting Coach, n.d). The last assumption is periodicity which deternes when information is reported on the financial report. Periodicity says that information must be redorded in the period in which the transaction accurred this is important because without periodicity business could report the information whenever they wanted to (Accounting Coach, n.d). The period could be weeks, months, quarters or years, but the periods must be listed at the topp of the income statement and cash flow as well as the stockholders equity so that it is clear when a transaction took place and in which period (Accounting Coach, n.d).
There are four principles when looking at the financial report model which are; historical cost, revenue recognition, matching and full disclosure (Carabelli, n.d). All forms of these principles play an important role in the financial report model and all four help in the decision making process which is one of the main purposes of financial is reporting. Historical costs which is; what something cost the company when they actually purchased it. This refers to assets and liabilities (Investopedia, n.d). Revenue recognition mean the company's revenue must meet certain criteria's to be considered revenue. The first criteria is the sale must be complete; the seller must not owe the customer anything this means the order must be completely filled (Kennon, Revenue Recognition, n.d). There is revenue recognition on a sales basis which means the revenue is recognized at the time the sale is complete and the material is delivered even if the cash is paid up front the revenue is not recognized unless the material is completely received. If a company order 500 baseball bats and pays for them up front, but only 300 baseball bats are shipped the revenue is not recognized until the remaining 200 baseball bats are delivered (Kennon, Revenue Recognition, n.d). The next principle would be matching; matching is linking expenses and revenue to report profitability this means if a sale is made then their will be expenses which allowed revenue (Accounting Coach, n.d). Matching is when expenses are recoreded when they are incurred not when they are paid for. The last principle is the full disclosure principle; what this principle states is that all information about a companies financials must be disclosed in a clear understanding way so that creditors and investors can make a clear decision on whether to invest in a company (Carabelli, n.d).
Accounting Profession is groups or organizations that ensure that accountants are following the rules and regulations set in place. Just like police officers make sure drivers follow the speed limit account profession makes sure accountants follow the rules (QFianance, 2011). Accounting profession in the US is made up of the SEC, AICPA and the IRS. All three of these organizations are put in place to make sure the accountants in a company are being legal and ethical when reporting the financials of a business. The Account Profession audits the books of the accountants to ensure everything is properly done.
There is a three tier structure when dealing with accounting rules and regulations and at the top of the chain is congress. Congress is involved to ensure that the FASB and the SEC follow and set rules that comply with what congress deems appropriate. Congress can overrule the FASB and the SEC whereas; the FASB cannot overrule anything and SEC can only overrule the FASB (Horngen, Sundem, Elliott, & Philbrick, 2011). The FASB and the SEC work closely together to ensure that regulations are made and that all companies adhear to those regulations.
Annual, 10K & 10Q
The 10K report and the annual reports are very similar and in some