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Accounting is very important to business .It is concerned with the process of recording, sorting and summaries data resulting from business operation and events. The account has international accounting standards and this mean previous set of standards that regulated how specific transactions should be noted in financial statements.
Need of accounting standard
Accounting standard are needed so that financial statement will fairly and consistently describe financial performance .Without standard, user of financial standard would need to learn the accounting rule of each company and comparisons between companies would be difficult.
Accounting standard used today are referred to as generally accepted accounting principles These principles are generally accepted and the reason is an authoritative body has set them or the accounting profession widely accepts them as appropriate"
In preparing financial statement ,accounting are confronted with potential dangers of bias ,misinterpretation ,inexactness and ambiguity .In order to minimize these dangers ,the accounting profession has attempted to develop a set of standard that is generally accepted and universally practiced .Without this set of standard ,each enterprise would have to develop its own standard ,and readers of financial statements would have to familiarize themselves with every company's peculiar accounting and reporting practices .AS a result ,it would be almost impossible to prepare statement that could be compared
International Accounting Standards
In Germany, the amortization period for an intangible asset is 5 years .In the United States , a maximum period of 40 years is allowed .In Mexico ,assets are adjusted for price level changes .In the United States ,assets are generally valued at historical cost .In Japan ,income smoothing is permitted because firms are allowed discretionary charges to income for such item as depreciation and bad debts .In the United States ,arbitrary charges to income are not permitted .These are just some of the ways in which reporting practices in the United States differ from reporting practice in other countries .
The accounting standards Board deals with the United Kingdom. Besides this there is an international organization concerned with accounting standards.
The need for an IASC has been said to be mainly due to:
(a) - The considerable growth in international investment .This means that it is desirable to have similar methods the world over so that investment decisions are more compatible
(b)- The growth in multinational firms .These firms have to produce accounts covering a large number of countries .Standardization between countries make the accounting work that much easier , and reduces costs .
(c) - As quite a few countries now have their own standard setting bodies, it is desirable that their efforts should be harmonized.
Example of accounting standard
Accounting for Government Grants
Many different types of grant are, or have been obtainable from government department .where these relate to revenue expenditure e.g. subsidies on wages, they should be credited to revenue in the period when the revenue expenditure is incurred .The principle is that the grants should be recognized in the profit and loss account so as to match with the expenditure to which they are intended to contribute.
Accounting for Depreciation
Depreciation is the measure of wearing out, consumption or other reduction in the useful economic life of a fixed asset whether arising from use, efflux ion of time or obsolescence through technological or market changes .Depreciation should be provided in respect of all fixed assets which have a finite useful economic life. It should be provided by allocating the cost less net realizable value over the periods expected to benefit from the use of the asset being depreciated.
Objective of Accounting Standards
Objective of Accounting Standards is to standardize the diverse accounting policies and practices with a view to eliminate to the extent possible the non-comparability of financial statements and the reliability to the financial statements.
Advantages of accounting standards
Accounting Standards facilitate uniform preparation and repotting of general purpose financial statements published annually for the benefit of shareholders, creditors, employees and the public at large. The standard distributed should be consistent with the provisions of law. Thus, they are very useful to the investors and other external groups in assessing the progress and prospects of alternative investments in different companies in different countries. Standards will help public accountant to deal with their clients by providing rules of authority to which the accountants can appeal, in their task of preparing financial on a true and a fair basis. Accounting standards will increase the standards of audit itself in its task of reporting on the financial statement.
Periodic matching of cost and revenue
Accounting principles is rule of action or conduct which are adopted by the accountants universally while recording accounting transaction .they are body of doctrines commonly associated with the theory and procedures of accounting, serving as an explanation of current practices and as a guide for selection of convention or procedures where alternatives exist .these principles can be classified into two categories :
Accounting concepts: The term concepts includes those basic assumption or conditions upon which the science of accounting is based .The following are the important accounting concepts:
Separate entity concept, going concern concept and money measurement concept.
Accounting conventions: The term convention includes those customs or traditions which guide the accountant while preparing the accounting statements .The following are the important accounting conventions: convention of conservatism, convention of full disclosure and convention of materiality.
At the end financial accounting standards Board (FASB) is the wheat committee's recommendations resulted in the demise of the APB and the creation of a new standard setting structure composed of three organizations-the financial accounting foundation (FAF), the financial accounting standards Board (FASB), and the financial accounting standards advisory council (FASAC) .The financial accounting foundation selects the members of the FASB and the advisory council, funds their activities, and generally oversees the FASB activities.