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The main purpose of general financial reporting is that to deliver the financial data to the business entity which are mainly useful for the investors, creditor and lenders to make the effective decisions regard to delivering the resources of business entities. In the conceptual framework in the information are essential to the investors who meet their needs regard to information of the another stakeholders at the maximum extent. Thus, in these accounting conceptual framework the main fundamental of qualitative characteristics in which there is a financial data that are able to made a variation to the user decisions. Therefore, in order to make the difference in the financial data which has both predictive value as well as confirmatory value. There are various qualitative criteria that are useful to possess the financial information in the decision making process are the reliability and relevance. Therefore, it is more critical there is no matter how these information are reliable and relevant that help the financial information in decision making. It is necessary that the accounting information is more reliable and relevant that assist them to make effective decision. Thus, in relevance, for the purpose of making difference in these process the financial data must have a feedback value or predictive value. Usually, the essential information must possess both qualitative criteria reliable and relevant qualities. Furthermore, in the reliability in which the information must be verifiable, neutral and verifiable. It can explained further in which the historical cost of land are to be reported into the balance sheet of a firm that are generally said a highly verifiable.
Thus, the cost can be track to the exchange transaction in which the buyer of the land and the market value of that particular land becomes difficult in verifying. Therefore, the term of objectivity are to be linked with the verifiability. It can be said that the objectivity is that the historical cost of the land and on the other side land's market value is a subjectivity. It majorly influencing through the past experience measure as well as prejudices. Thus, the measurement of these subjectivity is more difficult to make verification that make the user more difficult. Representation faithfulness are to be present when there is an agreement among the description and the with the phenomenon. It can be explained further, it make assumption in which the stock are to be into the balance sheet of the retail organisation that are understood through the external users that are mainly representing the particular items that are mainly intended for selling the ordinary business. Thus, if the stock that majorly involves a machines that are used for the purpose of producing the inventory than it comes in lacks of representational faithfulness. According to the AASB it faces the most difficult task in which there is a balancing the neutrality and implication of economic issues. Therefore, in the new accounting standards that are majorly favour of single group of organisation over the others. Thus, AASB conveyancing the financial organisation that was the main consequences in these standards and there is not need of objective to setting the standard.
There are the major weaknesses of historical cost accounting that are describe below-
The financial statement are to be prepared that are mainly under the historical cost accounting which are merely historical facts of statement. Therefore, fluctuation in the value of money that are resultant into fluctuation in the general pricing level which are merely not to be taken or consider into an account. Therefore, it fail to deliver the fair and true picture of the affairs of the company.
In the historical cost accounting in which the main important elements that is fixed assets that are recorded as well as presented at that price in which it majorly obtained ( Beneish,Miller and Yohn,2012). Therefore, if there is any change in the market value of these fixed assets that are highly ignored.
Depreciation are the major important element of that help in creating a funds which replacing the fixed assets if the replacement getting due. Therefore, in the historical cost accounting in which the depreciation are to be highly based upon the historical cost of the particular fixed assets. It will be not at the prices where the firm have acquired these fixed assets. Thus, these provision are made in that manner of depreciation charge that are on the actual cost that will not be more sufficient for the purpose of replacement of the fixed assets.
The historical cost accounting is more beneficial than the financial accounting that are as described below-
Cost accounting able the company to effectively measure the company's performance and it is also used to manage as well as make improvement. It can only possible if there is effective comparisons as well as analyses these difference which are highly observed. It can be explained through example are that materials are to spent on the begs in year 2015 that are £500 and in the same beg is £600 in the year 2017. It shows of decrease in the efficiency. Of course, the maximization of the material price that are main reason of wastage of material that are usage of material or there is an inefficiency at that time of purchasing so, there will be no paid of unnecessary in high prices.
Fixation of prices- There is a many case in which an organisation are capable of fixing the price of its goods that are highly based upon the production cost. Therefore, in that particular case the price cannot be fixed properly if there is no proper numbers of cost that are available. Thus, in the big contract there is quotation which can be made only when the competing cost that are to be ascertained in the contract. It can be said that the price are to be fixed that are without the cost information which is more possible if the price quoted are generally high in that case orders are not to be obtained. It may be low in that result there will be losses that are the main mistaken on the management part that are to believe that will enhance the sales volume that increase in profits.
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The main aim of financial reporting is that to deliver the financial data that are about the reporting which are useful for the existing users, investors, creditor and lender for the purpose of making decision that are about to given the resource to the business entity. The IASB not to attain these objectives by their own there is an essential of investors as well as analysts which they tell them that they are work well and there is any opportunities to improve. The main aim of these individuals is that they can easily understanding the latest changes in the standards that are highly impact on the company analysis. They have to staying with these changes that are up to date mostly those will highly affecting the financial statements. These are used by the particular users for some purpose that are as follows
The main purpose of these financial information of the particular business entity for the assessing how these are effectively management runs and make judgement regard to risk and return for the upcoming period. Thus, the shareholder need financial information for the purpose of evaluating the company's ability to pay the dividend to the shareholder.
The employee are also need a financial information of a company as they want to know the profitability and stability of its employers. Thus, they required data that able them to evaluating the company's ability to pay the remuneration, monetary benefits and employment opportunities.
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