Accounting standard

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Publicly traded companies typically are subject to rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms operate on the cash method of accounting which can often be simple and straightforward. Larger firms most often operate on an accrual basis. Accrual basis is one of the fundamental accounting assumptions and if it is followed by the company while preparing the Financial statements then no further disclosure is required. Accounting standards prescribe in considerable detail what accruals must be made, how the financial statements are to be presented, and what additional disclosures are required.

Contents

Some important elements that accounting standards cover include identifying the exact entity which is reporting, discussing any "going concern" questions, specifying monetary units, and reporting time frames. [1]

In the public sector, 30% of 165 governments surveyed used accrual accounting, rather than cash accounting, in 2020. [2]

Limitations

The notable limitations of accounting standards are their inflexibility, time-consuming process to create them, the difficulty of choosing between alternative treatments and their restrictive scope. [3] Accounting standards were largely written in the early 21st century. Massive accounting irregularities at large firms such as Worldcom and Enron illustrate that, despite all these efforts, widespread fraud can still occur, and even be missed by the outside auditors.

Benefits of accounting standards

The lack of transparent accounting standards in some nations has been cited as increasing the difficulty of doing business in them. In particular, the Asian financial meltdown in the late 1990s has been partially attributed to the lack of detailed accounting standards. Giant firms in some Asian countries were able to take advantage of their poorly devised accounting standards to cover up immense debts and losses, which yielded a collective effect that eventually led the whole region into financial crisis.

Common accounting standards around the globe

This standard is adopted in whole, or in large part, by many countries. It is acceptable in the U.S. (for a firm located outside of the U.S.) to report in this widely accepted format.

Accounting standards by nation

==Global standardization and IFRS==£18,000

Many countries use or are converging on the International Financial Reporting Standards (IFRS) that were established and are maintained by the International Accounting Standards Board. In some countries, local accounting principles are applied for regular companies but listed or large companies must conform to IFRS, so statutory reporting is comparable internationally.

All listed and grouped EU companies have been required to use IFRS since 2005, Canada moved in 2009, [5] Taiwan in 2013, [6] and other countries are adopting local versions. [7] [8]

In the United States, while "... the SEC published a statement of continued support for a single set of high-quality, globally accepted accounting standards, and acknowledged that IFRS is best positioned to serve this role..." [9] progress is less evident. [9] [10]

See also

Related Research Articles

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<span class="mw-page-title-main">International Financial Reporting Standards</span> Technical standard

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<span class="mw-page-title-main">Generally Accepted Accounting Practice (UK)</span> British regulatory body establishing company account preparation practices

Generally Accepted Accounting Practice in the UK, or UK GAAP or GAAP (UK), is the overall body of regulation establishing how company accounts must be prepared in the United Kingdom. Company accounts must also be prepared in accordance with applicable company law (for UK companies, the Companies Act 2006; for companies in the Channel Islands and the Isle of Man, companies law applicable to those jurisdictions).

<span class="mw-page-title-main">Financial statement</span> Formal record of the financial activities and position of a business, person, or other entity

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<span class="mw-page-title-main">Financial Accounting Standards Board</span> Rulemaking body for moneyed transactions tracking in the US private sector

The Financial Accounting Standards Board (FASB) is a private standard-setting body whose primary purpose is to establish and improve Generally Accepted Accounting Principles (GAAP) within the United States in the public's interest. The Securities and Exchange Commission (SEC) designated the FASB as the organization responsible for setting accounting standards for public companies in the U.S. The FASB replaced the American Institute of Certified Public Accountants' (AICPA) Accounting Principles Board (APB) on July 1, 1973. The FASB is run by the nonprofit Financial Accounting Foundation.

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Generally Accepted Accounting Principles (GAAP or U.S. GAAP or GAAP (USA), pronounced like "gap") is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC) and is the default accounting standard used by companies based in the United States.

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<span class="mw-page-title-main">Going concern</span> Term for a functioning business

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<span class="mw-page-title-main">Convergence of accounting standards</span>

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  1. Principle of Causality and,
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The accounting profession in Luxembourg is structured around Ordre des Experts-Comptables (OEC) which serves as the main accounting body in the country. Luxembourg accounting standards are inspired from neighbouring France and Belgium. Similar to France, Luxembourg has set up a Commissions des Normes Comptables (CNC) which serves as an advisor to the Ministry for Justice in respect of accounting related matters, e.g. waivers for presenting consolidated accounts.

References

  1. ↑ WiseGeek. "What are the Generally Accepted Accounting Principles?". WiseGeek. Retrieved 9 February 2017.
  2. ↑ International Federation of Accountants (16 June 2021). "Global Public Sector Shift to Accrual Accounting Forecast to Continue".
  3. ↑ "The Limitations Of Accounting Standards – Financial Yard".
  4. ↑ "Accounting Standards".
  5. ↑ "AcSB Confirms Changeover Date to IFRSs". Canadian Institute of Chartered Accountants. 13 February 2008. Archived from the original on 7 September 2009. Retrieved 8 August 2009.
  6. ↑ Chen, Ted (January 1, 2013). "IFRS accounting measures to take effect for all listed companies in Taiwan in 2013". The China Post. Archived from the original on 2017-04-05.
  7. ↑ "New Zealand International Financial Reporting Standards 2007-2014". The Treasury New Zealand.
  8. ↑ "Financial reporting framework in Australia", Deloitte, IAS Plus.
  9. 1 2 "IFRS: Current situation and next steps", pwc.com
  10. ↑ "New mechanisms eyed by FASB, IASB in long march toward global comparability", Ken Tysiac January 10, 2013, journalofaccountancy.com

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