Financial Accounting Policy and Practice - Essay Example

Financial Accounting Policy and Practice FINANCIAL ACCOUNTING POLICY AND PRACTISE Lately, there has been evident concern with regard to the quality and intelligibility of financial reporting worldwide, but most precisely in the United States. A firms accounting practice refers to the implementation of accounting policies and procedures and following them to the latter. The Accounting Policy and Practice provide financial accounting system and keep on top of ongoing and emerging financial accounting issues and also assists them in analysing pronouncements. The 2008 financial crisis led to all the markets to be regenerated (Weygandt, Kimmel, & Kieso 2015). The economic sector is keen on financial institutions and government; accounting is seen as an economic asset. THEORETICAL APPROACHES Theoretically speaking, financial accounting and reporting is objective, neutral and political through the standard setting process is influenced by external factors with different interests. The activities in the economic sector affect directly the accounting practice of corporations. The standard setter regulator in accounting is either a government-controlled institutions or independent agencies. These two bring up the regulated and non-regulated theories (Marchetti, 2012). The unregulated approach states that the market and its mechanism determine the production and regulation according to its needs. The Agency Theory is introduced here, which is the relationship between principals and agents and helps with resolving problems that exist in the agency, these problems arise from inefficiencies and incomplete information. The unregulated approach, also known as free market approach contributes to positive accounting as it requires lower or higher standards to recognize losses or gains in contract markets. A regulated market, also known as the controlled market, is where the government controls the forces of supply and demand, which includes who is allowed to enter the market and what prices are charged (Mclaney, 2009 p. 56). ADVANTAGES AND DISADVANTAGES OF BOTH MARKETS According to Mclaney, E. (2009), free market economies have a freedom to innovate which allows the business owners to bring new ideas, new products, and new services. In the unregulated market, the customers make decisions on which products succeed or fail because they decide on which product to use and on what. The primary objective of a free market economy is to make a profit. The companies sacrifice worker safety, when a free market economy gets out of control, the consequences can be damaging. This includes; lost income, unemployment, and homelessness. Many of these failures come from those with short-term profits. Finally, in a regulated market unlike the unregulated, the price control affects the market and can lead to oversupply or shortages. They can worsen the problems rather than solve them. The price control helps in such cases as in highly volatile agricultural prices. The regulated market is achieved by setting a minimum price for a product above the equilibrium, which enables a minimum price to producers, encouraging them to produce more. The price stability also attracts new firms into the market, thus boosting supply. According to my understanding Free Market Approach is not a suitable approach because of violation of information and the free riding that cause the fall of the markets. In the regulatory approach, the market is more suitable for legislation of laws and regulations (Quiry & Vernimmen, 2011). The mentioned two forms of markets lead to management accounting that is the provision of financial and non-financial decision-making information to managers. Management accounting differs from financial accountancy in that, and management accountants provide forecasting and planning, performing variance analysis, reviewing and monitoring costs. Whereas financial accountancy deals with the summary, analysis and reporting of financial transactions of the business (Rahman, 2010, p. 34). It is evident that for a good management and fiscal policy rulings both parties have to work hand in hand. The Principles- Versus Rules-Based Accounting Standards There are several shortcomings with this approach, but we focus on two of them. That is; the format of standard dependents on the contents of what the rules regulates and the inclusion of the requirement to solve principles and guidance. However, the format of standards and their contents are interdependent. The output results the amount guidance needed. The financial accounting standards board (FASB) permits and extend the assets and liabilities are not always based on relevant and reliable market prices. The FASB promotes rules governing the inputs of pricing alternatives using principles-based resolution. The concepts-based approach to standard- setting is prioritized. Tensions among companies, auditors, investors, and regulators are not specific to the nature of rules (Perks & Leiwy, 2013, p. 119). Such conflicts should be addressed separately and determine the nature of accounting standards. The governance of accounting standard-setting varies over time globally. This leads to an area of accounting that stretches into areas of financial regulation for the issues, technical and the economic consequences get bigger. It makes governance arrangements crucial, and do not fit in the roles between the public and private cooperate. The success of international finance reporting standards (IFRS) has made the global financial rules to be reality. This adoption has improved the financial reporting quality in many countries. It is said that a single employer defined benefit pension plan through a multi-employer plan defined contribution plan. In my point of view, communication is an important component of internal financial controls. Formal documentation of accounting policies and procedures is one method effective over accounting and financial reporting; it maintains both accountability and consistency as well as is a useful training tool for staff (Weygandt, Kimmel, & Kieso, 2015). It is crucial for every government to have accounting policies and procedures. An excellent form of management should be used for accounting policies and procedures. This documentation should be evaluated annually and updated regularly. Changes in policies and procedures that occur should be updated. An employee should be assigned the task of overseeing this process to ensure the management is efficient. For effective running of the market, the documentation must be available to all employees in need of it for safekeeping of assets and records. The documentation of accounting policies and procedures also indicates the procedures to be performed by employees (Hopper, 2012, p. 112). The other factor that has heavily contributed heavily to the financial policy and practice is the Financial Accounting Standards Board. The board establishes, updates, clarifies, and publishes principles and practices that constitute private-sector financial accounting. The board’s understanding is that an approach that mainly gives focus to principles in accounting standards in inevitable in the zeal to improve the transparency of financial reporting and accounting. Apparently this makes it easier and efficient to operate a market and deal with the inconveniences avoiding heavy losses (Quiry 2011, p. 79). Measurement bases are a matter of accounting policies and, therefore, depend on the person(s) involved. An example that occurs in our corporate routine is that, if assets were recorded on a historical cost basis, but changes to a current value basis which shows an accounting policy change. As argued by Weygandt, Kimmel, & Kieso (2015), financial statements are present information about; assets, liabilities, gains and losses and shareholders’ funds. As we have seen, accounting systems are used to determine which information is to be presented that is the facts about a business which are to be in the financial records. Accounting policies have to be adhered to in order for any set of a market to take place and be successful. When no rules are used for transactions, the management should develop a policy involved in the information that is relevant to the economic decision-making needs. Any changes in accounting estimates result from new information, and that enforces adjustment. The changes in accounting estimates are reflected by including it in the income statement for the period of the change that is if the change affects that period and the future. An entity can change an accounting policy only if an IFRS requires it. The FASBs contribution and existence to this day are due to the quality of the utility. We have seen the set of business standards that demonstrates the expectations of our employees, contractors and directors. Policies must have a common understanding of our workforce of the company. The market should be monitored and managed to ensure responsiveness from the changing trade systems. The decisions should be critical to both managing risk and maximizing margins operational excellence is the other fact that works to maintain this competition as the primary aim is to maximize the profits. A centrally controlled capital allocation program ensures that value for the shareholders generated. The financial accounting policy statistics show that a total number of professionals 18 000 – 20 000.The International Accounting Standards Board (IASB) objectives for a consistent financial accounting policy and practice to set globally accepted international financial reporting standards. These rules should require financial reporting to help investors, and other participants in the worlds capital markets and the making of economic decisions (Rahman, 2010). Finally, without growth, new jobs cannot be provided by the government neither can we respond to the economic challenges thus individual growth has to be ambitious as well as substantial policy responses. Ways of reducing the costs to businesses investing in infrastructure have to be looked into focusing on practical responses to the problem ensures the elasticity of our markets. The Financial Stability Board provides respond to challenges in the global economy transitions (Tricker, 2012). These concepts lead to a conflict with other accounting principles, so accountants must know the best as financial information. A good example is between relevance and reliability. Accounting information helps to make better financial decisions. The users can be internal and external to the business. Internal users include; Management where analysing the performance takes place. Secondly, the employees who deal with the assessment of the companys profitability are done. Lastly, the owners analyse viability and profits of investment and determine future action (Tricker 2012, p. 98). External users of accounting information include; creditors, tax authorities, investors, customers and regular authorities. These users are communicated in the form of financial statements. Finally, cost concept is ordinarily recorded at its cost price during the actual period. It must be noted that cost should not be confused with value. Though assets are recorded at cost, they reduce in value on account of depreciation charges (Pogue, 2010, p. 78). The practice of financial accounting guides us all along our expenditures and survival. Conclusively, as evident in this paper, quality and transparency in financial reporting and accounting is vital not only in the United States, but also worldwide. As much as these factors are desirable, there is need to enact suitable implementation of the necessary principles, while actors exercise the best professional judgment. As such, with willingness of every participant in the financial issues, it is possible to bring to effect the necessary changes. It is also worth noting that the benefits that come along with the adoption of this approach would outstandingly outweigh are the possible costs. References HOPPER, T. (2012). Handbook of accounting and development. Cheltenham ; Northampton, MA : Edward Elgar MARCHETTI, A. M. (2012). Enterprise risk management best practices: from assessment to ongoing compliance. Hoboken, N.J. : Wiley MCLANEY, E. (2009). Business finance: theory and practice. Harlow, England ; New York : Pearson PERKS, R. W., & LEIWY, D. (2013). Accounting: understanding and practice. New York : McGraw-Hill Higher Education POGUE, M. (2010). Corporate investment decisions: principles and practice. New York, N.Y. : Business Expert Press QUIRY, P., & VERNIMMEN, P. (2011). Corporate finance: theory and practice. Chicester, West Sussex, U.K RAHMAN, A. R. A. (2010). Introduction to Islamic accounting theory and practice. New York: Cert Publication. TRICKER, R. I. (2012). Corporate governance: principles, policies and practices. Oxford: Oxford University Press WEYGANDT, J. J., KIMMEL, P. D., & KIESO, D. E. (2015). Financial & managerial accounting. Hoboken, NJ : Wiley Read More