Questions on Accounting: True and Fair View concept. Intangible Assets.

Question One: The History and Significance of True and Fair View concept

True and Fair View is one of the concept that has been used for many decades in countries such as the United Kingdom. The principle that applied to the early concept of the True and Fair has changed due to alterations of many company laws and the standards of accounting. True and Fair View is one of the important principles applied in the accounting field. This concept states that; a company should be able to present a True and Fair View about its achieved results and the financial statements (Robert, 2017). The origin of True and Fair View was long time ago when a UK act needed the preparation of a balance sheet that was full and fair. This concept does not mean telling the whole truth about the entire information of the company. Financial information mainly involves the main results of management measures and the approximations made. True and Fair View principle requires entire truth about the structure of the company. This concept can be achieved by accepting all other principles of lower accounting. In a company, True and Fair View protects the financial information from misstatements or misunderstandings and honestly stands for the financial accomplishments (Eggleston, 1930).Breaking this concept in to true and fair and defining each words creates a better understanding for True and Fair View. The word true in accounting concept means that, the financial reports have no mistakes and have been correctly prepared by following the right reporting structure. Fair mean that the financial report is represented without any traces of discrimination and despite presenting their legal form, they also show the transaction means. The significance of True and Fair View is to help the directors to provide the audit opinion of the company. It also enables most of the companies to provide a clear financial statement without discrimination.

The Usefulness of Accounting Standards and the Process by which they are agreed

Accounting principles that are generally accepted have an agreed set of procedures, standards that the company must adhere to when recollecting their financial reports. These accounting principles contains set standards that are used when presenting and giving information on the accounting statements. Accounting principles clarifies the communication of financial statements. These accounting standards are used to minimize the level of hardness on the calculation of company financial information. These standards ensure that the investors have an easy time when analyzing and obtaining the company beneficial statements. Accounting standards allow easy contrasting of different companys financial statements. Accounting standards cannot be used as a proof that the financial statement of the company has no errors or mistakes (Andrew, 1992). Despite the company using these standards of accounting, further analyzing of the financial statements should be done. These accounting principle are made in order to ensure a company adheres to the concept of True and Fair View. These standards contain conventions and concepts that guide the company on how to utilize the concept of True and Fair View. Some of these conventions include; monetary measurement that states that; unless the items are quantified in form of money, the accountants should not account for them. Separate equity ensures that private matters are not included in the business matters. Realization ensures that the company can only accept monetary fund under legal permission not after getting the cash at hand. Materiality is another convention that is usually applied by the auditors of accounting. For a company to attain the level of accounting standards it must adhere to the following characteristics; the accounting information should be understandable, it should be of help, it should be able to give comparison and it should be reliable (Charles .F, 1919).

The Relationship between the concept of True and Fair View and creative accounting

Creative accounting involves the accounting activities that follow the laws and regulation but do not adhere to the accounting principles. Creative accounting emphasizes on the alternatives in the accounting standards that falsely shows the good part of the companys image. Creative accounting can be used to control and maintain the debts and the bad financial statements of the company(Alexandra,1994).Creative accounting is mainly used to improve the accounting performance of a company. Creative accounting involves all the management process that is less than the true and fair view concept. True and Fair View concept requires the exact estimations of financial statement while the estimations made in the creative accounting can either be pessimistic or optimistic as per how the situation is(E. Walden,1961) Some errors are made when preparing a financial statement of a company in the case of creative accounting while in true and fair view there is no room for errors or manipulation of the financial statement. Creative accounting portrays the desired image of the company while true and fair view portrays the objective image of the company.

Question two: How intangible assets can be valued

Intangible assets are assets that have a long term service of producing services and goods. They mainly stand for the competitive merits and the legal rights developed by the owner. They are the king of assets that have no physical properties. Intangible assets should provide economic benefit such as increased revenue, increase in the saving cost and improvement in market share which will enable the intangible assets to acquire value. Intangible assets can either be exploited directly or indirectly (Walden, 1960). Examples of intangible assets include; business trademarks, contracts and goodwill that offer privileges to the business owner. The conducting of business valuation enables the business owner to know the intangible assets of the business. When doing valuation of intangible assets, broadly accepted approaches are used which include; cost, market and income approaches (Kester, 1936). Market approach uses the transactions involving buying or selling or franchising of intangible assets which work hand in hand with other business deals. Income approach mainly involves future estimates of cash flows or economic profits as per the estimated time and the risk undertaken, to offer the value. The cost approach is based on two forms of cost which are the estimated cost and the historic cost. Cost approach is also based on the time required to create the same number of intangible asset. A business that involves intangible assets ensures that the techniques used are balanced, real and the same with the other assets valuation.

How Intangible Assets affects the financial statements

Financial statements provide a better communication between the company and its investors. Accounting of intangible assets in a company provides a good conceptual structure that enables preparation of financial reports of high quality. Financial reports involve the income and the expenses made by the company (peter, 1991).This information enable most of the people who want to know more of the company to use this information in analyzing it. Intangible assets are important in development of a company. Intangible assets are the key factor for creating competition between companies this creates the role of physical and the financial capital. This kind of assets increases the earning power of the company. The financial report structure depends on how the intangible assets are treated. Acquiring the intangible assets externally enable them to be presented in the balance sheet which is one of the financial report. Most categories of intangible assets are not included in the financial statements and this may affect the value of the company. The reason for treating the intangible assets different is that the accounting principle shows that a business cannot recognize any intangible assets generated internally. The balance sheet only accounts the acquired intangible assets (Roy, 1922).Since the value of the intangible assets is not included in the financial reports this can confuse the outsiders who want to know more of the company. Intangible assets can only be included in the financial statements if only they are purchased from other company and they provide a long term service. They are only recorded as expenses in the balance sheet. One of the elements of intangible assets that make them not to be included in the financial statement is that they are not priced. Some of the important attributes of intangible assets is that it can be managed and it provides long term economic for the company. The intangible assets can be measured by frequently monitoring their use or their implementation in making the company sales.

References

Alexander, D. The True and Fair View Concept: Towards and International Perspective. , 1994. Print.

Eggleston, De W. C. Modern Accounting Theory and Practice. New York: J. Wiley & Sons, 1930. Print.

Freeman, Robert J. Governmental and Nonprofit Accounting: Theory and Practice. , 2017. Print.

Higson, Andrew, and John Blake. The True and Fair View Concept - a Formula for International Disharmony: Some Empirical Evidence. Loughborough University of Technology, Department of Management Studies, 1992. Print.

Kester, Roy B. Accounting Theory and Practice. New York: Ronald Press Co, 1936. Print.

Kester, Roy B. Accounting: : Theory and Practice. New York: Ronald, 1922. Print.

Milroy, Robert R, and E Walden. Accounting Theory and Practice: [3]. Cambridge: Houghton Mifflin, 1961. Print.

Milroy, Robert R, and Robert E. Walden. Accounting Theory and Practice: Intermediate. Cambridge: The Riverside Pr, 1960. Print.

Rittenhouse, Charles F, and Philip F. Clapp. Accounting Theory and Practice. New York: McGraw-Hill, 1919. Print.

Walton, Peter. The True and Fair View: A Shifting Concept. London: The Chartered Association of Certified Accountants, 1991. Print.