While there is no definite list of basic principles of accounting that are definitive, few, accounting principles will encourage a uniform level of quality amongst accounting professionals to provide a framework that generates relevant, reliable, and useful information. It’s always good to stay updated about fundamental accounting principles, accounting standards and business accounting. It is essential for a business owner to understand the basic principles of accounting not only for the good of the company, but also for his own peace of mind.
Knowledge of accounting process is very important for the owner to understand how the company performs and have a better grip over the minute details which give a brief idea about the success or failure of the business.
The reason for separate SME accounting standards is the undue cost burden of reporting, which is proportionately heavier for smaller firms. International Accounting Standards Board (IASB) which is responsible for the international standard-setting for the accounting profession, has issued an International Financial Reporting Standard (IFRS) designed for use by small and medium-sized entities (SMEs).
IFRS provide a standard for entities in countries that have no national GAAP. It provides an accounting framework in such countries for entities that are not of the size nor have the resources to adopt full IFRS.
- IFRS is designed for companies that are required, or choose, to produce general purpose financial statements
- Subsidiaries of parent companies using full IFRSs are eligible in their separate financial statements to use the IFRS for SMEs
- It will also provide countries that already have an established national GAAP with an alternative, IFRS standards that will be recognized and understood across different territories which will ease transition to full IFRS for growing entities once they become publicly accountable
- The IASB considers whether to include in the definition of public accountability those companies which provide an essential public service such as a public utility
- It includes a section that sets out transactional requirements, mandatory exceptions and optional exceptions
- IFRS can be adopted by an entity only once. Therefore, it will not benefit you more than once for recognition exceptions
- As per a Worldbank report, IFRS was set to be the accounting standard in 1998 by the council of ICPAK (Institute of Certified Public Accountants of Kenya). IFRS has also been legalised for both listed and non-listed companies in the Companies Act in the latest amendment in 2002, as per a compliance assessment published by International Federation of Accountants (IFAC)
Kenya is in the fourth and final stage of IFRS adoption process.
Entrepreneurial Learning
It is essential for every SME owner to understand the basic accounting concepts and principles at the very least. For the SMEs to extend their limits to international platform, IFRS has set some common economic standards in terms of few accounting principles while permitting the rules that were earlier excluded for SMEs and which are made simple and user-friendly. A professional accountant must have a strong grip over accounting standards, accounting processes and accounting principles while running a business.
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