The Conceptual Framework Of Accounting Accounting Essay

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The International Accounting Standards Board (IASB) was found on April 1, 2001 as the successor of the International Accounting Standards Committee (IASC) which was found in June 1973 in London. The International Accounting Standards Committee was responsible for developing the International Financial Reporting Standards and promoting the use and application of these standards. Accounting is a critical part of any company which means to qualify the company's performance in a manner that allows others to estimate the company's present performance and future prospects. Accounting is also important for the company top management to make growth and development predicts and achieve them. Every business has a different model, a different market dynamic. For example, In Oman, the financial statements have been prepared in accordance with International. While Egyptian Accounting Standards have been prepared to comply with International Accounting Standards except for certain minor differences to adopt to Egyptian economic environment. Therefore all companies listed on the Cairo Stock Exchange must follow IAS.Accounting standards issued by the International Accounting Standards Committee (IASC). A specific set of rules and regulations have been developed that need to be followed by any company while making the financial statements. These are called the Generally Accepted Accounting Principles (GAAP). These standards reflect the culture, history, and the characteristics of accounting problems facing that country. In some countries, the professional bodies formulate the financial accounting standards, while in many others governments and regulators establish these standards.GAAP is considered to be the common set of theories and practices accepted by the accountants.(2),(3)

The GAAP principles can be a case for serious disagreements among the accountants. As a result, they keep changing regularly and there are many organizations that influence these changes. For example, the American Institute of Certified Public Accountants (AICPA) which is a national professional association of CPAs in the United State. The main job of the CPA is to ensure that all the companies conform to these changing standards. Most companies try to develop its income by reducing the taxes they pay to the government. As an auditor, the CPA needs to verify that the company is not carrying out any malpractices to increase its books by showing incorrect tax breaks. Scanning for such irregularities requires high ethical standards. (1)

The need of the accounting standards comes from the prospective that the advantages of following the accounting standards help any company to judge the accuracy of financial statements, detect errors and mistakes, prevent errors and frauds and gain benefits through specified audits. Managers need auditors to judges the correctness of the financial statements and helps form an independent opinion on accounts of the company’s financial statements. Evaluation of the accounting system helps to detect and prevent errors and mistakes, especially accounting errors. It also helps to locate errors through trial balance checking, short cut method and extensive checking. Also auditing helps a company to detect and prevent frauds. These include misappropriation and defalcation, misappropriation of cash, omission of receipts from books, false entries for receipts and payments, misappropriation of Goods especially when goods are not bulky but of higher values. On the other hand, accounting standards has many limitations such as collusions that may cover frauds and errors, purposely prepared documents which may not be uncovered and use of wrong sample audits. Also such observations have to depend on some other professionals’ opinion which may at times include inadequate information, incorrect information and have to rely on certificates of management. (1),(2)

Financial reporting is the process of preparing and distributing financial information to users of such information in various forms. The most common format of formal financial reporting is financial statements. Financial statements are prepared in accordance with rigorously applied standards defined by professional accounting bodies developed according to the legal and professional framework of a specific locale. Company governance is the set of processes, customs, policies, laws, and institutions affecting the way a company is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the company is governed. The principal stakeholders are the shareholders, management, and the board of directors. Other stakeholders include employees, customers, creditors, suppliers, regulators, and the community. The corporate governance aims to ensure the accountability of certain individuals in an organisation through mechanisms to reduce the principal agent problem.(3)

The conceptual framework of accounting aims to create a conceptual framework to ensure justify the use of methods and procedures and evaluation of existing accounting practices and implications of the application of new accounting procedures. The theoretical framework of a constitution represents a coherent objectives and principles which enable to describe the nature, function and the limits of financial accounting. It also defines the objectives for accounting purposes and helps choose the events that is accounted for and how to measure those events and how to deliver it to the relevant authorities. The conceptual framework of accounting aims to assist Financial Accounting Standards Board to issue accounting standards, provide intellectual background from which to address the various accounting problems in the absence of standards on them, reduction of personal interpretations and judgments in the preparation of financial statements and strengthening the ability of accounting data for comparison and by reducing the number of accounting alternatives. On the other hand, the elements of the conceptual framework of accounting are financial statements objectives list, accounting assumptions list that are related to environmental and nature of the accounting unit, accounting principles list and a full range of accounting methods derived from the accounting principles. All these elements constitute a set are interrelated.(3)(4)

In conclusion, accounting is an important profession with great significance, in the modern day, to the government and the general public alike. Hence, CPAs must also maintain highest levels of integrity in carrying out their duties, apart from following the GAAP guidelines.