Accounting Standards And Preparing Financial Statements Accounting Essay

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Standards were almost unknown before World War II, now they are important in every accounting work and business. Generally speaking Accounting is used almost everywhere from banks and multinational organization to local shops. So organizations and enterprises had to develop standards for preparing financial statements where they keep records of the business or individuals. Balance sheet, income statement, cash flow statement, retained statements theses are types of financial statement done in organization and businesses. These statements are done to show company expenses, revenue (profit), profit and loss of business, etc...

However, this essay is going to establish the framework and the need for international standards accounting as compared to national standard, it will also analyze the accounting principles, rules and standard.

The following are the key points which will be discussed:

Definition of Accounting Standard

Accounting Police Force

The need of Accounting Standards in preparing Financial Statements

Advantage and Disadvantage of these Standards

The Conceptual Framework

Definition of International Accounting Standards

Standards are set of rules and procedures adopted by management and enterprises in preparing and presenting financial statement. Also known as concepts and standards to ensure accounting information is reliable, understandable and comparable. Standards are absolutely needs when preparing finical statement it gives it giddiness of what rule to be made depending upon the type of statement. The International Accounting Standard was created in 1970 by the accountancy bodies which was also called as financial reporting standard, since there were no law that require to be observed therefore, companies issued Companies Act 1989 to present true and fair view. This Act had also stated that if there was failure to comply with the requirements of an accounting standard than it must be explained in the financial statement otherwise a disciplinary procedure will be taken if statement contained a major breach of the standard which means some punishment will be made.

Accounting Police Force

Let's imagine if there were no road rules and even police what will happen, of course there will be chaos and increased accidents. Even a card game wouldn't make sense if there were no rules for it, let's connect this example to accounting and its standards, if accounting had no set of rules there will be risk of fraud, errors, thief, tax problems, etc…

Needs of the International Accounting Standards

To develop in the public interest e.g. the poorer countries that couldn't afford to have their own set of standard

To help make economic decisions

Work actively with national standards-setters to bring national accounting standards and International Financial Reporting Standards (IFRS) to high quality solution.

To apply standards to all financial accounts to give a true and fair view of the financial position and profit and loss account

To improve standards of financial accounting and reporting for the benefit of users ,prepares and auditors or financial information

To resolve accounting issues by the development of principles

The advantages and disadvantages of International Standards Board

Advantages:

International business has managed to engage in the simple activity of import and export, because more economic interdependencies exist between countries now than before. Also a global capital market has given international business advantages in telecommunication, electronic transfers and deregulation which enable them to engage in financial transactions.

The business week has showed that an international business following International Standard its annual growth has been 3.5%, while the value of trade has grown 6.5% a year it has pushed 10$ billon to 20$ higher.

Standardization between countries has made the accounting work much easier and reduce costs.

They reduce or eliminate confusing differences in the methods used to prepare accounts

Provides an important point for debate and discussions about accounting practice

They give an obligation to company to make use of the accounting policies when preparing accounting statement

Disadvantages:

Culture difference and culture diversity which means the business should be exposed or experienced to multicultural experience.

Business practices are also different from country to country e.g. Japan financing is done by debt while in UK is done through equity holder.

Religion difference may also cause some difficulty when statement is made.

Political and economic issues may also cause major problem when an investment is to be done.

A set of rules which creates one method to be followed when preparing accounts would not be appropriate

Conceptual framework

They are the board assumptions which can be followed by business enterprises by applying the accounting concept. These concepts are also identified by the companies Act 1985.GAAP the General Accepted Accounting Standard are known as set of standards and rules that are recognized as a general guide for financial reporting or support. Two bodies are responsible for developing these standards, Financial Accounting Standards Board (FASB) and Securities and Exchange Commission (SEC).

The conceptual framework consists of:

Objectives of financial reporting

Qualitative characteristics of accounting information

Elements of financial statements, and operating guidelines (assumptions, principles, and restriction).

Here are some of the most important concepts:

Prudence concept

This concept states that, where alternative valuations are possible, the one selected should be the one which gives the most careful presentation of the business financial result.

Assume for example, that in washing machine business, each machine costs 100 R.O but can be sold for 150 R.O. This is what the prudence concept is all about to make a profit before the profit had been recognized. On the other hand the concept of prudence is to recognize loss as soon as it is foreseen.

Going Concern concept

Means that a business will continue operating in to the future and that there is no aim to put the company into bankruptcy, which simply means that the asset of the value should not be valued at their breakup value.

Matching concept

It states that an expense should mach with revenue (profit), whenever it is reasonable and practicable to do so.

Cost match sales revenue

Consistency concept

It means that the same accounting principles and methods should be used from year to year within a company as well as Comparability means that the information should be comparable with accounting information about other enterprises.

Also, relevant information helps users predict future events, which helps corrects earlier feedbacks.

Conclusion

Organization and enterprises should follow the accounting standard as it is very important because ,information are kept organized ,helps in decision making , historical records of business are recorded for any future change or check and reduces fraud, theft or any illegal activities that happen within a business.

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