Accounting Standards Essay

INTRODUCTION accounting tireds be employed to piddle the diligence of story practice. The actual monetary position of the company can no(prenominal)prenominal) be presented accurately and precisely with adhering to the principles and standards. Due the evolution of time, the concept has changed to suit the require of the industry and is also continuously to ever-changing to needs. With rapid change and development of wealth, trade and technology, in that respect was a need to account the p atomic number 18ntage transaction repayable to intricacy mixed. Due to the mode of writing and numbers which facilitated the story process. It is accountants who helped in the development of economical and commerce by providing valuable services to the community.See much Satirical essay about drugs HISTORY AND phylogenesis OF write up STANDARDPacioli is being considered the father of the history. The first double entry book-keeping was unquestionable around 1200 B.C in Italy follo wed by first book on double entry was written by Luca Pacioli in 1494. Due to the advent of Industrial Revolution around 1750, telephone draw in expanded rapidly which catapulted mass transportation, invention of refreshing products and new grocery stores, development of capital markets and as the result, the map of accountant become inevitable to any industry.As development of trade grows, the need for professional accountants also nurtured in a fast pace. Society of Accountants was established in 1854 in Edinburg which was accorded a royal look at which recognized the professions role in the trade and commerce. In U.S, the first such professional society was the American Association of Public Accountants, undertake by the press out of New York in 1887. Cost accounting was developed to augment the efficiency in the manufacturing Units. Management Accounting was developed to advise the business to make strategic business endings.During 20th Century, joined States has overta ken the British and become the leading industrial power in the world. The growth of industries like U.S. steel and Standard Oil implyed more classy accounting systems to keep track record of expanding business divisions within these huge business corporations. As insiders of the industry took advantages by extend manipulations, price fixing and other questionable business practices mainly to derive eudaimonias thereby depriving the interest of gullible investors.All the states of the U.S.A and Puerto Rico and the District of Columbia stipulates through with(predicate) law that an accountant should gift specific educational and experience requirements and should passes an qualifying examination and will be granted a title known as Certified Public Accountants. CPA. Now, CPAs boast structured in to State and national societies.In United States, American bring in of Certified is the acme body representing accounting profession, which is the contemporary successor organization o f the American Association of Public Accountants and the American Accounting Association organized in 1916. In United States , the fiscal Accounting Standards Boards FASB , an independent non-governmental organization supported by fiscal- reporting industry groups , is the nodal institution accountable for establishing accounting standards and rules whereas the international Accounting Standards Boards IASB designs rules and standards that are recognized and apply by many nations.With fast growth of corporate activity, the need for sophisticated accounting methods has increased and accounting has witnessed many improvements in theory and techniques. The ever changing tax laws and regulations is causing change in accounting methods frequently as it is necessary to maintain homogeneous accounts for governmental statutory requirements or public scrutiny.A series of exposures pertaining to accounting firms failure to detect or openly ch eitherenge irregularities or fraud as in the case of World.com and Enron, when auditing pecuniary resource of a number of corporations compelled Congress to establish the Public Company Accounting Oversight Board in 2002. Securities and interchange Commission has been wholeocated power to appoint the in a higher place board to register and regulate accountants and firms to act as auditors. It sets standards for auditing and is responsible for reviewing audits and disciplining accountants and accounting firms. 1 SIGNIFICANCE OF ACCOUNTING STANDARDSAccounting standards are significant as they guarantee improve public account susceptibility and offer effective and efficient functioning of the trade and commerce of a nation. They play a vital role for complete spirit of political, economical and social consequences of allocation and proper utilization of government resources both at the federal and at the State levels. Improper and bad accounting whitethorn lead to serious long term consequences .Accounting standards can be misused to offer misleading information of a business.FREE MARKET APPROACH OF ACCOUNTING STANDARDSIt refers to a method applied by private sector wherein creation of an economic market in which business is ruled by the laws of supply and demand and not by the unwanted government interference, subsidy or regulation.Under this accounting standard, voluntary disclosure of activity -based cost data which offers a new approach of functional process and provides more alternatives for decision makers. In a real free market, accounting standards would enhance as corporations and accountants vie to offer the go around information to shareholders.In a free market, the aspiration for profit is satisfied by long-range, honest, rational behavior thereby innovating, by employing best employees, by offer graphic symbol products and by providing accurate information to investors.Business is required to provide accurate information to investors else it would loose its reputation and credibility in the market. The circulating(prenominal) FASB is so cumbersome and complex that an ordinary lay man finds it difficult to interpret the same. Most companies in U.S.A now started to follow dual reporting. For instance, AMD and Intel release cardinal sets of accounting reports one as per FASB guidelines which is mandated by the regulation and other based on simple accounting standards that they deem that it being more informative to shareholders.There are certain real statues which refuse the shareholders to overthrow existing corrupt or bumbling management. For instance, Anti-hostile takeover legislation which was passed in 1968 has made it complex to replace incompetent management .Arcane regulations passed in 1930 limit the capacity of the financial entities such as insurance companies, pension funds and mutual funds that own major shareholding in corporations to participate in the board for decision taking and for joint deliberations. Hence, the opportunity to safeguard the interest is being denied by arcane regulations.If the U.S government is really provoke in the healthy stock market, it should exhibit it by deleting, not adding, regulations and building the market truly free. PRIVATE indorsementTOR REGULATION OF ACCOUNTING STANDARDSStock Exchange Commission SEC supports on an independent, private sector standards setting process mainly through open and deliberate. Though the commission has the statutory authority to frame accounting principles , 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 finagled by the SEC has resulted in existence of a quality accounting standards and strong capital markets in USA as of today. EVOLUTION OF REGULATORY APPROACHAfter the end of the First World War in 1919, there was spurt in investment in securities by investors. roughly 1920, more than .02 zillion large and small shareholders availed the benefits of post-war affluence and ready 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 famous stock market crash in 1929 which was notoriously known as Black Friday resulted in exit 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 finally passed the Securities Act of 1933 and the Securities Exchange Act of 1934.The prime goal for the establishment of Securities exchange commission was mainly to enforce the fresh security laws, to build confidence, to provide st index to the market and last but not the least to offer protection to investors. Stock Exchange Commission SEC was toothed 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 ample resources and ability to build up suitable accounting standards.The American Institute of Certified Public Accountants AICPA had been in the field since 1887. As a federation of state societies, American Society of Certified Public Accountants was established in 1921 and later merged with the Institute during 1936. Due to persuasion from the SEC, the AICPA appointed the committee on accounting occasion in 1939. Committee on Accounting Procedure CAP released about 51 accounting research bulletin between 1939 and 1959. Though, these bulletins were able to solve the problems now and and then as they emerged but could not address the issues relating to accounting principles.To resolve the accounting principles issues, AICPA established a new standa rd setting body in 1959 namely the Accounting Principles Board APB.The main goal of the APB is to establish appropriate practices, formulate accounting principles and to minimize the discrepancies in practices. Though the APB released about 31 opinions between 1959 and 1973, it was change state for absence of productivity.Generally authentic Accounting Principles GAAP 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 stick out 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 acceptab le accounting practices.The GAAP is founded on four primary assumptions as per the details below economic Entity concept- It stresses the business as a separate entity and to segregate income and expenses of business from that of personal.Going concern assumption which assumes that business will carry on for a long-term period to validate the methods of capitalization of assets, provision for depreciation and amortization.Monetary unit assumption which fixes US dollar as the monetary unit for accounting economic consumptionPeriodicity assumption facilitates recording of business operations and separating into different periods. This is mainly to facilitate for comparison between past 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 accord ance 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 revenue is realized or get and not when the cash is earned.Matching principle Expenses has to be matched with the revenues where it is possibleFull disclosure principle- Business should offer all the significant information relating to the company though it may not affect companys financial statements. For instance, Tax disputes, lawsuits, takeover information and possible contingent liabilities of the business are to be unwrap by way of footnotes to the financial reporting. INHERENT DISADVANTAGES OF THE FASBCo st benefit relation ship It emphasizes that benefit of offering financial information should also be burden 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 Conservative approach stresses that it is better to understate the financial statements rather than overstating it.The after effects 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 PCAOB 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 revocation of an auditing firms ability to audit public companies.8, SWITCHING TO PRINCIPLES BASED ACC OUNTING SYSTEMThere is strong suggestion from conglomerate quarters 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 section 108 of the Sarbanes Oxley Act of 202 stipulates that SEC to conduct a study on the adoption of a principle based accounting system. 2 CONCLUSION globalisation 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 recently issued special report on Leases thereby implementing a new approach, is recognition 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 take in the same without the guidance of professionals on the subject. When approximately 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 nicety is regarded as less authoritative than the comparability among reporting entities.Globalization in commerce here has become the order of the day and U.S accounting standards must spring true global interests. Sticking to technically sound accounting standards would not help to develop acceptable, meaningful international standards. FASB should take avail this opportunity to modify 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 worldwide accounting standard.BIBILIOGRAPHYVan Riper, R. 1994, Setting Standards for Financial Reporting FASB and the Struggle for Control of a Critical Process. CT Quorum Bo oks. Westport.Hartgraves, A. L., & Benston, G. J. 2002, The Evolving Accounting Standards for Special Purpose 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 Accountancy 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,Lets Reassess Accounting Standards. Journal of Accountancy 189, no. 5 82.Dye, Ronald A., and Shyam Sunder. 2001,Why non 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 immensity of worldwide Accounting Standards Arthur R. Wyatt, Chairman of the International Accounting Standards Committee Heralds International Harmonization. J ournal of Accountancy 172, no. 3 100+.Gornik-Tomaszewski, Sylwia, and Irene N. McCarthy. 2003,Cooperation between FASB and IASB to Achieve product of Accounting Standards. Review 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 Best 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 Their Implications for Accountants and U.S. Financial Statement 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 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 word Title Accounting. Encyclopedia Title The Columbia Encyclopedia, Sixth Edition. Publisher Columbia University Press. Place of proceeds New York. Publication Year 2004.2 Article Title Principles-Based Accounting Standards. Contributors Katherine Schipper author. Journal Title Accounting Horizons. Volume 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 risk 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. Apart from the providers of risk capital, there are other stakeholders also which include prospective shareholders, bankers, creditors, etc. , who use the financial reporting made by the enterprise to make their economic and financial decisions.In such a scenario, it is absolutely essential 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 base d 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 prime(a) 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 nidus 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 country 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 manner intended. holding this in view and with a view to ensure effective implementation of these standards, the Institute has also issued divers(a) interpretations, revised exi sting interpretations and issued announcements on accounting standards. charge in view the continuous changes that are taking place in Accounting Standards, Accounting Standards Interpretations and announcements on accounting standards, it is imperative on the part of the Institute to make all such pronouncements/ announcements available in one single book and revise it from time to time.The Institute has, therefore, been publishing the Compendium of Accounting Standards which contains all new/ revised Accounting Standards and other related pronouncements/ announcements, issued upto the date of publication of 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 severely believe that this edition of the Compendium will be extremely useful not only to the mem bers 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 vastness 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 accounting 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 transparence of financial statements by requiring enhanced disclosures.Realising the significance of accounting standards in imp roving 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 reticence Bank of India (RBI) and the Insurance Regulatory and Development Authority (IRDA) also require compliance with the accounting standards issued by the Institute by their respective constituents.This is a overhear manifestation of the significance of the accounting standards and high 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 discharge 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, revision 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 Accounting Standards, which incorporates all the relevant 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 hold revisions to two accounting standards, viz. , AS 15 (revised 2005), Employee Benefits, and AS 29, Provisi ons, Contingent Liabilities and Contingent Assets which were issued subsequent 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 apprise the users about the comparative status of Indian Accounting Standards vis-avis the International Accounting Standards/ International Financial Reporting 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 retard with the view that mandatory regulations stifle innovation ? 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 multitude 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 example, if a financial report is manipulated to show higher profits, investors would hold on to their shares with the belief 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 effective ly. Accounting standards serve to promote the understandability , comparability, relevance and reliability of financial reports. * Accounting standards are needed so that financial statements will fairly 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 documents they review are definitely accurate and genuine. As investors, they are interested to know that their currency 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 w ell 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. Following 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 enable a business to see or assess its performance. By doing so, they can also compare and contrast their business performance with other companies or competitors. It further helps a business see its strengths and weaknesses. By also comparing past and current performances, a business can assess the success of its strategies. Businesses will either expand 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.