Purposes And Drawbacks Of Accounting Standards Accounting Essay


Today the accounting standard is very important to be applied to company including any overseas entities that are part of those financial statements. the international accounting committee which came into existence in June 1973 in furtherance of an agreement by the accountancy bodies of Australia, Canada, Mexico, the UK, the USA, Ireland and France is active on the international scene. A revised agreement was signed in 1982. The goals of this (IASC) are set out in its constitution: 1 accounting standards to be observed in the presentation of financial statements and to promote their world-wide acceptance and observance. 2 To work generally for the improvement and harmonization of regulations, accounting standards and procedures relating to the presentation of financial statements. So, in this report we analysis accounting standards-a boon or curse, purposes of accounting standards, drawback of accounting standards, Fair presentation and compliance with international accounting standards and important of fundamental accounting principles.

Accounting Standards-A Boon or curse:-

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The valuation of assets and liabilities reported in a company’s published account is controlled to a considerable extent by accounting standards. By no means is everyone convinced of the usefulness of these standards, or of their effectiveness, or that they should be given widespread application. It is therefore important for bankers and other users of accounting information to be aware of the scope and limitations of standards so that they can make a rational assessment of the validity of the published accounts on which they are based (Edwards and Mellett 1994 and Maheshwari 2000).

Purposes of accounting Standards:-

The main reason for setting up the accounting standards committee and its successor the ASB was to reduce the wide variety of accounting practices employed by companies. It was believed that this plethora of principles destroyed comparability between the accounts of one business and another. The functions of the ASB are to carry out a careful investigation of existing practices to identify best practices and to impose these on companies employing inferior procedures so as to develop their published reports. In nature, it is sometime difficult to obtain agreement about which is the best practice and the solution is either to allow some flexibility or justify the favored procedure with the argument that it is better to have second rate numbers prepared on a uniform basis than first rate numbers which are not comparable (Sutton 2000 and Edwards and Mellett 1994).

A last role for accounting standards is that they pave the way for new legislation. Standards may be issued and withdrawn more easily than a new organizations act if is becomes clear that the provisions do not work well. It is therefore important that new regulations should be issued as standards before they receive the full force of legislative support. This procedure has worked well the organizations act 1985 incorporated the main provisions of a number of standards issued earlier which had gained general acceptance.

Drawback of accounting standards:-

It is acknowledged that standards fulfill a valuable role in the run by ensuring that all companies adopt the best procedures currently used but it is believed in some quarters that they may prove detrimental in the long run. Over the years considerable improvement have been made in the form and content of published accounts and much of this has occurred as the result of voluntary experiment and innovation. To place financial reporting procedures in a standardized strait-jacket might therefore be to the longer-term detriment of users of financial statements. In a nutshell, a major potential hazard of standards is that although they may be intended as a floor they end up as a ceiling (Elliott 2008, Alexander, Britton and Jorisson 2009).

A further criticism of standards is that they surpress that need for accountants to exercise judgement which is a crucial feature of their status as professional. Concern is expressed that the accountant will be relegated to the role of a more technician who does no more than slot figures calculated in accordance with accounting standards into their appropriate location in the accounts (Edwards and Mellett 1994).

Fair presentation and compliance with international accounting standards:-

The first substantive part of international accounting standards 1concern the vexed question of the override. The issue at stake is whether or not the detailed regulations, i.e. the standards in this case are always and automatically both necessary and sufficient conditions for the preparation of adequate financial statement or whether some more fundamental overriding criterion, such as the provision of a true and view a requirement to present fairly or a requirement not to mislead users is when a clash occurs the determining requirement (hence overriding the standards). IAS 1 recognizes that compliance with the international accounting standards may be insufficient or inadequate in extremely rare circumstances (Alexander, Britton and Jorissen 2009 and Ashbaugh and Pincus 2000).

Fundamental Accounting Principles:-

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The accounting policies a firm follows rest on certain fundamental concepts or principles. They are:-

1. The going concern assumption: - the financial statements are prepared-and assets and liabilities are valued-on the assumption that the company is able to continue trading for the foreseeable future.

2. Consistency: - The Company applies the accounting policies it has adopted on a consistent basis. Like transactions and events are accounted for in the same way from one period to the next.

3. Prudence:- The financial statements are prepared on a prudent basis. More specifically, profits are only recognized in the income statement when they are realized or realizable, that is when cash or claims to cash are received.

4. The accruals concept: - A company recognizes revenues and expenses in the period they occur. This may not coincide with the date of cash receipt or payment. The matching principle is an illustration of the accruals concept at work: the expense of a sale is recognized in the same period as the revenue from it.

These are the most important of the general principles set down in the EU's but it must 4th directive (art. 31.1). Although they are set down in commercial and tax codes in many countries their origins are found in long-accepted business practice. Consider the timing of revenue recognition under accrual accounting (Sutton 2000).


Finally, we can say accounting standard is very important for any company to use it within system to develop ways of calculation. because more organizations uses with accounting standards to improve ways of accounts like Bank Muscat, International Bank of Oman, Oman Arab Bank, NBO, Bahwan Group Company, Governments and etc. So, companies and employees must following accounting standards to become easy when using analysis accounting information.