Current Development In Accounting Thought For Financial Accounting Theory: IASB Pressed To Fix “Wishy-Washy” Accounting Principles

IASB Pressed to Fix “Wishy-Washy” Accounting Principles

Discuss about the Current Development in Accounting Thought for Financial Accounting Theory.

The present article sheds light on resolving different indecisive accounting standards that is the wishy-washy accounting standards that essentially injects indistinctness into the financial declarations of the firm (IASB urged to fix ‘wishy-washy’ accounting rules., 2016). The current news article indicates the fact that the propagation in the international accounting standards such as the “probable”, “likelihood” as well as remote generates perplexity regarding the time when the company needs to hit the red button in congruence with the process of identification of the assets as well as liabilities as per the Australian Accounting Standard Board (AASB). However, narrowing the definitions helps in arriving at superior degree of consistency throughout the world (Gipper et al., 2013). From different quarters there is mounting pressure to implement stringent accounting principles in the nation Australia as well as Korea confirm a combined research project that looks at different cross-cultural interpretations of different accounting principles. Again, as per the news article, it can be hereby ascertained that the Korean Accounting Standards Board draws near to different Australian peers in order to undertake different projects that indicates the extent of significance of the same.  The current article also presents the lax rules, not culture and problems. The present article expounds the fact that culture exerts less influence on the differences in the interpretations than the lack of the transparent guidelines. Furthermore, the current segment also stresses the importance of the simple as well as clear language in the process of setting standards and upholding the requirements for the International Accounting Standard Board (Gipper et al., 2013). This in turn can help in lessening the number of terms utilized as well as for effectual outreach in diverse jurisdiction to make it certain the accounting obligations are clearly understandable as declared by the AASB Chairperson Kris Peach. In addition to this, Thomson prefers comparable collaborative efforts between both the accounting standards AASB and its different counterparts in diverse areas that include China as well as Malaysia.  However, Indonesia can be considered as the main concern provided the level of trade carried out between two different nations. In addition to this, the IASB is also accountable for generating International Financial Reporting Standards (IFRS) and persuading as different nations as possible to utilize different regulations in order to ensure that the company accounts are comparable across worldwide boundaries (Dye et al., 2014).  As mentioned in the present news article, approximately 120 of different jurisdiction now call for the use of different IFRS Standards by different publicly liable corporations. An evaluation of the IASB reflects the fact that there are in excess of 25000 of the total 48000 nationally listed corporations on the 85 major securities exchange around the globe utilize IFRS. Finally, the current article also outlines the executive pay concerns where the chairperson of the IASB articulated different concerns regarding the growing substantiation of corporations that employ different non-statutory measures as well as creative accounting to flatter the overall financial performance and to augment the payouts to the specific management (Jorissen et al., 2014). The measures were essentially recognized as more and more misleading (IASB urged to fix ‘wishy-washy’ accounting rules., 2016).

Concepts and Ideas

The main idea lies behind increase of indecisive accounting that leads to bringing ambiguity into financial reports. In this particular article, emphasis has been given on discussing on the International Accounting Standards (Weil et al., 2013). Making use of ineffective accounting rules by organization give rise to confusion as presented in the financial statement. In order to reduce the confusion, accounting standards are being implemented for bringing uniformity of information. IASB make ways for bringing simple implications presented in the financial statement for any business organization. These are mainly pressurized under rules coming from accounting standard based in and around Australia. It requires further finalization of research activities for viewing at the cross-cultural interpretations in respect with accounting standards (Pratt, 2013). Korean Accounting Standards Board mainly aims at approaches its Australian peers for undertaking the project acting as indication for trade investment.

It is important to consider the fact that IASB expresses his concern on matters relating to growing evidence for usage of non-statutory measures. It gives rise to creative accounting for flattering its financial performance as well as increase payout for management activities for future analysis purpose (Deegan, 2013). IASB brings out the major insurance companies for understanding the corporate disclosures in relation with financial statement in the most appropriate way. It takes into consideration majorly large scale projects in treating intangible assets as well as rate of regulation for reforming purpose in an effective way. It is responsible in conducting effective International Financial Reporting for most of the companies.        

Accountancy means the process of recording, classifying and reporting of financial transactions of a business. The success and failure of the business is dependent upon the proper accounting of the monetary transactions. Based on the accounting transactions, the financial statement of the company is prepared by the accountant. Annual statement of a company is the most important aspect of the business. This is the only medium by which the investors, banks, shareholders can assess the financial position of the company and take decisions whether they will invest in the company or not. Thus, it can be said that the financial statement of a company is a crucial aspect to the users of that statement. The financial statement of an organization contains the details of the assets and liabilities of that company. It is very important for the companies to recognize the assets and the liabilities of the company. The assets and liabilities must be shown in the respective position of the financial statement. The portion of assets and liabilities is a determinant of the financial position of the company. Investors will be interested in that company which has more assets than liabilities and they will invest in that company. On the other hand, the company having more amounts of liabilities over assets will be the last choice of the investors. Hence, assets and liabilities are an impotent aspect of the financial statement of the company.

References

The article is about the use of some languages that makes the annual report of a company complicated to the users of that report. This type of languages is called the ‘wishy-washy’ languages. The examples of this kind of languages are likelihood, probable, remote and many others. The main function of this kind of language is that they make the financial report of the companies inaccurate. This kind of words is used to mention probability that is when the answer is not accurate. On the other hand, financial statement of a company is a kind of statement where there is no place for probable events or information. The annual report of a company must contain accurate information. However, the use of these ‘wishy-washy’ words is used by a lot of companies in today’s world. The use of these words is creating confusion in the decision making process of the companies. There are certain motives behind the using of these types of words by the accountants. The primary motive is to manipulate the annual report of the companies. It helps to increase the payout to management. On the other hand, the users get confused by the use of these kinds of words. Thus, it is strictly prohibited to use these kinds of misleading words in the financial statements of the companies. There are instance of companies where the use of this kind of words has led them to punishable under the company act. It is better to avoid the use of these kinds of words (Friedman, 2013).

International Accounting Standard Board, commonly known as the IASB, is the accounting conceptual framework setter. According to IASB, the use of this kind of misleading words must be stopped on a highest priority. This is the reason IASB is setting rules and regulation to prohibit the use of these words. As per the IASB, accurate and better degree of consistency can be achieved by narrowing down the use of these kinds of confusing words. On the other hand, the use of this kind of words is against the rules of the accounting concept framework. In today’s accounting world, this is a growing concern. Thus, almost every country is taking initiatives to resolve the issue of these ‘wishy-washy’ words. Recently, the Korean Accounting standard board has collaborated with the Australian board to take care of the matter. A research has taken place to the use of this kind of words. The result is something astonishing. Researchers found 13 ‘wishy-washy’ words which are used in international standards. According to the research, there is a vast importance of using simple language in the accounting. The International Accounting Standard Board needs to cut down the number of terms used in the accounting so that there is clarity in the annual report of the companies. IASB has taken the initiative to convince as many possible countries not to use this kind of ‘wishy-washy’ words. Prevention of use these kinds of languages will make the annual reports more reliable (Hansen, 2012).

References

Deegan, C. (2013). Financial accounting theory. McGraw-Hill Education Australia.

Dye, R. A., Glover, J. C., & Sunder, S. (2014). Financial engineering and the arms race between accounting standard setters and preparers. Accounting Horizons, 29(2), 265-295.

Friedman, L. (2013). Lawrence Friedman Responds to J. Todd Dean. Journal of the American Psychoanalytic Association, 61(4), NP5-NP10.

Gipper, B., Lombardi, B. J., & Skinner, D. J. (2013). The politics of accounting standard-setting: A review of empirical research. Australian Journal of Management, 38(3), 523-551.

Hansen, R. (2012). Planners need to be more ethical, accountable and transparent. Planning News, 38(1), 6.

IASB urged to fix ‘wishy-washy’ accounting rules. (2016). Financial Review. Retrieved 27 September 2016, from https://www.afr.com/business/accounting/iasb-pressed-to-fix-wishywashy-accounting-rules-20160801-gqirpd

Jorissen, A., Lybaert, N., Orens, R., & Van der Tas, L. (2014). Corporate participation in the due process of international accounting standard setting: An analysis of antecedents.

Pratt, J. (2013). Financial accounting in an economic context. Wiley Global Education.

Weil, R. L., Schipper, K., & Francis, J. (2013). Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.