Unified Financial Accounting Standards - Essay Example

? Unified Financial Accounting Standards The Importance of Unified Financial Accounting Standards Introduction It is arguably true that the modern business world experience numerous business operations and relevant assessment measures that determine the success of such operations in the competitive world. Any successful business must be financially viable, attract maximum profits, and enjoy a competitive advantage. However, in the ever-increasing competitive world, there is need for standards that govern the mode of doing business and comparing the business operations between the competing entities. Indeed, since the modern business takes place in a global market, there is absolute need to define how to do business across all nations (Ingram, & Albright, 2007). As such, various organizations seek to establish different business and financial measures to define the universal manner of doing global business. Financial accounting standards are some of the measures, which all companies must comply with while doing business, assessing their progress, and reporting their success. Financial accounting standards seek to establish fairness, equality, uniformity, accuracy, and transparency in the preparation and presentation of financial statements. As such, financial accounting standards must be clearly understandable and comparable so that the users can apply them effectively. The accounting profession adopted the generally accepted accounting principles, which defines universal reporting principle in the global market (Ingram, & Albright, 2007). Financial accounting standards derive many merits in the business field and various users rely on financial accounting standards to perfume their business and accounting responsibilities. The users may include investors, companies, and auditors. This paper defines the characteristics of the unified financial accounting standards and discusses the benefits of unified financial accounting standards to investors, companies, and auditors with reference to preparing, reporting, and comparing the financial performance in the modern global market. Financial Accounting Standards The unified financial accounting standards have certain characteristics, which guarantee accurate and material communication of the business firm’s financial position and performance. These characteristics include reliability, transparency, relevance, consistency, comparability, understandability, uniformity, and fairness. The unified financial accounting standards derive significant benefits to the investors. Most assuredly, the unified financial accounting standards make it easy for investors to compare between companies since they can establish the true financial position of the reference companies. This is usually important especially when the investor is a foreign company since the financial standards apply universally globally. It is quite clear that unified financial accounting standards provide a means of communication between a company and the investors in the company. Through unified financial accounting standards, the investors can deduce the effectiveness of the company and its management in comparison to other companies in the same industry (Financial Accounting Standards Board, 2013). In addition, the unified financial accounting standards avail relevant financial information that helps the investors to make concrete decisions in reference to the company. Indeed, the investors use this financial information to assess the effectiveness in implementing the company resources by the management. Actually, it is from the information that the investors decide whether to invest in the company since the financial information can manifest the profitability, the competitive position, the going concern, and viability of the company in the stock market. More so, the unified financial accounting standards define the accrued returns of the company to the investors. At the same time, the financial standards evaluate the cost of making accounting changes and derive the benefit of such accounting changes to investors (Financial Accounting Standards Board, 2013). On the other hand, unified financial accounting standards have subtle benefits to the company. Indeed, financial accounting standards help the company to prepare and present high quality, universally accepted, transparent, independent, true, and comparable financial information that reflect the true financial position of the company (Beke, 2012). More so, financial accounting standards demean the element of subjectivity in the preparation of financial statements in a reference company. Since financial accounting standards are universal, they enable the company to compare its financial performance with other companies in the same industry who apply the same standards in preparing their financial statements (Beke, 2012). This brings standardization of diverse accounting policies in the world. The unified financial accounting standards define when a company should prepare financial statements, what transactions to include in the financial statements, how to prepare financial statements, and the most appropriate measure of assets and liabilities. Moreover, they enhance clear and effective financial communication within the company (James, 2011). Most importantly, the unified financial accounting standards are very significant to the company managers as they facilitate decision making within the company. The financial and accounting standards help in deriving financial information that defines the progress of the company and the financial changes that can propel the company. In addition, the unified financial accounting standards evaluate the potential for providing continued employment and viable levels of remuneration. More so, unified financial accounting standards help the company to reduce operational costs, as they will deduce the most financially viable modes of operation (Beke, 2012). Additionally, auditors derive the most significant benefits from unified financial accounting standards. Indeed, since the standards are universal and globally accepted, the auditors get an opportunity to work in any part of the world to audit prepared financial statements. In addition, since the standards are general and universal, the auditors will only need to equip themselves with the knowledge of one set of standards to possess the required experience and background in their auditing work. Ideally, the unified financial accounting standards define the responsibilities and objectives of an auditor carrying out an audit of any financial statement. As such, they also determine the requirements and qualifications of an auditor to enable tem carry out an effective, true, and independent audit (Weaver, 2008). At the same time, the financial standards determine the financial statements and materials that are subject to an audit. Most assuredly, the financial standards offer the base and rules for the company auditors to derive an independent, true, and fair view of the financial position and performance of the company (James, 2011). Notably, the financial standards recognize the auditing process as a fundamental process in finance thus mandating all companies to have auditors. This secures the jobs of the auditors. In fact, the standards help the auditors to derive a financial opinion to the auditors as required by law. Indeed, they ensure that auditors provide a relevant verification to shareholders that the company prepared true, fair, and accurate financial statements in accordance to the acceptable accounting practice (Weaver, 2008). At the same time, the financial standards help the auditor to assess the financial statement risk that there is a chance that financial statements are incomplete, incorrect, and misstated. This helps the auditor in reaching an audit opinion. In addition, the unified financial accounting standards encourage the auditors to gather enough and appropriate financial information to address the financial reporting issues in the audit. This enables the auditor to adapt and practice a code of professionalism in the audit process. Conclusion This paper defined the characteristics of the unified financial accounting standards and discussed the benefits of unified financial accounting standards to investors, companies, and auditors with reference to preparing, reporting, and comparing the financial performance in the modern global market. In addition, I can establish that the unified financial accounting standards ensure reliability, transparency, relevance, consistency, comparability, understandability, uniformity, and fairness in the preparation and presentation of financial statements. The users of the financial standards include investors, companies, and auditors. Notably, the financial standards users derive distinct benefit from the unified financial accounting standards. Most assuredly, the financial standards ensure that the financial statements are comparable and reflect the true and fair financial position and performance of the reference company. References Beke, J. (2012). Effects of the application of accounting standards on company performance: A review. International Journal of Management, 29(3), 110-124. Financial Accounting Standards Board. (2013). Investors: Help us Improve Financial Reporting. Retrieved from: http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156441168 Ingram, R., & Albright, T.L. (2007). Financial Accounting: Information for Decisions. London: Cengage Learning, 2007. James, M. L. (2011). Integrating international financial reporting standards into the accounting curriculum: Strategies, benefits and challenges. Academy of Educational Leadership Journal, 15, 127-142. Weaver, L. (2008). The Importance of Financial Reporting Standards to Auditors. Retrieved from: http://www.accaglobal.com/content/dam/acca/global/PDF-students/2012b/18Nov.pdf Read More