The Needs Of Accounting Standards Accounting Essay

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Accounting standard is a common standard for accounting and reporting. It contains the principles governing accounting practices and determines the appropriate treatment of financial transactions. It is the policy documents issued by the recognized expert accounting body relating to various aspects of measurements, treatments and disclosure of accounting transaction and events There was also a tremendous growth in the market with current accounting practices, and this leads us to question why we need to standardize international accounting standards, what are the advantages and what are the barriers that prevent coordination? Consisted although accounting may be "the language of business" common language was not necessary - at least as long as the global economy from a group of national economies more or less distinct. (Mednick 1991)(Quoted in: www.wetherhead.cwru.edu), but this is no longer true. We now have the global economy and its impact on the business world as a whole. For example, the company has the world today have more than one headquarters.

RULES OF ACCOUNTING STANDARDS:

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Accounting standards should be specifically stated, either in the charter of the standard setter or in the legislation under which it is established that, in designing accounting standards, the standard setter should seek to ensure that the standards lead to the production of:

- Relevant;

- Reliable;

- Material;

- Neutral; and

- Comparable.

A cost/benefit analysis should be undertaken by the standard setter in the development of each accounting standard. In undertaking the cost/benefit analysis, consideration should be given to whether the proposed standard is suitable for all entities required by legislation to prepare financial statements, or whether the proposed standard should only apply to a specific class of entity in accordance with accounting standards.

Accounting standards should be interpreted from a commercial perspective to build up compliance by preparers of accounts, not only with the black letter of the standard, but also its overall purpose.

NEEDS OF ACCOUNTING STANDARDS:

According to Juergen H. Daum (2006) "It has been created a new framework of accounting and financial reporting in most European countries, International Financial Accounting Standards (IFRS). Many companies which are assessed to international standards for the first time experience they have move away from their past accounting traditions - such as from the traditional continental European principle of protecting creditors or from the caution principle (value assets at the lowest possible value, value liabilities at the highest possible value) to full shareholder value orientation and to the principle of "fair value" in accounting. Fair value accounting, in particular, is confronting accountants and auditors with a major challenge: they are no longer able to value assets and to test for possible asset impairment (for example, impairment of the book value of certain assets such as intangible assets and goodwill with their fair value) without the support of business controllers and management accountants, who provide reliable and "testable" planning data. Furthermore, management needs to put a new focus on their internal controlling and management accounting systems to better support the external IFRS view and to steer the business proactively.

ADVANTAGES AND DISADVANTAGES OF ACCOUNTING STANDARDS:

The advantages:

If there are 7 companies for one owner and each has a different format and a different set of data to be kept, and no two keeps the same categories of data, much less the in the same format, then they will have great headaches in attempting to do business together. This is the reason for standard bookkeeping practices, standard software and standard documentation. It is why courts have a standard for their operations, and it is why every business should have a stated standard for all its transactions and should attempt to arrange it to comply with the standards of its clients, customers, rivals, suppliers, vendors and affiliates.

The disadvantages:

-Political reasons

-Nationalism -According to Dennis Beresford, former chairman of the FASB states (that everyone who seriously considers global accounting harmonization as a potential method affirms that nationalism is one of the top constraints to becoming a reality.)

A global capital system- Those companies that see a benefit from using an international approach will do so and those companies that do not see benefits will not. Those that make the wrong decision will loose out on the opportunity.

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And for example if a company has a standard, then new staff must be trained to that standard. It also means that all staff in the company must follow that standard and can't 'wing it.' to some extent it may even curtail creativity and affect productivity in the short term.

USE OF CONCEPTUAL FRAMEWORK:

Conceptual frameworks (theoretical frameworks) are a type of intermediate theory that try to connect to all aspects of inquiry (e.g., problem definition, purpose, literature review, methodology, data collection and analysis). Conceptual frameworks can act like maps that give coherence to empirical inquiry. Because conceptual frameworks are potentially so close to empirical inquiry, they take different forms depending upon the research question or problem. So it's used in research to outline possible courses of action or to present a preferred approach to an idea or thought. There are several types of conceptual frameworks, such as:

Working hypotheses

Descriptive categories

Practical ideal types

Models of operations research

Formal hypotheses

In the absence of a standard or interpretation that specifically applies to the treatment, management must use its ruling on the development and application of accounting policy that lead to relevant information and reliable. In making this provision, IAS 8.11 requires the Department to consider the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenditure in this context. The added height of the importance of this framework in 2003 to review the International Accounting Standards

CONCLUSION:

Accounting Standards are the policy documents issued by the recognized expert accounting body relating to various aspects of measurements, treatments and disclosure of accounting transaction and events.

Standards are a source of rule and order and generate consistency. In failing to plan, we plan to fail. Lack of rule and order begets chaos and destruction. The more consistently various organizations can line up their financial transactions with those of other organizations and reach the same data on the same format, the more efficiently commerce can flow and grow.

The disadvantages of accounting standards are small and should be easily overcome by a competent staff. They are vastly outweighed by the advantages.