Accounting Standards Essay

INTRODUCTION write up precedents ar employed to build the application of score pr fleckice. The actual pecuniary position of the company git zero(pre no.inal)e be presented precisely and hardly with adhering to the commandments and standards. Due the evolution of time, the concept has departd to suit the necessitys of the industry and is withal continuously to changing to needs. With rapid change and breeding of wealth, trade and technology, in that respect was a need to account the assembly line transaction due to amplification involved. Due to the mode of writing and numbers which facilitated the account process. It is accountants who helped in the development of economical and commerce by providing valuable services to the community.See to a greater extent Satirical essay ab pop out drugs HISTORY AND growing OF write up metrePacioli is universe considered the father of the chronicle. The first double incoming book-keeping was developed roughly 1200 B.C i n Italy followed by first book on double entry was written by Luca Pacioli in 1494. Due to the advent of Industrial whirling around 1750, business expanded rapidly which catapulted mass transportation, invention of refreshed products and saucily securities industrys, development of cap markets and as the result, the piece of accountant puzzle inevitable to any industry.As development of trade grows, the need for overlord accountants also nurtured in a fast pace. Society of Accountants was established in 1854 in Edinburg which was accorded a royal charter which recognized the professions role in the trade and commerce. In U.S, the first such passkey society was the Ameri merchant ship Association of populace Accountants, chartered by the give tongue to of New York in 1887. Cost explanation was developed to augment the efficacy in the manufacturing Units. Management business relationship was developed to advise the business to clear up strategic business decisivenesss. During 20th Century, get together States has overinterpreted the British and become the loftytail iting(p) industrial power in the world. The growth of industries like U.S. steel and Standard Oil demanded more than classy business relationship systems to keep track infix of expanding business divisions within these huge business corporations. As insiders of the industry took advantages by stock manipulations, price fixing and former(a) questionable business practices gener both(prenominal)y to derive pull ins thereby depriving the interest of gullible investors.All the states of the U.S.A and Puerto Rico and the recount of capital of South Carolina stipulates through law that an accountant should stool specific educational and experience requirements and should passes an qualifying examination and exit be granted a title kn sustain as informed Public Accountants. CPA. Now, CPAs require structured in to State and national societies.In United States, American concor d for of Certified is the prime body representing score profession, which is the present-day(a) conquestor organization of the American Association of Public Accountants and the American write up Association organized in 1916. In United States , the Financial report Standards senesces FASB , an independent non-governmental organization supported by fiscal- languageing industry groups , is the nodal institution accountable for establishing business relationship standards and rules whereas the multinational account statement Standards Boards IASB theorises rules and standards that be recognized and routined by many nations.With fast growth of corporate activity, the need for sophisticated accounting methods has increased and accounting has witnessed many mitigatements in theory and techniques. The ever changing tax laws and prescripts is causing change in accounting methods frequently as it is essential to maintain homogeneous accounts for governmental statutory requ irements or earthly concern scrutiny.A series of exposures pertaining to accounting firms failure to l have got or openly ch all in allenge irregularities or fraud as in the case of World.com and Enron, when auditing finances of a number of corporations compelled sexual congress to establish the Public Company accounting heed Board in 2002. Securities and Exchange electric charge has been allocated power to appoint the above board to register and regulate accountants and firms to act as auditors. It bent-grasss standards for auditing and is responsible for reviewing audits and disciplining accountants and accounting firms. 1 SIGNIFICANCE OF ACCOUNTING STANDARDS business relationship standards ar significant as they guarantee improved public accountability and extenderise rough-and-ready and efficient functioning of the trade and commerce of a nation. They turn of events a vital role for complete understanding of political, economical and companionable consequences of a llocation and proper utilization of government resources both at the national and at the State levels. Improper and bad accounting may lead to serious long term consequences . report standards can be misused to advise misleading data of a business.FREE MARKET APPROACH OF ACCOUNTING STANDARDSIt refers to a method applied by closed-door sector wherein introduction of an economic market in which business is ruled by the laws of issue and demand and not by the unwanted government interference, subsidy or regulation.Under this accounting standard, voluntary disclosure of activity -establish follow selective information which liberty chits a invigorated approach of functional process and bequeaths more alternatives for finale makers. In a real quit market, accounting standards would enhance as corporations and accountants vie to offer the high hat information to sh areholders.In a free market, the aspiration for profit is satisfied by long-range, h unitaryst, rational behavi or thereby innovating, by employing best employees, by offering type products and by providing accurate information to investors. stemma is required to interpret accurate information to investors else it would unaccented its reputation and credibility in the market. The occurrent FASB is so cumbersome and labyrinthian that an ordinary lay man finds it difficult to interpret the same. Most companies in U.S.A now started to follow dual account. For instance, AMD and Intel release two sets of accounting reports one as per FASB guidelines which is mandated by the regulation and other based on unbiased accounting standards that they deem that it being more informative to shareholders.There are certain live statues which refuse the shareholders to overthrow existing corrupt or incompetent management. For instance, Anti-hostile takeover legislation which was passed in 1968 has made it complex to commute incompetent management .Arcane regulations passed in 1930 limit the capacity of the monetary entities such as insurance companies, pension funds and mutual funds that own major shareholding in corporations to participate in the board for decision victorious and for joint deliberations. whence, the opportunity to safeguard the interest is being denied by esoteric regulations.If the U.S government is really interested in the healthy stock market, it should read it by deleting, not adding, regulations and building the market truly free. PRIVATE empyrean REGULATION OF ACCOUNTING STANDARDSStock Exchange Commission sec supports on an independent, secluded sector standards setting process mainly through open and deliberate. though the commission has the statutory authority to frame accounting linguistic rules , it has not do so for the last 60 years .Instead it has assigned the onus to the private sector for leadership in establishing and enhancing the accounting standards. It is the private sector standards-setting process, as supervised by the SEC has resulted in existence of a quality accounting standards and strong neat markets in USA as of today. EVOLUTION OF REGULATORY APPROACHAfter the end of the First World state of war in 1919, there was spurt in enthronisation in securities by investors. Around 1920, more than .02 billion large and small shareholders availed the benefits of post-war affluence and urinate to avail sudden wealth from stock market and due to boom, more than $ 50 billion worth in new stock was floated during this time.The notable stock market crash in 1929 which was notoriously known as Black Friday resulted in loss of faith by investors on the capital markets. Many investors were turned as pauper over a night. It was observed that if at all economy was to recover, the publics confidence on capital market required to be refurbished. Congress was forced to find out a solution for this problem and it held many deliberations on the subject and in conclusion passed the Securities Act of 1933 and the Securit ies Exchange Act of 1934.The prime goal for the establishment of Securities alternate commission was mainly to enforce the fresh security laws, to build confidence, to provide stability to the market and last but not the least to offer protection to investors. Stock Exchange Commission SEC was cogged with mandate to formulate accounting principles and standards. It is to be noted that even though SEC was accorded the power to supervise the accounting practice, SEC is of the opinion that the private sector is having great resources and ability to build up suitable accounting standards.The American demonstrate of Certified Public Accountants AICPA had been in the field since 1887. As a league of state societies, American Society of Certified Public Accountants was established in 1921 and later merged with the impart during 1936. Due to persuasion from the SEC, the AICPA appointed the perpetration on accounting procedure in 1939. Committee on bill Procedure CAP released around 51 accounting research bulletin among 1939 and 1959. Though, these bulletins were able to solve the problems now and hence as they emerged but could not address the issues relating to accounting principles.To resolve the accounting principles issues, AICPA established a new standard setting body in 1959 namely the account statement Principles Board APB.The main goal of the APB is to establish appropriate practices, formulate accounting principles and to downplay the discrepancies in practices. Though the APB released about 31 opinions between 1959 and 1973, it was dissolved for absence of productivity. by and large Accepted be Principles generally accepted accounting principles are an anthology of conventions, procedures and rules that describe accepted accounting practices. Though it is not accorded as mandatory by any statute, SEC advises that it should be followed in all financial reporting of publicly traded companies. GAAP can thus be explained as a cluster of conventions and objectives that have been developed over time to oversee how financial statements are being prepared and presented. The three nodal authorities viz. the American Institute of Certified Public Accountants, The Financial Accounting Standards Boards and Exchange Commission offer regulation concerning acceptable accounting practices.The GAAP is founded on four basic suppositions as per the details belowEconomic Entity concept- It stresses the business as a dissever entity and to segregate income and expenses of business from that of personal.Going concern assumption which assumes that business impart carry on for a longer period to validate the methods of capitalization of assets, provision for depreciation and amortization.Monetary unit assumption which fixes US vaulting horse as the monetary unit for accounting purposePeriodicity assumption facilitates recording of business operations and separating into different periods. This is mainly to facilitate for analogy between pa st and present performance of the business.FASBs basic principles are detailed belowHistorical Cost Principle- This requires business to account and report on cost of acquisition basis rather than present market value of the assets and liabilities. Financial reports and statements are prepared in accordance with set of rules , procedure and standards for reporting financial information known as the Generally Accepted Accounting principles (GAAP) , as established by the Financial Accounting Standard Board ( FASB). This standard stipulates that a company account for all of their assets or economic resources according to their historical cost. (Horngreen, Stratton & Sundem, p.6)Revenue Recognition principle or accrual basis of accounting requires business to record when the taxation is realized or earned and not when the cash is earned.Matching principle Expenses has to be matched with the revenues where it is doableFull disclosure principle- Business should offer all the significa nt information relating to the company though it may not advert companys financial statements. For instance, Tax disputes, lawsuits, takeover information and possible contingent liabilities of the business are to be disclosed by way of life of footnotes to the financial reporting. INHERENT DISADVANTAGES OF THE FASBCost benefit relation ship It emphasizes that benefit of offering financial information should also be weighted against cost of providing it.Materiality- It refers to the significance of the item reported and it is to be weighed amount reported will have impact on third partys decision based on the information provided.The Industry Practice Constraint materialistic approach stresses that it is better to understate the financial statements rather than overstating it.The after effect of Enron, WorldCom, Inc have forced the Congress to enact Sarbanes Oxley Act in 2002. The other accounting reforms announced is the creation of Public Company Accounting Oversight Board PCA OB to supervise the audits of the Public companies. PACOB has been entrusted with wide authority to regulate the auditing profession. PACOB has been toothed with powers like imposing civil penalty and to impose permanent repeal of an auditing firms ability to audit public companies.8, SWITCHING TO PRINCIPLES ground ACCOUNTING SYSTEMThere is strong suggestion from variant lodge that U.S should abandon the current rules-based system in favor of a principles-based accounting. If that happens, the critics are of the view that all the current difficulties being faced by U.S financial reporting would be alleviated or eliminated. Further voice 108 of the Sarbanes Oxley Act of 202 stipulates that SEC to conduct a study on the sufferance of a principle based accounting system. 2 CONCLUSIONGlobalization offers both impetus and opportunity and it is time to streamline the FASB guidelines in tune with changing scenario.3 It is to be noted that FASB has modernly issued special report on L eases thereby implementing a new approach, is experience of the need to review existing standards. Hence it is necessary not only to review its leases guidelines but for all current standards.The current FASB is high technical and complex in nature and may not help the investing public to understand the same without the guidance of professionals on the subject. When most of the countries around the globe have switched from complex to simpler guidelines, U.S can also follow them. In setting standards on national or global basis, technical correctness is regarded as less important than the comparability among reporting entities.Globalization in commerce here has become the order of the day and U.S accounting standards must reflect true global interests. viscid to technically well(p) accounting standards would not help to develop acceptable, meaning(prenominal) international standards. FASB should take avail this opportunity to update and even change the standards. The accounting profession and accounting standard setters should unite together in their effort to assure simpler, more beneficial and easy to understand U.S and world(a) accounting standard.BIBILIOGRAPHYVan Riper, R. 1994, Setting Standards for Financial Reporting FASB and the Struggle for direct of a Critical Process. CT Quorum Books. Westport.Hartgraves, A. L., & Benston, G. J. 2002, The Evolving Accounting Standards for Special suggest Entities and Consolidations. Accounting Horizons, 16(3), 245+.Barker, Richard, 2004, Reporting Financial Performance. Accounting Horizons 18, no. 2 157+.Bekesford, Dennis R. 1999,Its time to Simplify Accounting Standards. Journal of accounting 187, no. 3 65.Beresford, Dennis R. 2001,Congress Looks at Accounting for Business Combinations. Accounting Horizons 15, no. 1 73.Derieux, Samuel A. 2000, permits Reassess Accounting Standards. Journal of Accountancy 189, no. 5 82.Dye, Ronald A., and Shyam Sunder. 2001,Why Not Allow FASB and IASB Standards to Compete in the U.S.? Accounting Horizons 15, no. 3 257.1992,The Financial Accounting Standards Board. Journal of Accountancy 173, no. 6 4.Fleming, Peter D. 1991,The Growing Importance of multinational Accounting Standards Arthur R. Wyatt, Chairman of the International Accounting Standards Committee Heralds International Harmonization. Journal of Accountancy 172, no. 3 100+.Gornik-Tomaszewski, Sylwia, and Irene N. McCarthy. 2003,Cooperation between FASB and IASB to Achieve Convergence of Accounting Standards. go off of Business 24, no. 2 52+.Hartgraves, Ai L., and George J. Benston. 2002, The Evolving Accounting Standards for Special Purpose Entities and Consolidations. Accounting Horizons 16, no. 3 245+.Herrmann, Don, and Ian P.N. Hague. 2006, Convergence In Search of the trounce CPAs Should Understand How U.S. and Foreign Accounting Standards Influence Each Other. Journal of Accountancy 201, no. 1 69+.Houston, Melvin, and Alan Reinstein. 2001, International Accounting Standards and Thei r Implications for Accountants and U.S. Financial didactics Users. Review of Business 22, no. 1 75.Monson, Dennis W. 2001, The Conceptual Framework and Accounting for Leases. Accounting Horizons 15, no. 3 275.Nobes, Christopher W. 2005,Rules-Based Standards and the Lack of Principles in Accounting. Accounting Horizons 19, no. 1 25+.Radig, William J., and Brian Louder milk. 1998,Leading the Way to Uniform Accounting Principles. Review of Business 19, no. 3 22+.Schipper, Katherine. 2003, Principles-Based Accounting Standards. Accounting Horizons 17, no. 1 61+.Silliman, Benjamin Rue. 2005,Convergence of Accounting Standards A comparative degree Analysis of the U.S. Revised Standard on Share-Based Payment and the International Accounting Standards Boards IFRS 2. Review of Business 26, no. 2 24+.Wyatt, Arthur R., and Joseph F. Yospe. 1993,Wake-Up Call to American Business International Accounting Standards Are on the Way. Journal of Accountancy 175, no. 7 80+.1 Encyclopedia condition prenomen Accounting. Encyclopedia Title The Columbia Encyclopedia, Sixth Edition. Publisher Columbia University Press. Place of emergence New York. Publication Year 2004.2 Article Title Principles-Based Accounting Standards. Contributors Katherine Schipper author. Journal Title Accounting Horizons. intensity 17. Issue 1. Publication Year 2003. Page Number 61+.3 Article Title lets Reassess Accounting Standards. Contributors Samuel A. Derieux author. Journal Title Journal of Accountancy. Volume 189. Issue 5. Publication Year 2000. Page Number 82Accounting Standards EssayNow-a-days, more and more enterprises are being managed by the professionals. The persons who provide danger capital to the enterprise do not participate in the day-to-day affairs of the enterprise and their major source of information about the enterprise is the financial reporting made by it. unconnected from the providers of risk capital, there are other stakeholders also which include prospective shareholders , bankers, creditors, and so forth , who use the financial reporting made by the enterprise to make their economic and financial decisions.In such a scenario, it is absolutely all-important(a) that financial reporting of an enterprise is unbiased, comparable, transparent and free from bias. This necessitates the existence of a sound financial reporting system in country which is based on the Accounting Standards. Realising the need for establishment of sound Accounting Standards in the country, the Institute of Chartered Accountants of India (ICAI), being the premier accounting body in the country, established the Accounting Standards Board (ASB) way back in 1977.Since then, the Accounting Standards Board has been working relentlessly in this direction by formulating new Accounting Standards as well as by revising the existing Accounting Standards so as to bring them in line with the best international practices. With a view to improve the quality of financial reporting in the coun try in real terms, it is also essential that the issues that are arising in implementation of accounting standards are addressed appropriately so that all Accounting Standards are understood and applied in the way intended.Keeping this in view and with a view to ensure effective implementation of these standards, the Institute has also issued various interpretations, rewrite existing interpretations and issued announcements on accounting standards. Keeping in view the continuous changes that are taking post in Accounting Standards, Accounting Standards Interpretations and announcements on accounting standards, it is arrogant on the part of the Institute to make all such pronouncements/ announcements open in one single book and revise it from time to time.The Institute has, therefore, been produceing the assemblage of Accounting Standards which contains all new/ revised Accounting Standards and other related pronouncements/ announcements, issued upto the date of publication o f the Compendium and which are existing on that date. I am happy to state that continuing this practice, the Institute is publishing this Compendium of Accounting Standards As on July 1, 2006, which incorporates all latest developments in the field of Indian Accounting Standards.I firmly opine that this edition of the Compendium will be extremely useful not only to the members of the Institute in discharging their professional duties but also to the preparers of financial statements and other users of accounting standards. New Delhi November 17, 2006 T. N. Manoharan President Preface In recent years, there has been an unprecedented increase in the awareness about the need for and importance of Accounting Standards in the country.The accounting standards which lay down sound and wholesome principles for recognition, measurement, presentation and disclosure of information in the financial statements improve substantially the quality of financial reporting by an enterprise. The acc ounting standards tend to standardise diverse accounting practices with a view to eliminate, to the extent possible, incomparability of information contained in the financial statements of various enterprises. The accounting standards also improve the transparentness of financial statements by requiring enhanced disclosures.Realising the significance of accounting standards in upward(a) the quality of financial reporting, the accounting standards have been granted legal recognition under the Companies Act, 1956, which require accounting standards to be followed by all companies. Apart from the Companies Act, 1956, various regulatory bodies, e. g. , the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI) and the indemnification regulatory and Development Authority (IRDA) also require compliance with the accounting standards issued by the Institute by their respective constituents.This is a clear look of the significance of the accounting standards and h igh quality of accounting standards being issued by the Institute. With so much faith being reposed by the law and various regulatory authorities in the accounting standards issued by the Institute, the responsibilities of the Institute as an accounting standard-setting body has increased tremendously. The Institute, through its Accounting Standards Board, has been trying to trial these responsibilities by issuing new accounting standards as well by revising the existing accounting standards. Apart from ssuing new accounting standards and/or revising the existing accounting standards, the endeavour of the Institute has also been to address the issues arising in the implementation of accounting standards through issuance of new interpretations, fiat of the existing interpretations and issuance of announcements on accounting standards. With the regular developments taking place in the area of accounting standards, there is a need to publish an updated version of the Compendium of Ac counting Standards, which incorporates all the germane(predicate) developments that have taken place since the publication of the last edition of the Compendium.As compared to the last edition of the Compendium of Accounting Standards in 2005, this edition incorporates limited revisions to two accounting standards, viz. , AS 15 (revised 2005), Employee Benefits, and AS 29, Provisions, Contingent Liabilities and Contingent Assets which were issued consequent to the last edition. Besides this, one new Accounting Standards Interpretation, two revised Interpretations and six new Announcements on Accounting Standards have also been incorporated.The Compendium also includes a comparative statement of International Accounting Standards/ International Financial Reporting Standards and Indian Accounting Standards as on date, to take account the users about the comparative status of Indian Accounting Standards vis-avis the International Accounting Standards/ International Financial Reporti ng Standards. I would like to take this opportunity to place on record my appreciation of the efforts put in by all the persons involved in the formulation of accounting standards at relevant times.Accounting Standards EssayIn your opinion are accounting standards necessary and to what extent? Do you agree with the view that mandatory regulations stifle mental hospital ? why? Give reasons?* Accounting standards are necessary to promote high quality financial reporting. The fundamental role of accounting is to communicate economic information about businesses and other organization to various stakeholders (government, investors, shareholders, suppliers, lenders, customers and the general public). * These stakeholders use such information to take decisions and to assess the stewardship of people appointed to manage such organizations. If this information is not of a high quality standard, then the stakeholders would be unable to take effective decisions that will benefit them. For ex ample, if a financial report is manipulated to show higher profits, investors would hold on to their shares with the touch sensation that the company is doing well.See more Is the Importance of being earnest a satirical play essay* Good and useful information should have the essential characteristics of understandability, comparability, relevance and reliability in order to play its role effectively. Accounting standards serve to promote the understandability , comparability, relevance and reliability of financial reports. * Accounting standards are needed so that financial statements will sanely and consistently describe financial performance. Without standards, users of financial statements would need to learn the accounting rules of each company, and comparisons between companies would be difficult.Here are other reasons why accounting standards are important to every business.Protecting InvestorsBy employing accounting standards, investors interests are ensured as the document s they review are definitely accurate and genuine. As investors, they are interested to know that their money will eventually earn and go back to them. Accounting standards increase the investors confidence in the business.Regulatory ComplianceGovernment regulators set accounting standards that have to be adhered to by all companies. This is both beneficial to the investor or business owner as well as to the customers or clients because it protects them from frauds in businesses. It also promotes transparency among the business transactions which will eventually lead to the improved efficiency of the markets. by-line accounting standards set by the FASB and the IASB will help prevent a company or business from spending on legal actions initiated by the government against it.Assessing Business PerformanceThe use of accounting standards will alter a business to see or assess its performance. By doing so, they can also compare and contrast their business performance with other compan ies or competitors. It further helps a business see its strengths and weaknesses. By also analyse past and current performances, a business can assess the success of its strategies. Businesses will either prosper or fall. Depending on the trends and the economy of the country, an investment may grow or go down the drain. But in the end, accounting standards will make a difference. That is why all businesses have to follow and strictly adhere to accounting standards.