Approaches to Standard Setting in Accounting Essay

Approaches to Standard Setting in Accounting - Essay Example The body also cited the reasons at which it was setting these accounting settings and some of them included; to give users of accounting information about their financial situation, their financial performance, and the financial conduct of a firm (LeRoy, 2007). Another reason was to assist public accountants with steps to enable them perform their work with care in offering their services in the accounting market. These standards were set so that all financial statements were consistent and had the ability to describe their financial performance. These accounting standards can also be known as Generally Accepted Accounting Principles (GAAP), they are generally accepted because there is an authoritative accounting body that set them and the body oversees the implementation of these standards. Without these standards the consumers of financial statements would need to learn accounting rules of different firms, this would be a difficult task for multi investors to compare these financia l statement accounting rules. Some of the bodies that regulate these accounting standards are the Securities and Exchange Commission (SEC). This body was formed to establish these accounting standards for the public traded firms. ... Then the financial Accounting Standards Board (FASB) was created after the wheat committee suggested the replacement of the GAAP board with new standards. After the dissolving the FASB board a new board International Accounting Standards Committee (IASC) was formed in 1973. This board was created to encourage a worldwide implementation of the accounting standards. This board was succeeded by a private sector body that was structured in a similar way as FASB (Sharpe, 1982). The accounting standards and regulations are very important. This is because they regulate accounting assumptions and methods. They also enable us to have consistency in the methods that are used to organize company’s financial statements. Although there are differences within these regulations, reliable conclusions can be deduced when comparing firms’ financial data for specific industries. If there were no accounting standards then the people who use financial statements like investors, banks and ot her institutions would require learning these accounting rules in a different manner for each firm. The accounting standards instill relevance to day to day accounting procedures and processes; this results into better financial performance from firms and represents faithfulness and accuracy (Sharpe, 1982). These standards ensure that neutral information is used hence eliminating the possibility of biasness in the financial statements. They give relevant information by enabling investors to know their specific points of investments to make. They save a lot of time since they give or point out clarity in the financial statements. The growth of financial transactions is making the compliance with accounting standards become an issue which require addressing immediately