Question

Accounting standards and regulations should aim to state how all situations should be dealt with. Discuss.

Answer 1

SOLUTION:

Accounting Standards act as guiding and governing rules, laying out the parameters and methods of how each and every aspect of every transaction ought to be recorded, so as promote true and fair view of financial statements of entities alongside presentation and relevant disclosures, so as to enhance the reliability of financial statements of such entities.

The purpose behind accounting standards issuance is majorly to enhance the transparency, enhance reliability and easy comprehension of financial information by the users.

Various bodies are involved in this accounting standard set up and issuance process such as US GAAPs (Generally acceptable accounting policies), IFRS (International financial reporting framework) and IASB ( International Accounting Standards Board).

US GAAPS:

American institute of certified public accountants (CPA) enacted the very first accounting rule sets. Subsequently, such responsibility was assigned to FASB (Financial Accounting Standards Board). SEC (securities exchange commission) applied such standards to every listed entity and enforced their compliance to these US GAAPs while preparing and presenting financial statements. As the name signifies, subsequently GAAPs gained prominence and gained universal acceptance as these specified general policies.

The application and adoption of GAAPs universally makes the comprehension of financial information in financial statements convenient else, if all nations applied their own set of rules, then cross border investments, access and comprehension of financial statements would’ve been a tedious process. Thus, this ensures consistency.

IFRS:

The IASB is the body that is involved in the framing, development and approval of IFRS. The latter has replaced IAS (International Accounting Standards). These are majorly applied and adhered to by major public and private corporations in the United States. The IASB itself works under the oversight of IFRS foundation. Thus, the IFRS developed and issued require IASB approval before those being issued and applied upon entities.

FASB :

The Financial Accounting Standards Board (FASB) is responsible for setting accounting rules for public, private as well as non profit organizations within the United States. The FASB and IASB have been working in collaboration to draft and create such accounting standards which are compatible across the globe i.e universally applicable.

Hence, Accounting standards and regulations in accounting aim at dealing with every accounting situation in such a manner so that the treatment is true, transparent, just and fair and neither underestimates the entity’s liabilities or overstate it’s assets. This leads to financial statements representing true and fair view of the entity’s state of operations and financial information that can be easily comprehended and be relied upon by various stakeholders.