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Framework Accounting Standards

Essay: "If the IASC manage to develop a conceptual framework that rules all other conceptual frameworks, then problems in accounting standard setting would be easily resolved"

The purpose of this paper is of highlight the important of the accounting standards in general for business as well as to provide arguments for the presence of a universal single code of ethical accounting standards which can provide the business with financial reporting methods and strategies for accurate results and comparable performance status and ratios. The issue of a conceptual framework for the accounting standards is highlighted and the importance of the role of the conceptual framework is provided in the discussion.

Accounting standards are sets of rules, procedures and principles which form the backbone of the accounting system for any company or region. These accounting standards can be international or regional in nature, which means that their jurisdiction and scope can be variable according to region or state as well.

The main attribute that is present for the accounting standards is that they are set up in order to make the performance of the business quantifiable and comparable as well as provide for an organized method of recording all the actions and financial activities undertaken by the business.

The two objectives of the accounting standards pertain to providing a system of records for all the financial transactions that take place in the company as well as to provide the business with a layout for their financial and performance data. This data is depicted in such a manner so as to enable a third party to view the statistics of the business and be able to comprehend the information in terms of performance over a period o time.

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The components of the accounting standards relate to the fundamental accounting concepts, the fixed assets as well as the stocks. The fundamentals of the accounting concepts deal with the aspects of consistency of the data over a period of time, the matching and the accruals concept by which the transactions are accredited to a specific time period and instance location, the prudence concept by which the income is not anticipated while the losses are treated as prudent costs and the concept that the business is to be kept in running order for a long period of time. Aside from this the nature and the recording and depreciating and appreciating procedure for the fixed assets is highlighted in the accounting standards as well as the management and accounting procedures for the stocks and the share of the company.

The accounting standards are required by business as it makes possible for the third party to access the accounts of the business and comprehend the data which is depicted there. Moreover the framework of the accounting standards allow the different business to match and compare their performance in terms of rations and profitability given that they adhere to the same set of accounting standards and policies. This enables the business to keep track of their competition as well as make specific strategies and relevant decision to improve their position in the market in terms of finance, market share, profitability and growth.

The accounting standards also allow the finance or accounts auditor to track the progress of the company as well as the financial transactions of the company in terms of its investments, its expenses, its inflow and outflow of cash and the apportionment of the funding available to the business. The fairness and the legality of the actions of a business pertaining to its finances is judged on the basis of its adherence to the accounting principles and their guidelines.

The ethical methods of conducting and management for the business in the industry are also highlighted by the accounting procedures. The procedures are built in such a way so as to keep set benefit and point of view of the stakeholders of the company as a priority which is linked with the performance of the company.

Due to the presence of the accounting principles as provided by the accounting standards, even the different types of companies like limited liability companies, private owned and state based or government financed business as well as partnerships and sole proprietorships can compare their business performance in the market. Aside from this the accounting standards also provide for the safeguarding of the financial operation of the business

The Conceptual Framework is knowledge-based, articulated, shared, coherent, consistent with the unit and/or institutional missions, and continuously evaluated. (‘College of Education and Human Services’) The conceptual frame work of the accounting standards is an important factor as it underlies the main objective and the functionality of the accounting standards. “The conceptual framework has far-reaching practical implications for the direction of financial reporting. And many people agree.” (Mackintosh, 2006) It is considered to be a top priority amongst finance managers and by the investors in a business. “In a recent survey, members of the 100 Group of finance directors said development of a common framework should be the top priority for the International Accounting Standards Board (IASB).” (Mackintosh, 2006)

Mackintosh mentioned in his works that there are four main concerns as to why the conceptual framework of the accounting principles and standards is so paramount. These deal with the fact that the framework should be such that it presents the financial reporting through a single objective which pertains to providing information to the end user. There should be no laminating of the facts or polishing of the numbers to present a healthy picture. Aside from this the concerns also relate to the users of the financial reports.

The framework should provide for such a format that is comprehendible by a vast variety and types of end users. The third concern pertained s to the financial reporting of the transactions and the activities them selves. The last concern that is highlighted pertaining to the framework of the accounting standards relates to the reliability and the resultant justification of the data provided in the financial reports. The conceptual framework for the counting standards requires there to be an ethical and fair representation of accounts and the statistics of the business in the financial reports which is accurate and reliable.

One of the main objectives of the accounting standards is to provide for the business with a consistent manner of recording and reporting its business activities and financial transactions. However due to the fact that different businesses in the different regions of the world adhere to different accounting principles the consistency of the financial reporting is disturbed and as a result it is impossible to compare the performance of different companies.

The aspect of global business management also comes into place here where the business are international and global in nature and have operations in multiple countries as a result their financial statement and records are made up according to the local, regional and regional accounting standards. This creates a discrepancy in the records for the company when its is comparing the operations in its various locations. “As globalization works its way through local economies via deregulation and modern market reforms, there is a need for the convergence of local financial reporting standards with International Accounting Standard (IAS).

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But, in order to achieve greater transparency worldwide as part of a wider Global Accountability Framework (GAF) the fundamental institutions of a modern market economy must be put in place before the convergence becomes effective. A more effective corporate governance code and greater independence at listed Board of Directors' level is also needed” (Jen Shek Voon)

As a result it is important to have a universal set of accounting standard in order to provide for consistency and accuracy pf the recording of financial statements as well as to provide for a comparable set of books and records which are needed by the changing environment in the international and regional business structures.

Conclusively it can be mentioned that a universal set of accounting standards can provide the business with a single code of accounting procedures and policies for financial reporting and records management. This will greatly aid the business in terms of making their records comparable and comprehendible. However despite the fact that even if one universal set of accounting standards is used not all the problems related to the recording of the financial statements would be solved.

The problems which would still remain will pertain to the accurate recording to the financial transaction and the presence of corruption and mismanagement of records which takes place in various regions around the world. The accounting standards can highlight corrupted and falsified records to an extent, therefore in order to identify and eliminate such records, strict monitoring policies and committees need to be set up which adhere to the universal accounting standards. Moreover aside form this and organizational change would have to e made pertaining to the culture in the organization so as to promote a healthy business structure which is legal in terms of their financial reporting.

References

‘Definition of A Conceptual Framework’, Preparing The Experienced Professional As Specialist - College of Education and Human Services, available at: http://www.marshall.edu/gsepd/conceptual_framework.htm

Fleming, P.D., 1991, ‘The Growing Importance Of International Accounting Standards’, Journal of Accountancy, Vol. 172 Issue 3, p100-106, 5p, 1bw, available at: http://web.ebscohost.com/bsi/detail?vid=1&hid=120&sid=00863553-ea77-4500-b036-7172e166cacf%40sessionmgr104

James, M.L., Blaszczynski, C., Hulme, R., 2003, ‘Students’ Facility with US And International Accounting Standards’, available at:

Jen Shek Voon, ‘The Importance of International Accounting Standards in Promoting Regional Business Growth’, Ernst & Young Singapore, available at:

Mackintosh, I., 2006, ‘Conceptual framework: more than an anorak's debate’, Accountancy, Vol. 138 Issue 1359, p20-20, 1p, 2c, available at: http://web.ebscohost.com/bsi/detail?vid=1&hid=120&sid=3233897a-c8e8-4046-b8c7-b0a34df284a2%40sessionmgr108

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