Embedded Knowledge and Theory Across the Study of Accounting - Essay Example

Knowledge and Theory are embedded across the Study of Accounting’. Table of Contents Introduction 3 Discussion 4 Evaluating the Role of the Study of Accounting 4 Evaluating Effectiveness of the Globally Accepted Accounting Standards 8 International Financial Reporting Standards (IFRS) 8 Conclusion 10 References 11 Introduction The notion of global accounting theories and principles has long been witnessed to play a pivotal role to define and clearly illustrate the accounting practices of the organisations. The languages used in the accounting practicesare universally accepted way of communicating financial along with different other information to the people, institutions and governments (International Auditing and Assurance Standards Board, 2009). Fundamentally the concept of accounting is characterised into two major categories. Firstly, it is a profession which enables organisations to maintain clarity as well as reliability of each financial record and deliver it to the potential stakeholder groups. Secondly, the concept of accounting is also defined as a strong social dynamism, which substantially helps organisations to build strong sustainability by delivering transparent view of the financial records to the societies, organisations and people surrounding to it (Kennedy, 2011). In relation to the continuous evolution of accounting theories and practice guidelines, organisations in the present globalised business environment are highly focused on complying with a specific set of accounting principles in order to conserve reliability and validity of the financial records (Kennedy, 2011). Therefore, with this concern, the essay intends to critically explore the statement “Knowledge and theory are embedded across the study of accounting.” The discussion of the essay reveals few of the major accounting theories and principles employed by the organisations in the contemporary business phenomenon. Discussion Evaluating the Role of the Study of Accounting Over the years, scholars have been intrigued by different concepts and disciplines and have been engaged in expressing their views in the form of study. In this regard, several scholars have contributed their efforts towards the study of accounting. These studies are considered to be of prime importance for myriad reasons. In addition, the study related to accounting has been considered as an attempt towards explaining the various reasons and logic behind certain accounting practices. The studies are further considered to be extremely important as the accounting standards are framed and developed with reference to these studies. The study on accounting involves sound reasoning of various practices as well as it deals with the examination of pros and cons in accounting practices. The importance of the study of accounting can be thus related with the effectiveness of the current accounting standards and guiding principles espoused by the organizations across the world (Peterson, 2008). Accordingly, global accounting standards and guiding principles have long been witnessed to play a prominent role not only for the organisations, but also the peoples and communities within a particular nation. In relation to the modern practice of accounting principles, the globally accepted standards provide adequate privileges to the stakeholders, especially the investors and customers to compare financial statements of the organisations in each fiscal year’s performance. In order to critically evaluate the role of accounting standards, there are numerous benefits that the guiding principles provide towards improving financial performance of the organisations. Few of the major advantages of accounting principles have been illustrated hereunder (Peterson, 2008). Authoritative Body In the context of a policy-making viewpoint, practicing a common and effective set of accounting rules and regulations generally form a single and independent authoritative body for making new accounting regulations. In this regard, the process improves organisation’s credibility in terms of making long-term financing decisions. Accordingly, compliance with a common and effective set of accounting rules also helps to reduce the probability of disagreement among the nations and global accounting regulators that can further minimise the accounting costs of the firms. In relation to the current scenario, it has been widely observed that organisations in some nations are often required to pay an additional fund while reporting their financial statement. Transparency Ensuring transparency of the accounting procedures is one of the major benefits that can improve organisations to sustain in a long run within a particular market or industry. Accounting standards has also been observed to facilitate the organisations to maintain adequate transparency of their accounting practices. It increases the level of transparency of the financial reporting method along with different financial information. Practicing a single set of accounting principles thus, considerably help auditors and the management of the organisations to enhance clarity and flawlessness of the accounting reports that ensure attainment of a large number of investors and other groups of valuable stakeholders. Hence, the adequacy of maintaining transparent accounting policies and practices by a common set of standards further ensures the companies to avoid different types of frauds and malfeasance (Braunbeck, 2010). Reliability and Accuracy The accounting standards can be regarded as a vital prospect for consideration when aiming towards ensuring transparency in accounting practices conducted by the multinationals. The practice of a competent set of accounting standards by the organisations across the world can increase the accounting efficiency and help the firms to minimise the risks of corporate failure (Wang, 2011). Due to the adequate policy of representing valid and accurate financial records, the accounting principles provide a major opportunity to the organisations to increase reliability and validity of their accounting practices. In relation to the modern accounting practices of the organisations, the policies provides an extensive support to the firms in providing appropriate financial performance to its each group of stakeholders ranging from investors to a wide range of customers (Menipaz & Menipaz, 2011). Improve Decision Making Process Accounting standards in the global business environment are widely recognised as the policies provide a major support to the organisations in terms of strengthening their decision making processes. The process of maintaining adequate clarity of the financial performance along with reliability of the accounting activities often increases the quality of reporting functions of the organisation. The process in this regard provide a major opportunity to the organisation to acquire major involvement of the customers along with different other groups of stakeholders. In this context, the process significantly helps organisations to improve their decision making process (Ramanna & Sletten, 2009). Despite the above said advantages, the accounting standards have also been recognised to ensure major support to the organisations in terms of generating awareness of the financial records on stakeholders. The principles of along with guiding provisions in the accounting languages also improve the governance practice of the firms. In addition, the principles also helps organisations to generate wide range of stakeholders, which further results strengthening reputation within a particular industry or market (Gray & Manson, 2007). Although the notion of adopting a single set of standards shall assure protection to firms from different catastrophes, it shall also impose a number of complexities that can further lead firms experience corporate failure. Through the implementation of a common accounting principle, companies all over the world will develop financial statements with identical structure, which would further ensure better comparability, transparency as well as reduced complexity towards the same. On the other hand, having a common accounting standard can also reduce organisational capability to deal with potential challenges, identifiable in terms of uncertainties associated with different industrial sectors (Lin & et. al., 2013). However, the organisations in the globalized era have also undergone various turbulences due to the mismatch of standards and policies in their financial reporting practices. The different forms of accounting standards practiced by both public and commercial organisations have long been witnessed to create a significant level of complexities for the stakeholders and the economic growth of a particular nation as well. In relation to the highly competitive global business environment, financial reporting has been observed to undergo various challenges arising from the dissimilarities observed within the accounting standards and practices of the organisations (Peterson, 2008). The differences in the accounting principles and practices can be observed to convey a major challenge that has further increase risks for corporate collapses, primitively owing to financial fraudulences or misrepresentations. Due to the existence of numerous accounting principles, the expected benefits to be derived from the global accounting frameworks have been compelling. In this regard, it has been recently argued by critics that the use of a single and a strong set of quality based accounting standards by the organisations have the potential not only to improve compatibility or transparency, but also to avoid potential corporate collapses (Tarca, 2012). Evaluating Effectiveness of the Globally Accepted Accounting Standards International Financial Reporting Standards (IFRS) As stated earlier, study of accounting facilitates in shaping accounting standards. In this regard, the development of International Financial Reporting Standards (IFRS) can be closely related with knowledge and theory derived from the study of accounting. Notably, it can be stated that adequate compliance with IFRS tends to provide organisations with various advantages over their traditional auditing methods. Most significantly, the changes within the auditing practice present the ability to develop the scale, scope as well as regularity in the investments and expenses of the organisation by a significant extent. Likewise, this technique facilitates the auditors to reduce financial risks and avoid net profit reductions, thereby developing the operational processes as more efficient (ACL Services Ltd, 2006). With this concern, the increasing pace of the organisational performances becomes transparent. This further motivates the organisations to adhere the appropriate forms of auditing process, according to the international guidelines of IFRS yielding greater sustainability (Outa, 2011). However, it can also be observed that organisations often skip over various interpretive guidelines enacted under the IFRS mostly because of their indulgence in certain unethical practices or due to misinterpretation of the stated guidelines. According to the auditing standard guidelines in the IFRS, the standardised layout of audit report reflects a set of financial statements that include legal restrictions, accounting principles along with ethical compliances of fraud detection within the financial portfolio. Considering these gaps, the basic standards underneath IFRS attempt to motivate the activities, which should be practiced by the auditors at the end of each financial statement, since the auditor needs to prepare the report with a certain degree of ease to understand method along with appropriate setting and findings (Carmona, 2008). The common practice of IFRS also enables organisations to restrain from ambiguity or vagueness (Sawani, n.d.). Hence, adequate compliance with an effective set of IFRS can build a strong and sustainable position for the company that would facilitate organisations to avoid corporate failure (Beke, 2011; Braunbeck, 2010). Conclusion According to the lately developed financial principles applied in the various countries, it can be observed that the organisations seek to associate quality based accounting standards in order to avert numerous potential issues leading to corporate collapse. In relation to the increasing complexities in the modern accounting and auditing practices, the global reporting languages have been observed to play a crucial role for the organisations to maintain adequate accountability and transparency of the financial activities. In this regard, the practice of a single set of accounting rules shall play a pivotal role to deliver considerable benefits for the large multinational companies to maintain a substantial level of compatibility and transparency. Thus, based on the understanding derived from the essay it can be evidently stated that ‘knowledge and theory are embedded across the study of accounting’. References Beke, J., 2011. How can International Accounting Standards Support Business Management? Int. J. of Management and Business Research, Vol.1, No.1, pp.25-34. Braunbeck, G. (2010), International Financial Reporting Standards: Framework-based Understanding and Teaching, IFRS Foundation. 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