Purpose and Context of International Financial Reporting Standards - Coursework Example

? 3M COMPANY Contents Contents 2 Introduction 3 Evaluation of the purpose and context of International Financial Reporting Standards 3 Discussion of the role and purpose of IASB 5 Discussion of the role and purpose of FASB 5 Evaluation of the company’s financial statements adherence to GAAP 7 Conclusion 8 Reference 9 Introduction An accounting principle is used to guide and standardise accounting practices across the world. A unique accounting standard is used across the world to deliver a unique and global standard high quality accounting and reporting of financial statements. The main purpose is to convey the economic condition of an organisation in the most fair and unbiased manner. The shareholders would make use of such information to make decision whether to invest in a company or not. Evaluation of the purpose and context of International Financial Reporting Standards The International Financial Reporting Standards Foundation (IFRS) is an autonomous, non –profit organisation that works for the interest of the public. It is devised as a universal global language that is used for business dealings so that the accounts of a company are comprehendible and comparable across boundaries of nations and continents. The main purpose of this accounting standard is to overcome the cross country barriers in today’s time when many companies have their operations overseas and hence have to account for their businesses in different business languages (Bragg, 2010, p.172). The European Union was the first to abide by the IFRS. However, it was later adopted by the other countries across the globe considering the benefits it provided. Prior to the implementation of the IFRS, the International Accounting Standards was used which operated between the years 1973 and 2001 and was controlled by International Accounting Standards Committee (IASC). The prime objectives of the IFRS include: Development of a distinct set of premium, comprehendible, imposable and internationally accepted IFRS through its regulatory and supervisory body. Promotion of such standards and ensuring that it is properly implemented. Providing with assistance to the developing countries in their financial reporting needs. Promotion and adoption of an improved IFRS through the union of IFRS and the National Accounting standards. The IFRS is used across the world by the different companies. Regulatory bodies, analysts and accounting professionals with an aim to reduce costs for comparing financial statements that otherwise would have arisen due to use of various accounting standards. Most of the MNC’s have cross country operations and they would benefit most from this IFRS as it is a unique standard of accounting. However it had been argued by several experts that the IFRS may not provide with a fair valuation of the companies residing in different countries because the local laws of countries may vary and thus losses or profit may not be accounted for in a proper manner (Kirk, 2006. p.306). The foundation ensures accountability to the public through the pathway of keeping their work transparent and consulting with any party who is interested in this process of setting a standard. They also link to the public in a formal way. There is a monitoring board that is linked to the public for all their accounting questions. The trusties review the constitution once in every five years. The public can also access their proposals through their website and provide recommendations. All their meetings are open to the public and the notes are also disclosed to the public. 3M communicates with its shareholders and sends out the detailed financial performance in the Annual General Meeting through the Publication of the annual report (Needles, 2013, p.714). The main objective of 3M is to impart an unbiased awareness among the investors of the company and encouraging them to hold on with such investments. The company is accountable to the shareholders because they are the ultimate owners of the company. There is a problem with disclosing all the information in clear way. If the financial health of the company is not sound then the stockholders may be discourage to hold on to the stocks of 3M as a result they will tend to sell the stocks and invest elsewhere. This will lead to a fall in the prices of the stocks. Discussion of the role and purpose of IASB The International Accounting Standards Board) is the self-regulating standard-setting panel of the renowned IFRS Foundation. It currently has 16 members. IASB acts as the parent organisation of the IFRS foundation. The body is solely responsible for developing and publishing the IFRS. They are experts who have the suitable mix of practical insight in creating these standards. These members are elected by the IASC Foundation Trustees who commence a transparent and thorough method to attract the best brains in the process. All the conferences of this IASB are undertaken in public (Stolowy and Lebas, 2006, p.14). In order to render its obligations successfully the IASB puts up with the best practices in publishing the documents and drafts. The IASB connect intimately with the stakeholders across the globe, including, accounting standard-setters, analysts, investors, regulators, business leaders, and accounting professionals. The operations of the IASB are financed by the IFRS Foundation. The contributors include those bodies that have a concern in promoting the accounting standards to an international level. Discussion of the role and purpose of FASB The Financial Accounting Standards Board (FASB) is a non-governmental non-profit organisation whose function is to formulate the Generally Accepted Accounting Principles (GAAP) in the United States of America. This body has been appointed by the Securities and Exchange Commission (SEC) in the year 1973. The FASB Board is constituted by seven fulltime members who are required to dissolve all associations they previously had with any organisation where they had served. To achieve an impartial and independent decision making this action is taken (King, 2008, p.48). The Commission has always relied on the non-governmental sector for carrying out this duty because the private entities have always proved to be efficient enough to serve in the interest of the public. The mission of FASB is to create and develop the financial accounting standards and to report for the supervision and enlightenment of the common people that include users of financial information like auditors, issuers etc (Financial Accounting Standards Board, 2002 p.11). To accomplish this task the FASB has formulated the following strategies: By concentrating on significance, comparability, steadfastness, and consistency the FASB aims at improving the functionality of financial reporting. Improvising the accounting standards in accordance with the changes happening around the world in the business and political scenario. Deem without delay any noteworthy area of insufficiency in the financial reporting that has a scope for be improvement through setting of an international standard. Endorse worldwide union of accounting standards concomitant with convalescing quality the financial reporting quality. Develop general perception of the character and rationale for the information in any financial report. FASB is a self-directed body that is free from the influence of any particular business or organisation. FASB is supervised by Financial Accounting Foundation (FAF), which opts for the affiliates of FASB and funds for the organisation. Evaluation of the company’s financial statements adherence to GAAP The Generally Accepted Accounting Principles, US GAAP are the rules and principles that are used for accounting in the United States (Shamrock, 2012, p.26). The GAAP operates under certain assumptions. The Going Concern Principle takes for granted that a business will operate for an indefinite period of time. Hence it incorporates the models of capitalisation of assets, amortisation and depreciation. The annual report of the company 3M forecast that the company has long term plans for establishment and hence the going concern is followed while preparing the accounting statements. The analysis of the balance sheet shows that the company has a strong financial background and is not even close to liquidation (Finney, 1946, p.197). It has several long term plans hence it follows the going concern principle. Depreciation is correctly accounted for in the financial statements. The Accruals Concept suggests that the incomes and expenditures should relate to the respective accounting periods to which they belong instead of a cash basis (Dodge, 1997, p. 91). The Cash Flow statement is however an exception because it shows the cash flow for a particular accounting period. The Income statement of 3M Company represents the statement of profit and loss as of 31, December 2012. Therefore it related to an accounting period of 1st January 2012 – 31st December 2012. This is mainly done so that the shareholders can compare the performance of 3M across subsequent period and can make a wise decision. The Qualitative aspects of financial statements include faithful representation and relevance. Any Balance Sheet or Income Statement that follow the GAAP and are accounted using IFRS would abide by these conditions (Taylor, 1996, p.37). The Financial Statements of 3M have the GAAP in its background and hence it has to be a relevant one and also there is faithful representation because all the details have been mentioned and each of the items and entries has been done with precision. Conclusion The above analysis shows that following accounting standards is fundamental to the financial management of a company. 3M is an international standard company and it follows all the accounting principles and standards diligently. The proper accounting methodology and sincerity has led to the success of the organisation. Reference Needles B.E., 2013. Principles of Financial Accounting. Stamford: Cengage Learning. Finney H.A., 1946. Principles of Accounting. London: Prentice-Hall. Dodge R., 1997. Foundations of Business Accounting. London: Cengage Learning EMEA. Stolowy H. and Lebas M. , 2006. Financial Accounting and Reporting: A Global Perspective. London: Cengage Learning EMEA. King A.M., 2006. Fair Value for Financial Reporting: Meeting the New FASB Requirement. New Jersey: John Wiley & Sons. Robert J. Kirk, 2009. IFRS: A Quick Reference Guide. Oxford: Elsevier. Bragg S.M., 2010. IFRS Made Easy. New Jersey: John Wiley & Sons. Financial Accounting Standards Board, 2002. Facts about FASB. Norwalk, CT: Financial Accounting Standards Board Shamrock S.E., 2012. IFRS and US GAAP: A Comprehensive Comparison. New Jersey: John Wiley & Sons. Paul Taylor, 1996. Consolidated Financial Reporting. Princeton: NJ: Markus Weiner Publishers. Read More