Accounting standards aims and objectives, accounting, Basic Statistics

Accounting Standards Aims and Objectives: The aim of this report is to understand the various changes that have taken place in the accounting standards in various countries since the 1990's. There is a need to understand why there was a change towards international reporting standards, by comparing the benefits of each of the accounting standards. This report analyzes the advantages and disadvantages of various accounting standards and the benefits of the international reporting standards over the earlier ones.

A research was conducted by interviewing managers of few banking firms. They were questioned on the way changes have been made to the accounting standards and what kind of an impact these changes would have on their organization. The main objectives of the research are as follows-

To understand the way accounting standards have been changing since the 1990's

To understand the differences in the accounting standards in the 21st century and the benefits of the new accounting standards over the earlier ones

To analyze the impact of the change from GAAP to IFRS on organizations across the globe

Introduction to Accounting Standards

Accounting standards are the standard set of rules that are used for measuring a firm's financial performance.  A firm's financial performance needs to be reviewed by the investors, managers, public etc. Financial statements are prepared to review the financial details of all the activities carried out by the organization. Different organizations, depending on the size, type of organization etc., follow different accounting procedures.  Therefore there is a need for a common set of rules for accounting, to ensure comparability. The basic objective of these rules is to avoid any variations in the way different accounting features are treated by different organizations. These set rules help measure and thus compare the performance of companies in a standardized way across the globe. Accounting standards ensure that there is consistency in the way financial statements are made.  S M. Bragg (2002)

History of Accounting Standards

Accounting standards have seen a significant change since the 19th century till date. During the 19th century there was not much clarity of the accounting standards. There were no set rules that companies needed to follow and hence all organizations followed their own accounting procedure. Paul Palmer Adrian Randall (2001)

Subsequent to the financial depression of 1929, when lots of investors lost large sums of money, a lot of changes started happening in the international accounting standards. The first most important event in the modern financial era was the establishment of the Securities and Exchange Commission (SEC) by the Securities Act 1933 and Securities Exchange Act 1934. SEC was mainly responsible for setting accounting and auditing standards.   

In 1939, the American Institute of Accountants appointed a standing committee which came up with the first set of auditing standards. Roy Dodge (2007)

At that time, the SEC relied on private sector standards setting bodies to help establish and enhance accounting principles and reporting standards. Until the 1959, the AICPA committee set up around 51 accounting research bulletins that were eventually named as the Generally Accepted Accounting principles or GAAP. The AICPA committee on accounting procedure was replaced by the Accounting principles board (APB) in 1959. Over the next 14 years, GAAP issued 31 new standards. Roy Dodge (2007)

However, in the 1960 have people recognized the complexity in the business environment? They realized that a part-time committee for accounting standards could not manage the complexity in the business environment. It was thus decided that an independent body was needed to ensure that creditors, investors etc. become a part of the entire process. A need was felt for a full time independent body like the Financial Accounting Standards board (FASB).

In 1967, the Accountants International Study Group (AISG) was established. AISG came up with many papers on accounting standards and other similar topics, which created awareness and thus a need for change in the accounting standards. Following this wave of change, the International Accounting Standards Committee (IASC) was established in 1973. It was responsible for the implementation and acceptance of the international accounting standards. IASC continuously released the 'International Accounting Standards', which were named from IAS1 to IAS41. In 1984, the Governmental Accounting Standards Board (GASB) was established to set standards for the state and municipal entities. Following the IASC, the SIC (Standing Interpretations Committee) was set up in the 1997. It was established to eliminate variation in the practice of accounting standards. Roy Dodge (2007)

In 2001, the IASC was restructured and replaced by the International Accounting Standards Board (IASB).  IASB adopted all the standards that were issued by the IASC and thus these standards continued to be known as the International Accounting Standards. However, all new standards were issued under the IFRS (International Accounting Standards Committee). Subsequently, in Dec, the SIC was renamed as the International Financial Reporting Issues Committee (IFRIC). In 2003, the first IFRS was published. Roy Dodge (2007)

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