Essays on Global Accounting Standards Assignment

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EXECUTIVE SUMMARY This paper has highlighted some of the advantages and disadvantages of developing a set of standards that will serve companies all around the world. It must be noted though, that IFRS is inevitable and soon there will be a globally accepted set of standards that will be used to govern the practice of accountancy. The challenge, then, is to ensure that the various factors in the business world-business models, cultures and business trends- are considered when these standards are being created. This will ensure that their acceptance will not be a problem.

TABLE OF CONTENTS Executive summary……………………………………………………………1 Table of contents………………………………………………………………2 Part A – Advantages and disadvantages of developing a set of globally accepted accounting standards…………………………………………………………3 Part B –Comparing and contrasting presentation of financial statements in UD GAAP and IFRS…………………………………………………………………7 Summary…………………………………………………………………………9 References. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..GLOBAL ACCOUNTING STANDARDS PART A The fight for a set of globally accepted accounting standards was recognized decades ago. However, it is only the recent financial scandals like Enron in the US to create a sense of urgency in the push for such standards. At present, there are two sets of standards of accounting that are accepted around the world. These are US GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards).

Attempts are being made to consolidate these two sets into one ideal code that will cover companies all over the globe. Developing a set of globally accepted accounting standards is a daunting task that requires a lot of time and effort. However, there are several advantages that will be realized as a result of this. First, there is increased transparency in the evaluation of publicly traded companies.

Because all companies will use one set of standards to judge their work, there is a uniform application of ethical standards. Secondly, creating a global set of accounting standards may lead to improved quality in reporting of financial statements. The main reason behind this is that organizations will have to follow the same rules in their financial reportage. However, other researchers suggest that improved quality of financial reporting will depend more on how the existing standards are enforced rather than how the standards vary. A third advantage is that a global set of accounting standards will facilitate comparability.

Companies based in different countries but are trading in the same market can analyze their accounting information from the same viewpoint. Consequently, the comparisons will be more accurate and will enable the companies to make strategic decisions with more confidence and information. Fourthly, economic gains will be realized as a result of using a global set of accounting standards. It provides timely information for external investors to evaluate the performance of companies across borders and also leads to better quality accounting/financial reportage.

It is important to note that this is not always the case. Evidence suggests that improved quality of financial reporting only took place in countries that had institutional arrangements that provided strong incentives for high quality financial reporting. Fifth, countries without an established set of national accounting standards could adopt IFRS and so have a ready-made set of standards which would meet the needs of domestic companies and have credibility in international capital markets. Sixth, a global set of accounting standards creates a level playing field because companies are using the same codes of rules.

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