Accounting Standards Essay Example for Free

bill system prototypes EssayINTRODUCTION raw(a)s report Standards ar employed to build the application of bank noeeing practice. The actual financial position of the company can not be bribeed accurately and precisely with adhering to the principles and standards. Due the evolution of clock, the concept has changed to suit the needs of the industry and is as well continuously to changing to needs. With rapid change and development of wealth, trade and technology, there was a need to account the production line transaction c each(prenominal)able to intricacy involved. Due to the mode of writing and chips which facilitated the invoice system process. It is accountants who helped in the development of economic and commerce by providing valuable services to the comm building blocky.See more Satirical judge about drugs HISTORY AND EVOLUTION OF ACCOUNTING STANDARDPacioli is being considered the father of the explanation. The first double accounting entry book-keepin g was developed around 1200 B.C in Italy followed by first book on double entry was compose by Luca Pacioli in 1494. Due to the advent of Industrial Revolution around 1750, business expanded chop-chop which catapulted mass transportation, invention of new products and new marts, development of capital markets and as the result, the role of accountant hold out inevitable to any industry.As development of trade grows, the need for businessal accountants also nurtured in a fast pace. Society of Accountants was established in 1854 in Edinburg which was accorded a royal charter which recognized the professions role in the trade and commerce. In U.S, the first such professional society was the American tie-up of overt Accountants, chartered by the state of New York in 1887. Cost accounting was developed to augment the efficiency in the manufacturing Units. Management accounting was developed to advise the business to make strategical business decisions.During 20th Century, United States has over coming backn the British and become the leading industrial power in the world. The ontogenesis of industries like U.S. steel and Standard Oil demanded more classy accounting systems to keep track eternalize of expanding business divisions within these huge business corporations. As insiders of the industry took advantages by stock manipulations, price fixing and other questionable business practices mainly to derive benefits thereby depriving the interest of gullible investors.All the states of the U.S.A and Puerto anti-racketeering law and the District of Columbia stipulates through law that an accountant should have specific educational and experience requirements and should passes an adjustment examination and will be granted a title cognize as apprised Public Accountants. CPA. Now, CPAs have structured in to State and national societies.In United States, American be of bear witness is the prime body representing accounting profession, which is the contem porary successor organization of the American Association of Public Accountants and the American news report Association organized in 1916. In United States , the financial Accounting Standards Boards FASB , an independent non-governmental organization supported by financial-reporting industry groups , is the nodal institution accountable for establishing accounting standards and rules whereas the external Accounting Standards Boards IASB hammers rules and standards that are recognized and used by many nations.With fast growth of corporate activity, the need for sophisticated accounting methods has increased and accounting has witnessed many improvements in theory and techniques. The ever changing tax laws and regulations is make change in accounting methods frequently as it is necessary to maintain homogeneous accounts for governmental statutory requirements or semipublic scrutiny.A series of exposures pertaining to accounting firms failure to detect or openly challenge irr egularities or fraud as in the case of World.com and Enron, when auditing finances of a number of corporations compelled proportion to establish the Public Company Accounting Oversight Board in 2002. Securities and Exchange counsel has been allocated power to appoint the above board to register and regulate accountants and firms to act as auditors. It sets standards for auditing and is responsible for reviewing audits and disciplining accountants and accounting firms. 1 SIGNIFICANCE OF ACCOUNTING STANDARDSAccounting standards are significant as they guarantee improved public responsibility and offer effective and efficient functioning of the trade and commerce of a nation. They play a rattling role for complete understanding of political, economical and social consequences of allocation and proper utilization of government resources some(prenominal) at the federal and at the State levels. Improper and bad accounting may lead to solid long term consequences .Accounting standard s can be misused to offer misleading information of a business. fall by the wayside MARKET APPROACH OF ACCOUNTING STANDARDSIt refers to a method applied by buck private sector wherein man of an economic market in which business is ruled by the laws of supply and demand and not by the unwanted government interference, subsidy or regulation.Under this accounting standard, voluntary disclosure of activity - base court data which offers a new approach of functional process and earmarks more alternatives for decision makers. In a real free market, accounting standards would enhance as corporations and accountants vie to offer the best information to shareholders.In a free market, the aspiration for profit is satisfied by long-range, honest, rational behavior thereby innovating, by employing best employees, by offering quality products and by providing accurate information to investors. phone line is required to provide accurate information to investors else it would loose its reputati on and credibility in the market. The catamenia FASB is so cumbersome and multifactorial that an ordinary lay man finds it difficult to interpret the same. Most companies in U.S.A now started to follow treble reporting. For instance, AMD and Intel release two sets of accounting reports one as per FASB guidelines which is mandated by the regulation and other based on simple accounting standards that they deem that it being more informative to shareholders.There are certain lively statues which refuse the shareholders to overthrow existing corrupt or incompetent management. For instance, Anti-hostile takeover legislation which was passed in 1968 has make it complex to replace incompetent management .Arcane regulations passed in 1930 limit the capacity of the financial entities such as insurance companies, pension funds and mutual funds that own major shareholding in corporations to participate in the board for decision taking and for joint deliberations. Hence, the opportunity to safeguard the interest is being denied by arcane regulations.If the U.S government is really interested in the healthy stock market, it should exhibit it by deleting, not adding, regulations and expression the market truly free. PRIVATE SECTOR REGULATION OF ACCOUNTING STANDARDSStock Exchange Commission SEC supports on an independent, private sector standards ground process mainly through open and deliberate. Though the commission has the statutory authority to frame accounting principles , it has not do so for the last 60 years .Instead it has appoint the onus to the private sector for leadership in establishing and enhancing the accounting standards. It is the private sector standards-setting process, as oversee by the SEC has resulted in existence of a quality accounting standards and strong capital markets in USA as of today. EVOLUTION OF REGULATORY APPROACHAfter the end of the First World contend in 1919, there was spurt in investment in securities by investors. Around 1920, more than .02 one million million million large and small shareholders availed the benefits of post-war affluence and ready to avail sudden wealth from stock market and due to boom, more than $ 50 billion worth in new stock was floated during this time.The famous stock market crash in 1929 which was notoriously known as Black Friday resulted in loss of faith by investors on the capital markets. Many investors were turned as pauper over a night. It was observed that if at all economy was to recover, the publics confidence on capital market required to be refurbished. carnal knowledge was forced to find out a solution for this problem and it held many deliberations on the subject and in the long run passed the Securities Act of 1933 and the Securities Exchange Act of 1934.The prime goal for the establishment of Securities exchange commission was mainly to lend oneself the fresh security laws, to build confidence, to provide stability to the market and last nevertheless not the le ast to offer protection to investors. Stock Exchange Commission SEC was toothed with mandate to formulate accounting principles and standards. It is to be noted that even though SEC was accorded the power to supervise the accounting practice, SEC is of the opinion that the private sector is having ample resources and ability to build up suitable accounting standards.The American Institute of Certified Public Accountants AICPA had been in the field since 1887. As a federation of state societies, American Society of Certified Public Accountants was established in 1921 and later merged with the Institute during 1936. Due to persuasion from the SEC, the AICPA appointed the committee on accounting procedure in 1939. Committee on Accounting Procedure CAP released about 51 accounting research bulletin between 1939 and 1959. Though, these bulletins were able to solve the problems now and then as they emerged only when could not address the issues relating to accounting principles.To resol ve the accounting principles issues, AICPA established a new standard setting body in 1959 namely the Accounting Principles Board APB.The main goal of the APB is to establish appropriate practices, formulate accounting principles and to minimize the discrepancies in practices. Though the APB released about 31 opinions between 1959 and 1973, it was dissolved for absence of productivity. slackly Accepted Accounting Principles generally accepted accounting principles are an anthology of conventions, procedures and rules that describe accepted accounting practices. Though it is not accorded as obligatory by any statute, SEC advises that it should be followed in all financial reporting of publicly traded companies. GAAP can thus be explained as a cluster of conventions and objectives that have been developed over time to oversee how financial statements are being prepared and presented. The three nodal authorities viz. the American Institute of Certified Public Accountants, The Financia l Accounting Standards Boards and Exchange Commission offer regulation concerning acceptable accounting practices.The GAAP is founded on four basic suppositions as per the details belowEconomic Entity concept- It stresses the business as a separate entity and to segregate income and expenses of business from that of personal.Going concern assumption which assumes that business will melt down on for a longer period to validate the methods of capitalization of assets, provision for depreciation and amortization.Monetary unit assumption which fixes US dollar as the monetary unit for accounting purposePeriodicity assumption facilitates recording of business operations and separating into different periods. This is mainly to facilitate for comparison between past and present performance of the business.FASBs basic principles are detailed belowHistorical Cost Principle- This requires business to account and report on cost of acquisition basis rather than present market value of the asse ts and liabilities. Financial reports and statements are prepared in accordance with set of rules , procedure and standards for reporting financial information known as the Generally Accepted Accounting principles (GAAP) , as established by the Financial Accounting Standard Board ( FASB). This standard stipulates that a company account for all of their assets or economic resources according to their historic cost. (Horngreen, Stratton Sundem, p.6)Revenue Recognition principle or accrual basis of accounting requires business to record when the revenue is realized or earned and not when the cash is earned.Matching principle Expenses has to be matched with the revenues where it is possible wide of the mark disclosure principle- Business should offer all the significant information relating to the company though it may not affect companys financial statements. For instance, Tax disputes, lawsuits, takeover information and possible contingent liabilities of the business are to be dis closed by way of footnotes to the financial reporting. INHERENT DISADVANTAGES OF THE FASBCost benefit relation ship It emphasizes that benefit of offering financial information should also be weighted against cost of providing it.Materiality- It refers to the substance of the item reported and it is to be weighed amount reported will have impact on third partys decision based on the information provided.The Industry Practice Constraint button-down approach stresses that it is better to understate the financial statements rather than overstating it.The after effects of Enron, WorldCom, Inc have forced the Congress to enact Sarbanes Oxley Act in 2002. The other accounting reforms announced is the creation of Public Company Accounting Oversight Board PCAOB to supervise the audits of the Public companies. PACOB has been entrusted with wide authority to regulate the auditing profession. PACOB has been toothed with powers like dread civil penalty and to impose permanent revocation of an auditing firms ability to audit public companies.8, SWITCHING TO PRINCIPLES BASED ACCOUNTING SYSTEMThere is strong suggestion from various quarters that U.S should abdicate the current rules-based system in favor of a principles-based accounting. If that happens, the critics are of the view that all the current difficulties being faced by U.S financial reporting would be alleviated or eliminated. Further percentage 108 of the Sarbanes Oxley Act of 202 stipulates that SEC to conduct a study on the adoption of a principle based accounting system. 2 CONCLUSIONGlobalization offers both impetus and opportunity and it is time to streamline the FASB guidelines in form with changing scenario.3 It is to be noted that FASB has recently issued special report on Leases thereby implementing a new approach, is recognition of the need to review existing standards. Hence it is necessary not only to review its leases guidelines but for all current standards.The current FASB is high technical a nd complex in nature and may not help the investing public to understand the same without the guidance of professionals on the subject. When most of the countries around the ground have switched from complex to simpler guidelines, U.S can also follow them. In setting standards on national or globular basis, technical correctness is regarded as less important than the comparability among reporting entities.Globalization in commerce here has become the order of the day and U.S accounting standards must reflect true global interests. Sticking to technically sound accounting standards would not help to develop acceptable, meaningful international standards. FASB should take avail this opportunity to update and even change the standards. The accounting profession and accounting standard setters should blend together in their effort to assure simpler, more beneficial and easy to understand U.S and worldwide accounting standard.BIBILIOGRAPHYVan Riper, R. 1994, Setting Standards for Fina ncial Reporting FASB and the Struggle for Control of a Critical Process. CT Quorum Books. Westport.Hartgraves, A. L., Benston, G. J. 2002, The Evolving Accounting Standards for Special Purpose Entities and Consolidations. Accounting Horizons, 16(3), 245+.Barker, Richard, 2004, Reporting Financial Performance. Accounting Horizons 18, no. 2 157+.Bekesford, Dennis R. 1999,Its Time to simplify Accounting Standards. journal of Accountancy 187, no. 3 65.Beresford, Dennis R. 2001,Congress Looks at Accounting for Business Combinations. Accounting Horizons 15, no. 1 73.Derieux, Samuel A. 2000,Lets Reassess Accounting Standards. 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