Commonly, profit maximization is offered as the proper objective of the firm. The intended users invest in the firm while keeping in mind the same ultimate objective. In addition, some users have specialised needs and will possess the authority to obtain the information to meet those needs. The “intended users” includes the stakeholders, defined as, all constituencies with a stake in the fortunes of the company. But there is no appropriate definition for the users.
The two main concepts before going into further discussion, the major one is the information asymmetry and the financial reporting decisions. The role of Information in a Market Economy is very important in order to improve operation of capital markets and to improve operation of
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Financial reporting and its regulation are affected by the self-interest of the individuals involved and the individuals form into groups to help achieve their objectives. Individuals are involved in the standard setting process scope for self-interest to get in the way of “neutral and unbiased” accounting regulations the individuals that will be regulated by the new accounting standards can have an impact on the standard setting process. The adverse economic and social consequences must also be considered.
The IASB “cooperates with national accounting standard setters to achieve convergence in accounting standards throughout the world”. Furthermore, the AASB has a specific function “to participate in and contribute to the development of a single set of accounting standards for world-wide use”. Australia has adopted the International Accounting Standards in January 2005 and it was the First country in the world to make such a statement. Since the standards was harmonized and therefore the situation became very
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The public expects these groups to pursue their interests and attempt to influence the process. The accounting standards are developed having regard to social and economic consequences. Thus, the Public interest theory ignores the principle of self-interest completely. But, the regulatory capture theory acknowledges some self-interest, which is a part of the story but not all of it. The Private interest theory acknowledges self-interest of all parties involved and therefore, all the theories were build on each
The profession is slowly becoming as important as a doctor’s or a lawyer’s. Like so, where doctors and lawyers have certain standards they need to follow, accountants do as well. In the United States, the standards board is known as FASB, but around the rest of the world, the standards originate from IFRS. Globally there is a shift towards IFRS standards evident by the SEC permitting foreign businesses to use IFRS accounting principles when listing themselves on stock exchanges. This is putting pressure on FASB to converge with IFRS. Steven Mintz says this about IFRS
Australian bookkeeping gauges are set by the Australian Accounting Standards Board (AASB) and have the power of law for Corporations law elements under s 296 of the Corporations Act 2001. They should likewise be connected to all other universally useful monetary reports of reporting elements in general society and private parts.Australian Accounting standards board oversee process of accouting standards if all companies registerd with ASIC complying with these standards and their financial reports are maintend with standards to keep public share holders money in safe hand in past many auditors companies used to ignore accounting standards to give companies actual financial figuers lower or higher to keep their shares prices or investors intact this lead to so many financial crises and collapse of comapanies.The case analyses the high standards required by the accounting profession in line with the requirements of the Australian Standards Board prescription. Further, the case is analyzed technically in line with the accounting standards prescribed by the institute. Here, an employee accountant of a company is asked to iron out the
According to the conceptual framework, the potential users of financial statements are investors, creditors, suppliers, employees, customers, governments and agencies, and the general public (Financial Accounting Standards Board, 2006). The primary users are investors, creditors, and those who advise them. It goes on to define the criteria that make up each potential user, as well as, the limitations of financial reporting. The FASB explicitly states that financial reporting is “but one source of information needed by those who make investment, credit, and similar resource allocation decisions. Users also need to consider pertinent information from other sources, and be aware of the characteristics and limitations of the information in them” (Financial Accounting Standards Board, 2006). With this in mind, it is still particularly difficult to determine whom the financials should be catered towards and what level of prudence is necessary for quality judgment.
Accounting is considered to be a Social and institutional practice, one which is constitutive and intrinsic to social relations (Hopwood, 1994, pg1). In case of (MA), internal users like managers are provided with (MA) information (Seal, 2009, pg4). This information focuses on both human performance and product services costs. It also gives the responsibility to managers to take measures according to the planning, directing and motivating and controlling of the business (Young, 2003, chapter5). Modern managerially-run enterprises was first established by Chandler in the United States between ‘1830 to 1860’(Chandler, 1977, pg3).It makes possible the world of oligopolies, which brings imperfect competition and misallocation of resources. It is...
Hines, R. D. (1991). The FASB’s conceptual framework, financial accounting and the maintenance of the social world. Accounting organizations and society, 16(4), 313-331.
Private and public accounting has long been discussed and disputed in regards to financial reporting. Since the Financial Accounting Standards Board (FASB) was created in 1973, accountants have called for different accounting regulations for private and public accounting sectors, as private companies do not have the resources to meet the complex requirements of public companies. Private companies currently are not required by law to issue annual or quarterly financial statements (James, 2012). Private companies do, however, have the option to apply the U.S. Generally Accepted Accounting Principles (GAAP), cash basis, or accrual accounting to their financial statements (James, 2012).
In the past, Accounting standards in the US were set by the American Institute of Certified Public Accountants (AICPA). However in 1973, the Financial Accounting Standards Board (FASB) began writing and issuing US GAAP (FASB.org 2012). FASB’s Accounting Standards Codification (ASC) is the source of authoritative US GAAP for nongovernmental entities (DATABASE). As many companies began operating globally the need for consistent financial reporting standards arose. To meet this need, the International Accounting Standards Committee (IASC) was established in 1973 in London, England (Flesher 2008). The main goal of the IASC was to formulate International Accounting Standards (IAS) that could be used for large publicly traded companies, but progress was limited. In 2001, this committee was replaced by the International Accounting Standards Board (IASB). The IAS also switched to the use of International Financial Reporting Standards (IFRS) with the creation of the IASB (Jei-Fang Lew 2005). The introduction of the Euro served as a catalyst for these changes and crea...
With the persisting issue of fraud in the discipline of accounting, a solution must be established. The government has stepped in and put in place regulations and laws that are meant to eliminate accounting fraud. One of the many laws set in place was Considerations of Fraud in a Financial Statement Audit which gave U.S. auditors expanded guidance for detecting fraud. Another major government implication is the Surbanes-Oxely Act which established the Public Company Accounting Oversight Board or PCAOB for short. It’s intended to “protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports”. In the article Current Trends in Fraud and its Detection “to provide more than reasonable assurance that financial statement fraud is not being committed, fraud audits rather than GAAS audits need to be performed”. A third party of CPA’s will come in and perform an audit on the company to e...
The task of representing the financial activities and effectiveness of federal, SLG, and NFP can be complex given the distinct goals and resources of these entities. The capitalist nature of our society has historically placed greater emphasis on the accounting standards of businesses than those of the government and NFP organizations. As more attention begins to shift in our society on the ethics associated with accounting standards it is essential that we ensure that the organizations which set this policy and work toward social change be held to the same standard.
Positive accounting theory is arguably an explanatory of accounting practice; economic based theory. RL Watts and JL Zimmerman developed positive accounting theory in 1980s at the William E School of Administration at the Rochester University. People do not know what they want at times. So there are different options available to accountants. There are some logical facts to choose one specific method. On choosing one specific method, accountants will maximize their own benefit first, and then company benefit, shareholder benefit and at last social benefits. A specific method will allow accountants to feel better to do their work as they like them the way they know and they way they are best at doing (Jayne Godfrey). For instance, accountant will write accumulated depreciation on asset value side for big company whereas when a poor balance sheet, it is better to put accumulated depreciation on credit side, so the company will have extra money in their debit (Ken Leo, John Hoggett, 2012). Accountants will use choice of accounting method depending on the situation. Positive accounting theory consists of different types of hypothesis such as bonus plan, political cost and debt hypothesis, which allow the managers to choose one specific method over another. It is accountants’ theory and it is descriptive and accountants will tell what to record.
The International Accounting Standards Board, (IASB), began life as the International Accounting Standards Committee (IASC) in the 1973. The IASC was created in June 1973 as a result of an agreement by the accountancy bodies of Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom and Ireland and the United States. These countries constituted the Board of IASC at that time.
The role of IAASA within the Irish Statute is to support and augment public confidence in the accounting profession, financial reporting and to provide a consistent high standard of service to all stakeholders. They make sure that IAS (International Accounting Standards) and local standards are adhered to.
The third organization that helps to regulate the accounting standards is the IASB. “Our mission is to develop, in the public interest, a single set of high quality, understandable and international financial reporting standards (IFRSs) for general purpose financial statements”(IASB 2008,¶ 1). The IASB consists of a board that is made up from nine different countries with the sole purpose of expanding accounting standards. Their main hope and goal is to one day that there will be only one set of accounting standards that will be used throughout the world.
The burden for public companies to succeed at high levels may place undue stress and pressure on accountants creating balance sheets and financial statements. The ethical issue for these accountants becomes maintaining true reporting of company assets, liabilities and profits without giving in to the pressure placed on them by management or corporate officers. Unethical accountants could easily alter company financial records and maneuver numbers to paint false pictures of company successes. This may lead to short-term prosperity, but altered financial records will ultimately spell the downfall of companies when the Securities and Exchange Commission discovers the
Peasnell, KV 1982, ‘The function of a conceptual framework for corporate financial reporting’, Accounting & Business Research, vol. 12, issue. 48, pp. 243-256, viewed 05 May 2014