Australian Accounting Philosophies and Theories - Essay Example

Australian Accounting Philosophies and Theories INTRODUCTION: Accounting is defined as the language of business. Accounting is defined in some college textbooks as the recording of past business transactions in chronological order. And, accounting is generally used to gather, process and report the daily business transactions of the corporation for the past year or years of operation. Furthermore, the following paragraphs prove why accounting has been successful as a primary tool in the decision making strategies of the corporation’s stakeholders for their decision making processes(Riahi-Belkaoui, 995). BODY: ACCOUNTING, as discussed in the conceptual framework, meets the governance, accountability and responsibility needs of today’s corporate stakeholders. Current Australian accounting practices and procedures of proper recording and presentation of the financial position and results of operations aids in the Australian corporations three major responsibilities. The first responsibility is “Within the discourse of CORPORATE RESPONSIBILITY, various concepts are used to express the rights and obligations that corporations have, to those they work with and work for”. Also, the second corporate responsibility is “CORPORATE GOVERNANCE is a frequently used term which refers to the policies and practices used to regulate internal relationships and fulfill responsibilities to investors and other stakeholders”. Finally, the third corporate responsibility is “CORPORATE ACCOUNTABILITY is generally more related to disclosure, auditing and the monitoring of business practices, while corporate social responsibility implies a more discretionary act on the part of companies as they consider their role and impact across a wide range of corporate activities. In the corporate sector, accountability is often tied in with sustainability and efficiency goals.” Clearly, the “Within the discourse of CORPORATE RESPONSIBILITY, various concepts are used to express the rights and obligations that corporations have, to those they work with and work for” corporate responsibility had been accomplished through the compliance of SAC no. 1 and accounting pronouncements by the International Accounting Standards Board. SAC no 1 states that general purpose financial reports like the balance sheet, income statement and statement of cash flows should be prepared when there are users. The Australian corporation is responsible for the proper periodic recording of daily business operations and presenting them in audited general purpose financial reports in accordance with the International Accounting Standards Board. The IASB accounting pronouncements had superseded the Australian SAC 1 to 5 in the year 2005 yet. These IASB authoritative pronouncements are being followed in most countries of the world. The IASB’s main purpose is to facilitate communication and understanding among the different users of the financial statements by using the same accounting procedures. The implementation of these accounting pronouncements in the audited recording of the assets, liabilities, capital, revenues, expenses and net income of all Australian corporation is in compliance with its corporate responsibility to all its stakeholders. The stakeholders include the stockholders, employees, managers, customers, suppliers, creditors, community, investors, banks, loan institutions, government regulating agencies and other interested parties. The corporation must comply with government’ anti- air pollution laws, anti-water pollutions laws, zoning regulations and other city and state laws and regulations. Also, the government tax agencies will continuously monitor if the Australian companies paid the correct amount of taxes by scrutinizing the corporations’ audited financial statements. Furthermore, the corporations’ board of directors will use the financial statement to determine if the company’s actual performance for the entire year exceeded their pre-planned goals and objectives. In addition, the other stakeholders will use the financial statements or their own decision making strategies. The main idea of Australian Accounting Standard SAC no. 1 is that the corporation is a separate and distinct personality from its owners and investors. As such, the corporation can sue and be sued. It can own assets and apply for loans, sell good, buy inventories and pay daily operating expenses for its survival until the next century or more. Furthermore, the second “CORPORATE GOVERNANCE is a frequently used term which refers to the policies and practices used to regulate internal relationships and fulfill responsibilities to investors and other stakeholders” responsibility has been implemented by many Australian corporation. For clarity, the statement of financial accounting concepts No. 1, states that the objective of the financial reporting by business enterprise starting in is that the financial statements must be produced in accordance with a coherent system of interrelated objectives and fundamentals that are expected to lead to consistent implementation of universally agreed recording and reporting standards. And, the corporation will be successful in convincing the employees that today is not the right time to ask for a salary increases because the company shows them the audited general purpose financial reports stating that the corporation is has been sustaining losses for the past year of operation.. And, the managers will use the financial statements to decide whether to increase the hardworking employees who have overshot their production targets. Definitely, the conceptual framework issued by the International Accounting Standards Board had replaced the Australian Conceptual Framework in 2005 yet to fully comply with a this corporate governance responsibility. Finally, the “CORPORATE ACCOUNTABILITY is generally more related to disclosure, auditing and the monitoring of business practices, while corporate social responsibility implies a more discretionary act on the part of companies as they consider their role and impact across a wide range of corporate activities. In the corporate sector, accountability is often tied in with sustainability and efficiency goals.” Responsibility has successfully been implemented by most Australian corporation. And, the Australian and IASB accounting standards compulsorily state that all corporations, including companies listed in the stock exchanges, are required by law to have their financial statements audited by external auditors. The external auditors must be certified public accountants. The external auditors issue an auditor’s report stating that the financial statements are issued in accordance with the Australian Conceptual Framework. This framework includes the universally accepted International Accounting Standards issued by the IASB(West, 2003). The Australian companies have complied with their external audit requirements in their issuance of general purpose financial reports. These reports are in accordance with accounting standards and other generally accepted accounting practices (GAAP). The auditor’s report will indicate whether the company’s financial statements are fairly presented. And, the audited financial statements indicate whether the general purpose financial reports are fairly presented to enable the users of the financials statements, especially the outsiders, to assess how the company has been performing for the past operating years. In line with this accountability concept, the external auditor’s report will give credence to the Australian corporation’s assertions that its financial statements are fairly presented in accordance with Australian accounting concept SAC no 2. For, this Australian standard states that the general purpose financial reports will provide the proper on-time and complete financial information to aid the users in their decision to invest more money in the company or to withdraw their money as soon as possible. However, the financial statements generally present the past business operations of the company using traditional financial reporting standards. The limitations of these old standards is that it only gives estimates of future business operations. Logically, there is a very high probability that the company will continue to generate income in the next 10 if the company generated income for the past five years. SAC no. 1 also states that general purpose financial reports should only be issued if there are users who need the them for decision making purposes. Also, there is a strong probability that the company would generate false financial statements like the Enron scandal where the auditors connived with the company accountants to hide the true liabilities of the company. For, the true state of the Enron company will show that the company had been a dismal failure if the actual liabilities were presented in the general purpose financial reports. In turn, this revelation will drive away Enron’s investors, stockholders, creditors, suppliers and other interested parties. The positive accounting theory, according to Ball and Brown, 1968, Beaver, 1968, Foster, 1977 and others, announces that the stock market prices will increase if the net income of the company will also increases. On the other hand, the stock market prices will decrease if news escapes to the public indicating that the company generated a net loss for the past year. According to popper, falsificationist accounting theory states that once a new accounting theory will be invented that will be better than the currently accepted accounting theory, then the currently theory will be considered false and immediately replaced with the new theory. This is because accounting is a continuing evolution process. As proof, if we look to the left and the right, we can see many corporations on busy business districts. Had the companies not issued financial accounting information that satisfies the needs of the stakeholders, these companies would not last another day or two under the sun. Furthermore, another reason is that the government requires that all companies must issue financial statements that have been audited by external certified public accountants as a support for filing annual financial statements to the government such as the government taxation agencies and the Securities and Exchange Commission. Furthermore, the banks need financial statements that have been audited by the external certified public accountants as a requirement for the processing and approving bank loans. Another convincing proof is that, had the financial statements of the companies listed in the stock exchanges not met the Governance, Accountability and Responsibility needs of today’s corporate stakeholders, the stockholders would immediately withdraw their money from the company causing the companies to close down or withdraw their offering of their shares of stocks to the general public(Gornik-Tomaszewski, 2003). CONCLUSION: The above discussion shows that the use of the concept framework processes especially SAC 1 and SAC 2 and the pronouncements by the International Accounting Standards Board as well as the Generally Accepted Accounting Principles truly addresses corporate governance, corporate accountability and corporate responsibility successfully. Also, the board of directors’ social responsibility report will complement the traditional accounting systems and models, usually known as normative theory of accounting, in addition to its usual function of recording all business transaction that have occurred in the past. In conclusion, ACCOUNTING truly meets the Governance, Accountability and Responsibility needs of today’s corporate stakeholders based on the above paragraphs and as discussed in the conceptual framework. Finally, users of the Australian financial Statements from outside Australia can understand Australian general purpose financial reports better since Australian accounting procedures are now under the watchful eye of the International Accounting Standards Board. REFERENCE: Lecture notes on Accounting Philosophies and Theories, Autumn 2007 Kabir, H., Positive Accounting Theory, Science and the Controversies, Dhaka, 2007 Newell, P; Bellour, S. (2002). Mapping accountability: origins, contexts and implications for development. P 19 Development Research Centre on Citizenship, Participation and Accountability Institute of Development Studies working paper 168http://www.ids.ac.uk/ids/bookshop/wp/wp168.pdf West, B., (2003),Professionalism and Accounting Rules, Routledge, New York, P. 112 Gornik-Tomaszewski, S., Mccarthy, I., (2003) Cooperation between FASB and IASB to Achieve Convergence of Accounting Standards, Review of Business, Volume: 24. Issue: 2, P. 52 Riahi-Belkaoui, A.,(1995) The Cultural Shaping of Accounting, Quorum Books, Westport, CT., P. 27 Read More