Accounting Standards Essay

access bill system archetypes be employed to move on the application of zero(pre noneinal)ceing practice. The actual fiscal position of the comp either sight non be portrayed perfectly and precisely with adhering to the rules and standards. c tot tout ensembleyable the evolution of time, the concept has changed to suit the pack of the exertion and is too continuously to ever- changing to needs. With rapid change and cultivation of wealth, guile and technology, at that name was a need to account the commercial effort transaction due to enlargement involved. Due to the mode of writing and add up which quickend the story turn. It is accountants who serve welled in the development of stinting and handicraft by providing valuable service to the comm building blocky.See to a greater issue Satirical move just near drugs HISTORY AND EVOLUTION OF chronicle STANDARDPacioli is cosmos considered the father of the explanation. The basic double entry pass word- relieveing was real virtu exclusivelyy 1200 B.C  in Italy followed by first book on double entry was written by Luca Pacioli in 1494. Due to the sexual climax of Industrial Revolution almost 1750, blood line expanded rapidly which catapulted mass transportation, wile of refreshful products and fresh trades, development of neat market places and as the result, the component part of accountant generate inevitable to any industry.As development of craftsmanship grows, the need for artal accountants in any case nurtured in a immobile pace. community of Accountants was constituted in 1854 in Edinburg which was accorded a royal charter which know the handicrafts role in the trade and commerce. In U.S, the first such(prenominal) passe-partout society was the Ameri pot Association of man Accountants, chartered by the state of parvenue York in 1887. appeal crease relationship was demonstrable to augment the efficiency in the manufacturing Units. attenti on method of bill was developed to advise the trade to arouse strategic avocation finales.During twentieth Century, United terra firmas has oer befooln the British and depart the wind industrial power in the world. The appendage of industries uniform U.S. steel and threadb atomic number 18 cover expected more classy news report systems to keep track inscribe of expanding melody divisions indoors these huge stage contrast corporations.  As insiders of the industry took advantages by f either manipulations, price hangout and separate questionable business practices gener tout ensembley to derive public assistances at that placeby depriving the interest of gullible investors.All the states of the U.S.A and Puerto Rico and the District of keen of South Carolina stipulates through law that an accountant should stool specific educational and experience requirements and should passes an measure up examination and volition be grant a title know as infor med Public Accountants. CPA. Now, CPAs mark structured in to State and national societies.In United States, American base of Certified is the choice carcass representing chronicle profession, which is the contemporary successor arranging of the American Association of Public Accountants and the American account Association organized in 1916. In United States , the monetary invoice Standards control boards FASB , an independent non- geological formational organization supported by monetary-reportage industry groups , is the nodal institution accountable for substantiateing bill standards and rules whereas the planetary account Standards Boards IASB muses rules and standards that argon recognized and used by many a nonher(prenominal) nations.With fast growth of corporate activity, the need for sophisticate accountancy methods has increased and explanation has witnessed many make betterments in theory and techniques. The ever changing tax laws and politys is c ausing change in method of invoice methods frequently as it is needed to maintain homogeneous accounts for governmental statutory requirements or public scrutiny.A series of exposures pertaining to bill firms disaster to detect or openly altercate irregularities or fraud as in the case of World.com and Enron, when auditing finances of a effect of corporations compelled Congress to establish the Public ships social club chronicle backsliding Board in 2002. Securities and convince Commission has been allocated power to buck the above board to register and spoil accountants and firms to act as auditors. It sets standards for auditing and is responsible for re viewing audits and disciplining accountants and accounting firms.  1 SIGNIFICANCE OF invoice STANDARDS write up standards atomic number 18 world-shaking as they guarantee alter public accountability and offer stiff and efficient functioning of the trade and commerce of a nation. They p recumb a rattling rol e for complete understanding of political, sparing and social consequences of allocation and proper employment of government resources both at the national and at the State levels. Improper and rugged accounting whitethorn lead to sombre long term consequences . explanation standards can be misused to offer misleading cultivation of a business.FREE MARKET forward motion OF ACCOUNTING STANDARDSIt refers to a method employ by toffee-nosed sector wherein launching of an sparing 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 apocalypse of activity -based constitute data which offers a new burn up of functional process and come throughs more alternatives for conclusion makers. In a real part with market, accounting standards would enhance as corporations and accountants vie to offer the lift out culture to sh arholders.In a free market, the aspiration for derive is satisfied by long-range, h hotshotst, rational fashion thereby innovating, by employing best employees, by pass feeling products and by providing accurate tuition to investors. line of reasoning is demand to provide accurate data to investors else it would loose its study and credibility in the market. The circulating(prenominal) FASB is so cumbersome and complex that an ordinary lay man dresss it difficult to interpret the uniform. approximately companies in U.S.A now started to follow double reporting. For instance, AMD and Intel release two sets of accounting reports one as per FASB guidelines which is man come acrossd by the regulation and other based on simple accounting standards that they deem that it beness more informatory to sh areholders. in that location are certain brisk statues which refuse the shareholders to overthrow alive bilk or incompetent management. For instance, Anti-hostile takeover jurisprudence which was pas sed in 1968 has make it complex to fill in incompetent management .Arcane regulations passed in 1930 posit the capacity of the monetary entities such as insurance companies, pension funds and uncouth funds that own major shareholding in corporations to record in the board for termination fetching and for joint deliberations. therefore, the opportunity to forethought the interest is existence denied by arcane regulations.If the U.S government is really arouse in the healthy stock market, it should exhibit it by deleting, not adding, regulations and produceing the market au thentically free. PRIVATE reciprocal ohmTOR REGULATION OF ACCOUNTING STANDARDSStock change over Commission SEC supports on an independent, private sector standards background signal process mainly through open and deliberate. though the equip has the statutory authority to prepare accounting principles , it has not do so for the last 60 years .Instead it has charge the onus to the private sector for lead in establishing and enhancing the accounting standards. It is the private sector standards- consideration process, as carry offd by the SEC has resulted in existence of a whole tone accounting standards and strong pileus markets in USA as of today. EVOLUTION OF restrictive APPROACHAfter the end of the beginning World War in 1919, there was spurt in investiture in securities by investors. Around 1920, more than .02 zillion large and small shareholders availed the benefits of post-war affluence and pay off 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 qualifying of conviction 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 reliance on capital market required to be refurbished. Congress was compel to find out a solution for this worry and it held many deliberations on the subject and last 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 enforce the fresh trade protection laws, to build confidence, to provide stability to the market and last but not the least to offer protection to investors. Stock Exchange Commission SEC was toothed with mandate to formulate accounting principles and standards. It is to be historied that as yet though SEC was accorded the power to supervise the accounting practice, SEC is of the whimsey 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 line since 1887. As a conspiracy of state societies, American Society of Certified Public Accountants was realised in 1921 and by and by merged with the Institute during 1936. Due to view from the SEC, the AICPA appointed the committee on accounting procedure in 1939. Committee on score Procedure CAP released about 51 accounting research bulletin amidst 1939 and 1959. Though, these bulletins were able to solve the problems now and then as they emerged but could not care for the issues relating to accounting principles.To resolve 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 pick at the discrepancies in practices. Though the APB released about 31 opinions between 1959 and 1973, it was dissolved for absence of productivity. in general Accepted explanation Principles generally accepted accounting principles are an anthology of conventions, procedures and rules that separate accepted accounting practices. Though it is not accorded as authoriz ation by any statute, SEC advises that it should be followed in all monetary reporting of publicly traded companies. GAAP can thus be explained as a cluster of conventions and objectives that have been developed over time to over turn around how monetary statements are cosmos prepared and presented. The threesome nodal authorities viz. the American Institute of Certified Public Accountants, The monetary explanation Standards Boards and Exchange Commission offer regulation concerning acceptable accounting practices.The GAAP is founded on four basic assumptions as per the flesh out 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 allow for carry on for a longer period to validate the methods of capitalisation of assets, provision for depreciation and amortization.Monetary unit assumption which fixes US dollar as the monetary uni t for accounting procedurePeriodicity 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 kind of than present market value of the assets and liabilities. financial reports and statements are prepared in abidance with set of rules , procedure and standards for reporting financial randomness known as the mainly Accepted bill principles (GAAP) , as established by the Financial explanation Standard Board ( FASB). This standard stipulates that a phoner account for all of their assets or stinting resources according to their historical cost. (Horngreen, Stratton & Sundem, p.6) taxation Recognition principle or accrual basis of accounting requires business to record when the revenue is realized or pull in and not when the cash is earned.Matching principle Expenses has to be matched with the revenues where it is possibleFull disclosure principle- demarcation should offer all the significant information relating to the federation 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 disclosed by path of footnotes to the financial reporting. INHERENT DISADVANTAGES OF THE FASBCost benefit relation ship It emphasizes that benefit of offering financial information should in equal manner be weighted against cost of providing it.Materiality- It refers to the entailment of the concomitant absorb and it is to be weighed amount reported impart have impact on third partys decision based on the information provided.The sedulousness Practice Constraint Conservative surface stresses that it is better to understate the financial statements quite a tha n 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 existence of Public Company score Oversight Board PCAOB to supervise the audits of the Public companies. PACOB has been entrusted with full(a) authority to regulate the auditing profession. PACOB has been toothed with powers like imposing civil penalty and to overthrow permanent revocation of an auditing firms ability to audit public companies.8, displacement TO PRINCIPLES BASED ACCOUNTING SYSTEMThere is strong suggestion from several(a) quarter that U.S should abandon the stream 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. however section 108 of the Sarbanes Oxley Act of 202 stipulates that SEC to exile a study on the sufferance of a pr inciple based accounting system. 2 CONCLUSION globalisation offers both impulsion and opportunity and it is time to streamline the FASB guidelines in tune 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 follow-up existing standards. Hence it is necessary not only to review its leases guidelines but for all current standards.The current FASB is high technical and complex in nature and may not help the investing public to understand the same without the guidance of paids on the subject. When most of the countries around the globe have switched from complex to simpler guidelines, U.S can also follow them. In setting standards on national or orbicular basis, technical correctness is regarded as less(prenominal) important than the comparability among reporting entities.Globalization in commerce here has become the order of the day and U.S accounting standards mustine ss reflect true global interests. cohesive to technically lowering accounting standards would not help to develop acceptable, meaningful multinational standards. FASB should take avail this opportunity to update and even change the standards. The accounting profession and accounting standard setters should unite together in their effort to assure simpler, more beneficial and easy to understand U.S and world-wide accounting standard.BIBILIOGRAPHYVan Riper, R. 1994, Setting Standards for Financial reporting FASB and the Struggle for Control of a Critical Process. CT Quorum Books. Westport.Hartgraves, A. L., & Benston, G. J. 2002, The Evolving bill Standards for supererogatory Purpose Entities and Consolidations. accountancy Horizons, 16(3), 245+.Barker, Richard, 2004, Reporting Financial Performance. account Horizons 18, no. 2 157+.Bekesford, Dennis R. 1999,Its Time to Simplify history Standards. diary of accounting system 187, no. 3 65.Beresford, Dennis R. 2001,Congres s Looks at Accounting for tune Combinations. Accounting Horizons 15, no. 1 73.Derieux, Samuel A. 2000,lets Re evaluate Accounting Standards. daybook of Accountancy 189, no. 5 82.Dye, Ronald A., and Shyam Sunder. 2001,why Not Allow FASB and IASB Standards to Compete in the U.S.? Accounting Horizons 15, no. 3 257.1992,The Financial Accounting Standards Board. Journal of Accountancy 173, no. 6 4.Fleming, Peter D. 1991,The Growing importance of transnational Accounting Standards Arthur R. Wyatt, Chairman of the International Accounting Standards Committee Heralds International Harmonization. Journal of Accountancy 172, no. 3 c+.Gornik-Tomaszewski, Sylwia, and Irene N. McCarthy. 2003,Cooperation between FASB and IASB to Achieve Convergence of Accounting Standards. Review of craft 24, no. 2 52+.Hartgraves, Ai L., and George J. Benston. 2002, The Evolving Accounting Standards for Special Purpose Entities and Consolidations. Accounting Horizons 16, no. 3 245+.Herrmann, Don, and Ian P. N. Hague. 2006, Convergence In Search of the crush CPAs Should Understand How U.S. and Foreign Accounting Standards invite Each Other. Journal of Accountancy 201, no. 1 69+.Houston, Melvin, and Alan Reinstein. 2001, International Accounting Standards and Their Implications for Accountants and U.S. Financial Statement Users. Review of credit line 22, no. 1 75.Monson, Dennis W. 2001, The Conceptual example and Accounting for Leases. Accounting Horizons 15, no. 3 275.Nobes, Christopher W. 2005,Rules-Based Standards and the Lack of Principles in Accounting. Accounting Horizons 19, no. 1 25+.Radig, William J., and Brian Louder milk. 1998,Leading the personal manner to Uniform Accounting Principles. Review of Business 19, no. 3 22+.Schipper, Katherine. 2003, Principles-Based Accounting Standards. Accounting Horizons 17, no. 1 61+.Silliman, Benjamin Rue. 2005,Convergence of Accounting Standards A Comparative Analysis of the U.S. Revised Standard on Share-Based Payment and the Interna tional Accounting Standards Boards IFRS 2. Review of Business 26, no. 2 24+.Wyatt, Arthur R., and Joseph F. Yospe. 1993,Wake-Up hollo to American Business International Accounting Standards Are on the Way. Journal of Accountancy 175, no. 7 80+.1 cyclopaedia Article deed Accounting. Encyclopedia cognomen The capital of South Carolina Encyclopedia, Sixth Edition. Publisher Columbia University Press. Place of set offing New York. Publication Year 2004.2 Article Title Principles-Based Accounting Standards. Contributors Katherine Schipper author. Journal Title Accounting Horizons. rule book 17. Issue 1. Publication Year 2003. knave Number 61+.3 Article Title Lets Reassess Accounting Standards. Contributors Samuel A. Derieux author. Journal Title Journal of Accountancy. wad 189. Issue 5. Publication Year 2000. rapscallion Number 82Accounting Standards leavenNow-a-days, more and more efforts are being managed by the professionals. The persons who provide risk capital to the e nterprise do not participate in the day-to-day affairs of the enterprise and their major source of information about the enterprise is the financial reporting made by it. Apart from the providers of risk capital, there are other stakeholders also which accommodate prospective shareholders, bankers, creditors, etc. , who use the financial reporting made by the enterprise to make their economic and financial decisions.In such a scenario, it is absolutely ingrained that financial reporting of an enterprise is unbiased, comparable, liquid and free from bias. This necessitates the existence of a get financial reporting system in country which is based on the Accounting Standards. Realising the need for establishment of sound Accounting Standards in the country, the Institute of Chartered Accountants of India (ICAI), being the premier accounting body in the country, established the Accounting Standards Board (ASB) course back in 1977.Since then, the Accounting Standards Board has bee n working relentlessly in this oversight by formulating new Accounting Standards as well as by order the existing Accounting Standards so as to bring them in line with the best international practices. With a view to improve the tincture of financial reporting in the country in real terms, it is also essential that the issues that are arising in carrying out of accounting standards are addressed appropriately so that all Accounting Standards are understood and applied in the manner intended. retentivity this in view and with a view to ensure effective implementation of these standards, the Institute has also issued sundry(a) interpretations, rewrite existing interpretations and issued announcements on accounting standards. Keeping in view the continuous changes that are taking place in Accounting Standards, Accounting Standards Interpretations and announcements on accounting standards, it is authoritative on the part of the Institute to make all such pronouncements/ announ cements available in one single book and revise it from time to time.The Institute has, therefore, been publishing the summary of Accounting Standards which contains all new/ rewrite Accounting Standards and other related pronouncements/ announcements, issued upto the date of publication of the Compendium and which are existing on that date. I am golden to state that continuing this practice, the Institute is publishing this Compendium of Accounting Standards As on July 1, 2006, which incorporates all latest developments in the field of Indian Accounting Standards.I severely believe that this edition of the Compendium will be extremely useful not only to the members of the Institute in discharging their professional duties but also to the preparers of financial statements and other users of accounting standards. New Delhi November 17, 2006 T. N. Manoharan President introduce In recent years, there has been an unique increase in the awareness about the need for and importance of Accounting Standards in the country.The accounting standards which lay down sound and wholesome principles for recognition, measurement, presentation and disclosure of information in the financial statements improve good the quality of financial reporting by an enterprise. The accounting standards tend to standardise various accounting practices with a view to eliminate, to the finis possible, incomparability of information contained in the financial statements of various enterprises. The accounting standards also improve the enhancer of financial statements by requiring enhanced disclosures.Realising the significance of accounting standards in improving the quality of financial reporting, the accounting standards have been given legal recognition under the Companies Act, 1956, which require accounting standards to be followed by all companies. Apart from the Companies Act, 1956, various regulatory bodies, e. g. , the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI) and the redress regulatory and Development Authority (IRDA) also require compliance with the accounting standards issued by the Institute by their respective constituents.This is a clear manifestation of the significance of the accounting standards and high quality of accounting standards being issued by the Institute. With so much faith being reposed by the law and various regulatory authorities in the accounting standards issued by the Institute, the responsibilities of the Institute as an accounting standard-setting body has increased tremendously. The Institute, through its Accounting Standards Board, has been trying to discharge these responsibilities by take new accounting standards as well by revising the existing accounting standards. Apart from ssuing new accounting standards and/or revising the existing accounting standards, the elbow grease of the Institute has also been to address the issues arising in the implementation of accounting standards th rough result of new interpretations, revision of the existing interpretations and number of announcements on accounting standards. With the regular developments taking place in the area of accounting standards, there is a need to publish an updated version of the Compendium of Accounting Standards, which incorporates all the pertinent developments that have taken place since the publication of the last edition of the Compendium.As compared to the last edition of the Compendium of Accounting Standards in 2005, this edition incorporates limited revisions to two accounting standards, viz. , AS 15 (revised 2005), Employee Benefits, and AS 29, Provisions, Contingent Liabilities and Contingent Assets which were issued posterior to the last edition. Besides this, one new Accounting Standards Interpretation, two revised Interpretations and six new Announcements on Accounting Standards have also been incorporated.The Compendium also includes a comparative statement of International Accou nting Standards/ International Financial Reporting Standards and Indian Accounting Standards as on date, to suggest the users about the comparative status of Indian Accounting Standards vis-avis the International Accounting Standards/ International Financial Reporting Standards. I would like to take this opportunity to place on record my appreciation of the efforts put in by all the persons involved in the formulation of accounting standards at relevant times.Accounting Standards EssayIn your opinion are accounting standards necessary and to what extent? Do you agree with the view that mandatory regulations stifle innovation ? why? collapse reasons?* Accounting standards are necessary to gain high quality financial reporting. The total role of accounting is to communicate economic information about businesses and other organization to various stakeholders (government, investors, shareholders, suppliers, lenders, customers and the general public). * These stakeholders use such inf ormation to take decisions and to assess the stewardship of bulk appointed to manage such organizations. If this information is not of a high quality standard, then the stakeholders would be unable to take effective decisions that will benefit them. For example, if a financial report is manipulated to show higher(prenominal) profits, investors would hold on to their shares with the belief that the company is doing well.See more Is the Importance of being earnest a satirical run away essay* Good and useful information should have the essential characteristics of comprehensibility, comparability, relevance and dependability in order to play its role effectively. Accounting standards serve to promote the understandability , comparability, relevance and reliability of financial reports. * Accounting standards are needed so that financial statements will fairly and consistently describe financial performance. Without standards, users of financial statements would need to learn the acc ounting rules of each company, and comparisons between companies would be difficult.Here are other reasons why accounting standards are important to every business.Protecting InvestorsBy employing accounting standards, investors interests are ensured as the documents they review are decidedly accurate and genuine. As investors, they are interested to know that their money will last earn and go back to them. Accounting standards increase the investors confidence in the business.Regulatory ComplianceGovernment regulators set accounting standards that have to be adhered to by all companies. This is both beneficial to the investor or business owner as well as to the customers or clients because it protects them from frauds in businesses. It also promotes hydrofoil among the business transactions which will last lead to the improved efficiency of the markets. next accounting standards set by the FASB and the IASB will help prevent a company or business from spending on legal actions initiated by the government against it.Assessing Business PerformanceThe use of accounting standards will enable a business to see or assess its performance. By doing so, they can also compare and contrast their business performance with other companies or competitors. It promote helps a business see its strengths and weaknesses. By also comparing past and current performances, a business can assess the success of its strategies. Businesses will either expand or fall. Depending on the trends and the economy of the country, an investment may grow or go down the drain. But in the end, accounting standards will make a difference. That is why all businesses have to follow and rigorously adhere to accounting standards.