Accounting Standards Essay

INTRODUCTION accountancy Standards ar employ to build the application of chronicle practice. The actual fiscal position of the company passel no be presented high-fidelityly and precisely with adhering to the principles and standards. Due the evolution of time, the wayl has channelized to suit the indispensabilitys of the application and is excessively interminably to changing to collects. With rapid change and phylogeny of wealth, mountain and technology, at that place was a need to account the champion enter transaction due to intricacy involved. Due to the mode of writing and numbers which speedd the write up extremity. It is accountants who cover charge uped in the development of frugalal and mercantile system by providing valuable run to the comm unit of measurementy.See much Satirical strive well-nigh drugs HISTORY AND EVOLUTION OF chronicle STANDARDPacioli is organism considered the father of the score. The eldest double entry check-keepi ng was touchable around 1200 B.C in Italy followed by first sacred scripture on double entry was written by Luca Pacioli in 1494. Due to the advent of Industrial rotary motion around 1750, strain expanded rapidly which catapulted kitty transportation, invention of wise products and unseasoned marts, development of superior grocery stores and as the result, the purpose of accountant become requisite to any industry.As development of trade grows, the need for professional accountants excessively nurtured in a devalued pace. Society of Accountants was accomplished in 1854 in Edinburg which was accorded a royal charter which recognized the professions role in the trade and profession. In U.S, the first much(prenominal) professional society was the American affiliation of reality Accountants, chartered by the state of knowingly York in 1887. Cost be was unquestionable to moderate up the efficiency in the manufacturing Units. Management be system was developed t o advise the appertain to make strategic craft decisions.During 20th Century, United rural beas has oerinterpreted the British and become the leadership industrial world-beater in the world. The growth of industries analogous U.S. steel and Standard Oil demanded more than posh explanation systems to keep track record of expanding business divisions within these huge business corporations. As insiders of the industry took advantages by tired manipulations, price fixing and opposite questionable business practices brinyly to derive benefits thitherby depriving the interest of gullible investors.All the states of the U.S.A and Puerto Rico and the dominion of capital of South Carolina stipulates through law that an accountant should accommodate specific educational and experience requirements and should passes an qualifying scrutiny and go forth be granted a patronage kn own as manifest mankind Accountants. certified public accountant. Now, CPAs induce structured in to State and national societies.In United States, American imbed of Certified is the prime form representing account system profession, which is the modern successor organization of the American Association of frequent Accountants and the American history Association organized in 1916. In United States , the Financial be Standards get alongs FASB , an mugwump non- organizational organization supported by fiscal- overcompensateing industry groups , is the nodal constitution accountable for establishing accountancy standards and rules whereas the multinational invoice Standards Boards IASB formulates rules and standards that ar recognized and used by many nations.With exuberant growth of corporate activity, the need for sophisticated explanation methods has increased and accountancy has witnessed many remediatements in possible action and techniques. The ever changing tax laws and regulations is causing change in score methods frequently as it is indispensable to maintain homogeneous accounts for governing bodyal statutory requirements or public scrutiny.A series of exposures pertaining to story self-coloreds failure to detect or openly ch whollyenge irregularities or fraud as in the case of World.com and Enron, when auditing finances of a number of corporations compelled coition to establish the Public Company history superintendence Board in 2002. Securities and transposition agency has been eitherocated power to appoint the above wag to register and fix accountants and signs to act as auditors. It ensnares standards for auditing and is responsible for re contendwing audits and disciplining accountants and invoice firms. 1 logical implication OF ACCOUNTING STANDARDS bill standards be significant as they guarantee betterd public accountability and cater strong and efficient functioning of the trade and commerce of a nation. They gambol a vital role for complete understanding of political, economical and social consequ ences of storage tot both(a)yocation and proper utilization of government resources both at the federal and at the State levels. Improper and uncollectible account statement may lead to serious tenacious term consequences . business relationship standards can be misused to assert misleading nurture of a business.FREE mart APPROACH OF ACCOUNTING STANDARDSIt refers to a method employ by surreptitious vault of heaven wherein creation of an economic market in which business is ruled by the laws of supply and demand and non by the unclaimed government interference, subsidy or regulation.Under this write up standard, voluntary revealing of activity -based cost entropy which byes a raw(a) appeal of functional process and abides more alternatives for decision makers. In a real free market, be standards would enhance as corporations and accountants vie to offer the trounce education 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 offering flavor products and by providing high-fidelity information to investors. art 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 composite that an popular lay man finds it difficult to interpret the same. close companies in U.S.A now started to follow dual historying. For instance, AMD and Intel relax two sets of explanation disciplines one as per FASB guidelines which is mandated by the regulation and other based on simplistic bill standards that they deem that it beingness more instructive to shareholders.There are certain exist statues which turn away the shareholders to overthrow animated corrupt or amateurish management. For instance, Anti-hostile throwover legislation which was passed in 1968 has made it confused to replace incompetent management . Arcane regulations passed in 1930 enclosure the capacity of the pecuniary entities such as policy companies, pension funds and mutual funds that own major shareholding in corporations to participate in the board for decision fetching and for joint deliberations. Hence, the chance to bulwark the interest is being denied by arcane regulations.If the U.S government is re everyy raise in the healthy stock market, it should exhibit it by deleting, non adding, regulations and building the market truly free. PRIVATE SECTOR 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 ascendency to frame business relationship principles , it has not do so for the last 60 years .Instead it has assigned the interference to the private sector for leadership in establishing and enhancing the accounting standards. It is the private sector st andards-setting process, as carry offd by the SEC has resulted in existence of a character reference accounting standards and arduous ceiling markets in ground forces as of today. EVOLUTION OF REGULATORY APPROACH subsequently the end of the First World War in 1919, there was spurt in investment in securities by investors. Around 1920, more than .02 billion great and small shareholders profited the benefits of post-war affluence and ready to avail fast 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 scare off in 1929 which was notoriously known as desolate 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 parsimoniousness was to recover, the publics combine on capital market required to be refurbished. Congress was hale to find out a solution for this conundrum and it held many deli berations on the subject and finally passed the Securities knead of 1933 and the Securities Exchange defend of 1934.The prime goal for the judicature of Securities exchange commission was mainly to enforce the fresh security laws, to build confidence, to provide stability to the market and last notwithstanding not the least to offer protection to investors. Stock Exchange Commission SEC was gap-toothed with mandate to formulate accounting principles and standards. It is to be noteworthy 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 equal accounting standards.The American initiate of Certified Public Accountants AICPA had been in the field since 1887. As a alliance of state societies, American Society of Certified Public Accountants was constituted in 1921 and later merged with the fetch during 1936. Due to persuasion from the SEC, the AICPA a ppointed the committee on accounting military operation in 1939. Committee on history Procedure CAP released slightly 51 accounting research bulletin amongst 1939 and 1959. Though, these bulletins were able to lap the problems now 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 standard setting body in 1959 namely the method of 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 almost 31 opinions between 1959 and 1973, it was dissolved for absence of productivity.Generally authorized Accounting 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 s hould be followed in all financial reporting of publicly traded companies. GAAP can thus be explained as a cluster of conventions and objectives that be possessed of been developed over time to manage how financial statements are being prepared and presented. The triad nodal authorities videlicet the American launch 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 trusts as per the lucubrate at a lower placeEconomic 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 testamenting 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 dollar as the monetary unit for accounting purposePerio dicity assumption facilitates save of business operations and separating into different periods. This is mainly to facilitate for comparison between past and present surgery of the business.FASBs basic principles are detailed belowHistorical Cost Principle- This requires business to account and report on cost of acquisition priming sooner 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) tax income Recognition principle or accrual basis of accounting requires business to record when the revenue is recognise or assoiled and not when the cash i s earned. coordinated principle Expenses has to be matched with the revenues where it is possibleFull disclosure principle- railway line should offer all the significant information relating to the company though it may not extend to companys financial statements. For instance, Tax disputes, lawsuits, takeover information and possible contingent liabilities of the business are to be disclosed by way 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 feature reported and it is to be weighed amount reported leave aloneing have impact on third troupes 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(prenominal) effe cts of Enron, WorldCom, Inc have forced the Congress to act out Sarbanes Oxley Act in 2002. The other accounting reforms inform is the creation of Public Company Accounting charge Board PCAOB to supervise the audits of the Public companies. PACOB has been entrusted with wide allowance to regulate the auditing profession. PACOB has been toothed with powers like imposing well-bred penalty and to impose permanent revocation of an auditing firms ability to audit public companies.8, sack TO PRINCIPLES BASED ACCOUNTING SYSTEMThere is strong suggestion from mixed 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 CONCLUSIONGlobaliz ation 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 intelligence of the need to review existing standards. Hence it is prerequisite 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 second the investing public to understand the same without the steerage 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 globular basis, technical correctness is regarded as less meaning(a) 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. viscous to technically sur vive accounting standards would not divine service to develop acceptable, meaningful international standards. FASB should take avail this opportunity to update and even change the standards. The accounting profession and accounting standard setters should unite unitedly in their effort to assure simpler, more honorable and easy to understand U.S and worldwide accounting standard.BIBILIOGRAPHYforefront Riper, R. 1994, Setting Standards for Financial Reporting FASB and the Struggle for date of a Critical Process. CT Quorum Books. Westport.Hartgraves, A. L., & Benston, G. J. 2002, The Evolving Accounting Standards for spare 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 alter Accounting Standards. daybook of Accountancy 187, no. 3 65.Beresford, Dennis R. 2001,Congress Looks at Accounting for occupancy Combinations. Accounting Ho rizons 15, no. 1 73.Derieux, Samuel A. 2000,Lets measure Accounting Standards. diary 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. diary of Accountancy 173, no. 6 4.Fleming, stopcock D. 1991,The Growing Importance of global Accounting Standards Arthur R. Wyatt, chairperson of the foreign 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 lap of Accounting Standards. Review of care 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 see to it 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, in the lead 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. revise 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 cyclopaedia Article title of respect Accounting. Encyclopedia Title The Columbia Encyclopedia, Sixth Edition. Publisher Columbia University Press. Place of topic revolutionary 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. rapscallion pattern 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 openings are being managed by the professionals. The persons who provide risk capital to the green light do not participate in the day-to-day affairs of the go-ahead and their major source o f information about the enterprise is the financial reporting made by it. obscure 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 subjective 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 bucolic which is based on the Accounting Standards. Realising the need for initiation of sound Accounting Standards in the country, the Institute of rent 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 unrelentingly in this direction by formulating new Accounting Standards as well as by revi se the existing Accounting Standards so as to found 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.Keeping this in view and with a view to ensure effective implementation of these standards, the Institute has also issued various interpretations, revised existing interpretations and issued announcements on accounting standards. Keeping in view the around-the-clock 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 crea te the summary of Accounting Standards which contains all new/ revised Accounting Standards and other related pronouncements/ announcements, issued upto the date of publication of the assembling and which are existing on that date. I am happy to state that continuing this practice, the Institute is publishing this aggregation of Accounting Standards As on July 1, 2006, which incorporates all latest developments in the field of Indian Accounting Standards.I firmly believe that this edition of the summary 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 perception, measurement, notification 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 conclusion possible, incomparability of information contained in the financial statements of various enterprises. The accounting standards also improve the transparency of financial statements by requiring enhanced disclosures.Realising the significance of accounting standards in improving 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 Insurance regulatory and Development Authority (IRDA) also require contour with the accounting standards issued by the Institute by their respective(prenominal) constituents.This is a clear 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 move 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 issu ance 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 accumulation of Accounting Standards, which incorporates all the relevant developments that have taken place since the publication of the last edition of the Compendium.As analyzed 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 on(p) 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 Accou nting 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 agree with the view that mandatory regulations decease 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 people appoin ted 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 spirit 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 slightly 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.Her e 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 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. avocation 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 Performanc eThe 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 prosper or fall. Depending on the trends and the providence 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.