Accounting Standards

Accounting Standards

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Accounting Standards

A company that formulates its own accounting standards, policies and activities benefits from internal and external factors such as surplus production and market dominance respectively to increase capital generation and trade securities that other firms cannot perform. A firm with independent standards is susceptible to lack of business transactions, as it possesses peculiar principles that make statement preparation and reporting complex for financial readers (Hull, 2014). Voluntary disclosure of company information may result in inaccurate performance measurements and increased fraud practices (Hull, 2014). Management might release limited or irrelevant data to lure investors and trick competitors to acquire an added market advantage (Hull, 2014). A firm that formulates its own standards has a greater capability of generating capital through internal operations streamlining. The modifying of functionality increases quantity and quality of production. However, the company is at risk of incompatibility with other companies and market locations constraining its flexibility to grow and generate revenue from other business transactions and geographical regions (Hull, 2014).

The IASB is a financial organization based in London that formulates global accounting principles. The organization operates under the IFRS foundation (Hull, 2014). The body facilitates easier market penetration for a product in the international market by using common principles in financial report generation and company data disclosure (Hull, 2014). Various companies will benefit from integration of IASB. Examples include Coca-Cola, Microsoft, and IBM that incur great costs in the development and release of financial statements (Hull, 2014). Standardized principles will enable the companies to acquire relevant and reliable data for viable financial markets. International standards do not have an enforcement body making the principles non-mandatory. Lack of enforcement constraints the ability of the IASB to standardize accounting fully (Hull, 2014). Additional constrains manifest in the integration of different legal systems in dissimilar nations. The divergence results in the government regulating accounting in some nations instead of the IASB (Hull, 2014).

Reference:

Hull, Christopher. (2014). Financial Accounting and Accounting Standards. Intermediate Accounting Kieso Weygandt Warfield Solutions Manual. 14. 2-66.