Should financial accounting and reporting be regulated through accounting standards - Essay Example

Financial Accounting and Reporting Need to Be Regulated by Accounting Standards Companies report their financial ments every now and then. This is done both locally and internationally. Financial reporting is regulated by standards which are both used internationally and locally. There is a need for all countries in the world to use standardized reporting. This is being achieved by the International Financial Reporting Standards (IFRS). Initially, international financial reporting standards began as a way to match accounting standards across Europe.

This worked very swiftly that it got attraction from across the world. Initially international Financials Standards were initially known as International Accounting Standards (IAS). These standards were set by the International Accounting standards committee (IASC). The committee did this from 1973-2001, (Kirk 18). However, in 2001 the task of setting international accounting standards was left to the International accounting standards board (IASB). The international accounting standards board approved the standards set by IASC and has continued developing new standards since 2001 The fundamental principles of the International financial Reporting standards (IFRS) are set by the conceptual Framework for Financial Reporting.

When setting international accounting standards IFRS follows a described procedure which includes, setting of agenda, planning for the project, publishing and developing of discussion papers, publishing and developing exposure drafts, publishing and developing standards, and finally standards are issue (Steven 29). This ensures that only the right standards are published ensuring that financial reporting will be done in a way that is compatible internationally. This allows international trade and business to run more efficiently.

International financial reporting standards (IFRS) allow for a common language to be used globally in business affairs. It is through bodies like the international financial reporting standards that international trade has not only be made possible but also in a transparent way. As a result, standardization of financial accounting will allow more investment to different economies. This is because, most investors decide whether to invest or not by interpreting a companys financial report (Bragg 10).

If financial reporting is standardized, it will ensure that more investors invest in many companies irrespective of the country they are in. This is because investors will be able to interpreted financial reports since a standard way is used to generate them. There will be less confusion hence more investment. International financial Reporting standards (IFRS) will come with implementing standardized financial reporting is the fact that fraudulent activities will be minimized in business establishments and companies.

This is because people use loop holes in the different financial reporting standards to carry out fraudulent activities such as embezzling funds. If financial reporting is standardized internationally, then it means such cases of fraud will be at a minimal this is because, it will allow for the scrutiny of any companies financial standards hence the detection of any fraud. Another advantage of standardizing financial reporting internationally is the fact that harmonizing financial reporting will promote peace and understanding.

This is because, the standardization will allow for more international business and trade. In the process of this international business people from different countries will interact thus forming bonds (Bragg 18). This bonding will be helpful a lot when it comes to preventing international conflicts since citizens from respective countries will have learnt to understand each other as a result of the international business that will be increased if financial reporting will be standardized internationally.

Financial reporting standards should be regulated to avoid a repeat of the financial crisis of 2007/2008 (Kroeker 98). Part of the reason the financial crisis happened was because people invested their money in companies overwhelmingly with the expectation of huge returns on their investments. However, investors decided on what companies to invest in depending on the financial reports which were publicly available. Some of these reports were not clear as a result of the different accounting standards hence the financial crash since many investors lost a lot of money.

Conclusion Attempts to regulate financial reporting standards are faced with various setbacks. One major setback is different political stands that make countries differ from each other. This has proved a headache for the international accounting standards board as countries with political differences often refuse to cooperate with the board when it comes to setting of accounting standards. Another setback is the deferent economic situations in different countries. It has been evident that countries with a huge economy tend to try to control theses standards.

This has resulted in the different reporting standards that are used in the world. This depends which country these countries with good economies are in business with. For example, countries that do business majorly with the United Sates of America usually use reporting Standards that the USA uses. Works Cited Bragg, S. (2010). IFRS Made Easy. New Jersey: John Wiley & Sons. Kirk, R. (2009). IFRS: A Quick Reference. Oxford: Elsevier. Kroeker J (2011) Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers: Work Plan Progress Report.

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