In: Accounting
(a) State any five issues dealt with in the regulatory
framework of accounting.
(b) Outline any four benefits multinational companies may derive
from global harmonization of accounting standards.
(c) In preparing financial statements, accountants follow certain
fundamental assumptions and policies. List and explain two of these policies and
assumptions under the following:
(i) boundary rules
(ii) measurement rules
(iii) ethical rules
(a) State any five issues dealt with in the regulatory framework of accounting.
1. It follows the principle-based approach rather than a rule-based approach. Countries following rule-based approach, find it hard to adapt to the principle-based approach.
2. Different legal systems in countries prevented the development.
3. Countries had different purpose of financial reporting. Eg: in some countries, it's only for tax assessment for others it's for decision-making.
4. Lack of strong accounting bodies in many countries.
5. Nationalized countries were unwilling to adopt another country's standard.
(b) Outline any four benefits multinational companies may derive from global harmonization of accounting standards.
Multinational companies benefit from global harmonization for many reasons including the following four:
1. It will create a platform for wider investment choice.
2. It would be easier to comply with the reporting requirements of all stock exchanges.
3. Takeovers and mergers would be more straightforward.
4. Transfer of accounting staff across the national border would be simpler.
(c) In preparing financial statements, accountants
follow certain fundamental assumptions and policies. List and
explain two of these policies and assumptions under the
following:
(i) boundary rules
(ii) measurement rules
(iii) ethical rules
(i) boundary rules
1. Going concern: Under this assumption, the entity will continue its operation for a foreseeable future.
2. Comparability: Financial information should be comparable.
(ii) measurement rules
1. Relevance: Relevant transactions should be considered. It is capable of making a difference in the decision made by users.
2. Timeliness: Record transactions when they are incurred.
(iii) ethical rules
1. Faithful representation
2. Verifiability