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Accounting Standards Confusion Assistance Essay

¶ … Accounting Standards? Over time, quite a number of accounting guidelines and rules have been developed by bodies like FASB and IASB. Do these standards serve any meaningful purpose? In this text, I concern myself with accounting standards and their relevance. In so doing, I will amongst other things discuss why we need accounting standards.

Wahlen, Jones, and Pagach (2012, p.1-20) point out that "the FASB and the IASB operate so that they can develop new accounting standards in a thorough, thoughtful, and efficient manner, with due process, and in open public forums." To begin with, it is important to note that accounting standards play a critical role when it comes to the enhancement of the comparability of financial statements. National, regional, and international boundaries no longer exist when it comes to trade and commerce. Indeed, the world has effectively become a global village. For this reason, there exists a need to ensure that when it comes to financial reporting, some uniformity is observed. In the opinion of Fischer, Taylor, and Cheng (2011), life would be much simpler if things were to become uniform and consistent. To drive their point home, the authors in this case wonder why South America and the United States do not use standard power plugs so as to make things easier for travelers wishing to charge their phones. Similarly, the authors also wonder why two different countries would choose to give two economic transactions, which happen to be identical, different accounting treatment. Accounting...

Ideally, when an economic transaction in America is identical to that in Japan, the two transactions should be subjected to the same accounting treatment. This would make the financial statements of business entities in different countries comparable. In such a case, an international investor in Japan would be able to undertake a comparison (side by side) of the financial statements of two companies -- one in the United States and another one in Japan -- and based on that comparison make sound investment decisions. Other users of financial statements who may be in need of comparable financial statements as a basis for their decisions include but they are not limited to customers and suppliers (Fischer, Taylor, and Cheng, 2011).
Accounting standards also help multinational companies manage their global operations in an easy and professional way. Indeed, multinationals as Fischer, Taylor, and Cheng (2011, p.504) note "must have comparable accounting standards with which to measure the effectiveness and efficiency of their various international subsidiaries, branches, and/or other equity investments." Without the ability to seamlessly undertake such comparisons, the said entities would find it rather challenging to prepare consolidated financial statements. It can also be noted that thanks to accounting standards, businesses can easily compare their performance with those of other businesses in an attempt to determine how competitive they are…

Sources used in this document:
References

Arner, D.W., 2007. Financial Stability, Economic Growth, and the Role of Law. New York, NY: Cambridge University Press.

Fischer, P.M., Taylor, W.J. And Cheng, R.H., 2011. Advanced Accounting. 11th ed. Mason, OH: Cengage Learning.

Wahlen, J.M., Jones, J.P. And Pagach, D.P., 2012. Intermediate Accounting: Reporting and Analysis. Mason, OH: Cengage Learning.
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