Regulation and Other Principles — full notes
Paper No. 1: Financial Accounting · Regulation and Other Principles
Regulation and Other Principles
1. Who regulates accounting?
| Body | Role |
|---|---|
| IASB (International Accounting Standards Board) | Sets IFRS - the accounting standards used globally, including in Kenya |
| ICPAK (Institute of Certified Public Accountants of Kenya) | Regulates the accounting profession in Kenya - membership, ethics, discipline |
| The Companies Act, 2015 | Kenyan law setting legal requirements for company accounts |
| Capital Markets Authority (CMA) | Additional regulation for companies listed on the Nairobi Securities Exchange |
| kasneb | Sets and examines the CPA syllabus - an examining body, not a regulator of practice |
2. Fundamental accounting concepts
These are the assumptions every set of financial statements is built on - each one already relied on in earlier topics, without being named.
| Concept | What it means | Where you have already used it |
|---|---|---|
| Going concern | Assume the business will keep operating for the foreseeable future | Every Statement of Financial Position so far has valued assets as still-in-use, not as if being sold off |
| Accruals (matching) | Recognise income when earned and expenses when incurred, not when cash moves | Interest on capital in the Partnership appropriation account; subscriptions in arrears/advance in the Not-for-Profit pack |
| Consistency | Use the same accounting methods period to period, so results are comparable | Implied every time a closing balance becomes next period's opening balance |
| Prudence | Do not overstate assets or income, or understate liabilities or expenses | Charging depreciation every year steadily reduces asset values rather than assuming they hold their worth |
| Materiality | Only information significant enough to influence a decision needs strict, detailed treatment | Why practice packs round to whole shillings rather than tracking every cent |
| Business entity | The business is treated as separate from its owner, even for a sole trader | Why Drawings reduces Capital rather than appearing as an expense |
| Money measurement | Only things expressible in monetary terms are recorded | Staff morale never appears on a Statement of Financial Position, however real its value |
| Historical cost | Assets recorded at original purchase price, not current market value | Every non-current asset figure so far - cost less accumulated depreciation, never a market estimate. The deliberate exception: a revaluation reserve (Company pack) exists specifically for departing from historical cost |