Various sources of accounting standards

Published: 2021-07-01 07:42:18
essay essay

Category: Accounting, Accounting Standards

Type of paper: Essay

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Hey! We can write a custom essay for you.

All possible types of assignments. Written by academics

1. Various sources of accounting standards:
The accounting standards originated from many different sources. These include:
-          Agency of the Federal government (notably the Securities and Exchange Commission and Treasury Department).

-          State regulatory commissions
-          Public Accountants
-          Quasi-public accounting standards-setting boards (the committee on Accounting procedures (CAP)
-          The Accounting Principles Board (APB)
-          The Financial Accounting Standards Board (FASB)
-          Corporate Managements
-          International Financial reporting Standards (IFRS)
-          Financial Reporting Standards (FRS)
-          International Accounting Standards (IAS)
-          International Financial Reporting Interpretations Committee (IFRIC)
2. How to find authoritative support for a financial accounting issue and what to do if nothing is found that quite fits the issue.
The Generally Accepted Accounting Principles (GAAP) are principles which have substantial authoritative support. These principles are produced by the Accounting Principles Board (APB) based on their opinion which constitutes substantial authoritative support. It is crucial to understand that substantial authoritative support can exist for principles that differ from opinion of APB.
If an accounting principle that differs materially in its effect from one accepted in an opinion of the APB is applied in financial statements, the reporting member must decide whether the principle has substantial authoritative support and is applicable in the circumstances.
-          If not, the accountant would either qualify his opinion, disclaim an opinion or gives an adverse opinion as appropriate.
-          If yes, the accountant would give an unqualified opinion and disclose the fact of departure from opinion.
The steps involve in searching for substantial authoritative support include; define the problem, survey relevant literature, survey present practice of organizations with similar problems, evaluate the information developed, and reach a conclusion. If nothing is found that fits the issue, best practice approach should be adopted.
3. Principles-based standards versus rules-based standard.

Principles-based standards
Rules-Based standards
Operates in the United Kingdom
Operates in the United State
The Combine codes
sarbanes-Oxley Act 2002 (SOX)
Requires the company to adhere to the spirit
This approach instills the code
Rather than the letter of code. The company must either comply with the code or explain
into law with appropriate penalties
why it has not through reports to the appropriate body and its shareholders
for transgression
Signed by one partner
The Audit report must be signed off
by two partners
Where non-audit services are provided,
An audit firm must not provide non-audit
explanation of how independence is assured
work to its clients
should be disclosed

4. Convergence of U.S. and international accounting standards (knowledge of specific IFRS standards is not required).
Relationship between the FASB and IASB has grown ever warmer. The FASB joined the IASB for informal meetings in the early 1990s, and this led to the creation of the G4+1 group of Anglo-Saxon standard setters (US, UK, Canada, Australia and New Zealand, with the IASC as an observer) in which the FASB was an active participant. FASB and IASB reaffirm their commitment to enhance consistency, comparability and efficiency in global capital market. In October 2002, FASB and IASB announced the issuance of a memorandum of understanding (Norwalk Agreement), making significant steps toward formalizing their commitment to the convergence of U.S and international accounting standards.
The FASB has taken six key initiatives to further the goal of convergence of U.S GAAP with IFRS as follows:
-          Joint projects being conducted with IASB.
-          Short-term convergence projects.
-          Liaison IASB member on site at the FASB office.
-          Policies and procedures of FASB monitoring of IASB projects.
-          The convergence research project.
-          Explicit consideration of convergence potential in all board agenda.
5. The degree of FASB’s reliance on the Conceptual Framework in setting standards within the past decade.
The conceptual framework (i.e. Principle-based approach) is very important in accounting standard setting. Accounting standards are grounded by FASB framework. The FASB attempts to follow the principles-based approach to standard setting in other to encourage professional judgment and discourage over-reliance on detail rules (the regulatory framework). The conceptual framework is a direct contrast to regulatory framework by FASB. Also, the FASB reliance on conceptual framework attempts to limit additional accounting guidance (e.g. FASB EITFs, FASB Interpretations).
6. The various meanings and determinations of income and their impact on the security market.
Income is an increase in economic benefits during an accounting period in the form of inflows or enhancements of assets or decrease in liabilities. In other word, income is transactions that result in increase in equity other than those relating to contributions from equity participants.
Income is determined by using an income statement that shows various incomes and expenses. The difference gives a net income.
A company’s income statement may provide a positive or negative impact in the capital market after certain ratios have been calculated and analyze. For instance, favorable income statement of a company would cause it stock price to go up and thus impact the capital market in a positive direction.
 7. The differences between the balance sheet versus the income statement approach in financial reporting.
A balance sheet is a statement that shows a company’s financial position at a particular point in time (from the starting year of business to current year). Whereas an income statement shows the financial performance of the company during the accounting period (current year)
Assets, liabilities, capital and profits are recognized in the balance sheet, while income and expense are recognized in the income statement.
8. The “mark-to-market” movement and its role in the recent financial crisis.
Traders simply bet on the future prices of goods or services at different point in time. The total profit or loss realized by the long trader who buys a contract at time zero and closes, or reverses, it at time T is just the change in the future price over the period. That is, Ft – F0. On the other hand, the short trader would earn F0 - Ft. Therefore, considering the above analysis, marking to market is the process by which profits or losses are accrued to traders.
It is strongly believed by most financial analyst that mark-to-market trading practice is the root of the current financial crises, which involved a lot of gambling.
9. Problems in the definition and valuation of liabilities.
Liabilities are defined in terms of ‘probable future’ effect, thus attempting to overcome the contingency problem. This appears to be a potentially powerful method of dealing with these complex transactions although it inevitably also raises certain difficulties inherent in any general solution. In particular, the word ‘probable’ lacks a clear definition in current accounting practice, and estimating future events always introduces a degree of subjectivity.


Zimmerman, J. L & Watts, R. L. (1978): Towards a Positive Theory of the Determination of Accounting Standards. The Accounting Review vol L111 No.1

Whittington, G. (2007): Profitability, accountability theory and methodology. Routledge

Armstrong, M. S (1969): Some Thought on Substantial Authoritative Support. Journal of Accountancy

Johnson, J. J (2002): FASB works with IASB toward Global Convergence. The FASB Report, November.

Mirza, A. A & Epstein, B. J (2005): Interpretation and Application of IFRS. Wiley: USA

ACCA Testbook (2008/09): Financial Reporting (FR). Kaplan Publishing: Birkshire, UK

Marcus, A., Kane, A., & Bodie, Z. (2002): Investment. International edition, McGraw-Hill: USA


Warning! This essay is not original. Get 100% unique essay within 45 seconds!


We can write your paper just for 11.99$

i want to copy...

This essay has been submitted by a student and contain not unique content

People also read