International Accounting Standards And Economic Decision Making Accounting Essay



The purpose of accounting is to provide the information that is needed for sound economic decision making. The main purpose of financial accounting is to prepare financial reports that provide information about a firm's performance to external parties such as creditors, investors, and tax authorities.

Accounting standards are needed so that 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.

Accounting standard used today are referred to as generally accepted accounting principles.

International accounting standards:

Securities and exchange commission:

Committee on accounting procedure:

Accounting principles board:

Financial accounting standards board:

International accounting standards committee:

Governmental accounting standards board:

Generally accounting standards accept:

In order that financial statements report financial performance fairly and consistently they are prepared according to widely accepted. These standards are simply generally accepted accounting principles are those that have substantial authoritative support.

Financial reporting

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Financial report allows the organization to communicate information about their performance to the outside world. Financial reports provide summarised information about an organization's transactions for external decision makers. Financial reports can be used by employees and trade unions, creditors and lenders, customer's shareholders and investment analysts. All these users may need different statements of financial accounts but the most important statements which they need is the balance sheet, profit and loss account cash flow account and the income statement. The two main regulatory bodies of financial reporting are the "low" and the accounting profession with the accounting standards board usually known as ASB. In UK most of the legislation related to the publishing of accounts is embodied in the companies Act 1985 and 1989 which are concerned with the accounts of the limited liability.

It is essential that users of financial reports or investment decision makers be supplied with relevant and standard financial reports which have been regulated and hence standardized. For judgment of how much information is necessary and what form it need take so it couldn't take actions necessary to attract investors and may bankrupt. The first one is "Comparability". Financial statements must allow people to compare one company with another one and evaluate the management performing without spending time and money adjusting them to a common format and common accounting treatments. When there is a need for a change in accounting standard the ASB prepare and publish a draft standard called the FRED "Financial Reporting Exposure Draft". Because all this standards and regulations exist accountants have to treat every company in the same way. If the accountancy profession permitted companies experiencing similar events to produce financial reports that disclosed markedly different results simply because of a freedom to select different accounting policies they would lose all of their credibility.

After the publishing of these drafts the comments from the public is invited and in the light of these comments the Fred is changed. The last thing that the standards have to supply is discipline. Standards are for general-purpose and sometimes they fail to respond to user's and the firm's needs. The second and the most important regulatory body is the accounting profession. If all accounting methods were standardized, two organizations which began the year with same balance sheets and which made the same transactions during the year they would report the same balance sheets ad the same profit and loss.

The Framework:

In general, a framework is a real or conceptual structure intended to serve as a support or guide for the building of something that expands the structure into something useful.

The conceptual framework i made of made of three levels:

Level one: Objectives of financial reporting.

Level two has two sections: 1- Qualitative characteristics of accounting information. 2- Elements of financial statements.

Level three: recognition and measurement concepts: (Assumptions, Principles and Constraints).

In level one: Objectives of financial reporting are to provide information that is useful to those making investment and credit decisions, helpful to present and potential investors, creditors, and other users in assessing the amounts, timing and uncertainty of future cash flows and uncertainty of future cash flows, and about economic resources, the claims to those resources and the changes in them.

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Level two: elements of financial statements;-

Assets: probable future economic benefits obtained by particular entity as result of past transactions.

Liabilities: probable future sacrifices of economic benefits arising from present obligations of particular entity to transfer assets as a result of past transactions.

Equity: residual interst in the assets of an entity that remains after deducting itslaiablilities. In a business enterprise, the equity is the ownership interest.

Revenues: inflows or other enhancements of assets of an entity or settlement of liabilities during a period from delivering or activities that constitute the entity ongoing major or control operations.

Expenses: outflows or other using up oassets or incurrenc of liabilities or combine both. During the entity ongoing major or control operations.

Gains: increases in equity net assets from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from expenses or distribution to owners.

Losses: decreases in equity net assets from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstance affecting the entity during a period except those that result from expenses or distribution to owners.


In short I believe 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 including 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 example, if a financial report is manipulated to whom higher profits investors will hold on to their shares with the belief that the company is doing well.

Accounting standards came to be developed from the mid sixties onwards to promote the integrity of the accounting profession by way of ensuring uniformity in the way accountants report transactions in their books and also in their preparation of the final accounts of businesses. This is by and large aimed at boosting the confidence of stakeholders, particularly shareholders and potential investors in the accounting profession.

Good and useful information should have the essential characteristics of understand ability, comparability, relevance and reliability in order to play its role effectively.

Accounting standards serve to promote the understand ability, comparability, relevance and reliability of financial reports.