Accounting final paper

International Accounting Standards

Kaplan University

David Bumford

9-7-14

Generally accepted accounting principles are the set of basic rules, procedures and principals for preparing financial statements. Adhering to GAAP makes sure that the information disclosed by the firm is true and real and is in best interest of the shareholders and other major stakeholders. GAAP also is helpful in making long term decision and financial decision for the company. External users rely on the financial statements for making their investment decisions. The use of financial statements is accessible to the management. In absence of GAAP they can be changed as per the company wants. Even the investors sometimes can change the financial statements as per their demand if there are no one rules of preparing the statements.

GAAP is even more cost effective for the companies. All time changing of accounting rules would also be very confusing. In absence of GAAP the companies would be expected to voluntary disclose their financial picture. There will be no annual year auditing or report submission. The investors will have to wait and it will be total discretion for the company whether they will disclose the annual report and even if disclosed it true and fair or not.

The report posted will be what fits the company. The investors will lose confidence from the company eventually hampering the reputation of the company in the market. It will lead to fall of share price and pushing the company to operate at loss.

Investors paying for information about the company which they do not even trust will not be effective for long and thus resulting to failure of the company as no investor will be willing to invest in the company without a concrete proof of its profit or loss.

Investors will be not having any confidence in the companies report.

International accounting standard board was founded in the year 2001, to develop international financial reporting standard and to promote the use of application of these standards. It works under IFRS and has responsible for all technical matters of the IFRS which includes:

· Full discretion in pursuing and developing the technical agenda subject to consultation requirements with trustees and the public.

· Preparation and the issue of exposure drafts.

IASB works in the following manner:

The IASB has constitutes of 14 full time members with one vote each. They provide guidance on issues that arise in practice. For publication of a new standard or exposure draft approval of minimum nine members are required. The funds for the operation of IASB is raised by IFRS.

Use of IASB:

It lays down certain policies and procedures for the public company to abide by it. Public company has to prepare it financial statements in accordance with International Accounting Standard in many countries.

The use of IAS has grown tremendously in recent years. It provides a competitive edge in global market. It helps in understanding and comparing of financial information and therefore increasing business choices. By accepting worldwide accepted accounting standard various options are opened like cross border fund procurement, business collaborations and capital tie ups.

STAKEHOLDERS BENEFIT

Stakeholders are the group of people who are interested in the financial statement of the companies where they have interest in. Stakeholders include internal stakeholder which comprises of employees, managers and leaders, whereas external stakeholders comprises of investors, banks, government, customers and debtors.

Stakeholders are benefited by the use of IAS as:

· It lays a high quality framework and set of rules to be followed by the company. (Management)

· It brings uniformity. ) investors)

· Ensures fair practice followed by the company. ( investors)

· True position of the company is highlighted which help the investors to take important investing decisions. ( lenders)

· High quality global financial report is generated hence benefits lenders and other capital providers.

· Information is understandable both domestically and across border and therefore enhances proper comparability. ( management)

· Improve consistency in audit quality. ( useful for shareholders)

OBSTACLES TO CONVERGENCE

· The major obstacle in convergence of international accounting standard is the ‘pace and cost of adoption’. A change of this magnitude requires adaption and compromise at many levels.

· Implementation barriers which are associated with the relative cost of compliance for small size entities and accounting firms.

· Negative affect to US investors.

· The complex nature and structure is also one of the obstacles.

· Complete change of the earlier accounting standard would also require education and training of the students and professors at a very large scale too.