accounting regulation and ethics

 

4.0 accounting regulation and ethics

 

 

In preparing financial statements, financial accountants adhere to a uniform set of rules called generally accepted accounting principles (GAAP)—the basic principles for financial reporting issued by an independent agency called the Financial Accounting Standards Board (FASB) because the users want to be sure that financial statements have been prepared according to GAAP and reported in them is accurate, so they can compare the statements issued by one company to those of another company in the same industry. (Exploring Business, 2010.n.d)

 

While companies headquarters in the United States follow U.S.-based GAAP, many companies located outside the United States follow a different set of accounting principles called International Financial Reporting Standards (IFRS)- These multinational standards, which are issued by the International Accounting Standards Board (IASB), differ from U.S. GAAP in a number of important ways, However IFRS through convergence, the US is moving from USGAAP to IFRS standards as most of the world uses IFRS.( personalfinancelab, n.d)

 

Financial Reporting Standards (IFRSs), are dialed with key issues such as:

 ■ what information should be disclosed.

 ■ how information should be presented.

 ■ how assets should be valued.

 ■ how profit should be measured.

 (Atrill, P. and McLane, E.2018.p,169)

4.1 The need for accounting rules

 

Consistency: Accounting rules ensure that financial transactions are recorded and reported in a consistent manner. This makes it easier for stakeholders to compare the financial performance of different organizations.

Transparency: Accounting rules make financial statements more transparent by requiring organizations to disclose relevant information about their financial position and performance.

Compliance: Accounting rules help organizations comply with legal and regulatory requirements. This reduces the risk of penalties and other legal consequences.

Accuracy: Accounting rules ensure that financial statements are accurate and free from errors. This helps organizations make informed decisions based on reliable financial information.

Accountability: Accounting rules promote accountability by requiring organizations to disclose their financial performance to stakeholders. This encourages responsible financial management and helps prevent fraud and other financial irregularities.

 

 

4.2 IFRS For SMEs and the future of UK GAAP

 

4.2.1 Measurement principles that are consistent with the full IFRS for SMEs

 

Historical cost principle: This principle requires that assets and liabilities are recorded at their original cost, which is the amount paid for the asset or the amount owed for the liability.

Fair value principle: This principle requires that certain assets and liabilities are recorded at their fair value, which is the amount that would be received to sell an asset or paid to transfer a liability.

Present value principle: This principle requires that certain assets and liabilities are recorded at their present value, which is the discounted value of future cash flows.

Replacement cost principle: This principle requires that certain assets are recorded at their replacement cost, which is the amount that would be paid to replace the asset with a similar one.

Realizable value principle: This principle requires that certain assets are recorded at their realizable value, which is the amount that could be received from selling the asset in an orderly transaction.

Cost recovery principle: This principle requires that revenue is recognized when the cost of earning that revenue has been recovered.