What Would Financial Statements Look Like if There Were No Accounting Standards - Essay Example

The paper "What Would Financial Statements Look Like if There Were No Accounting Standards?" is an outstanding example of an essay on finance and accounting. Accounting frameworks is a tool that aids accountants with rule and regulations that governs them to report and record financial information (Drury, 14). Bodies are known as International Accounting Standard (IASB) and Financial Accounting Standards Board (FASB) set the accounting standards (Riahi-Belkaoui, 86). Each body set the objectives that govern their accounting principles. The FASB outlines its mandate as general accounting principles (GAAP) as its core principle. The qualities of GAAP include relevance and reliability. That ensures all the information provided for the accounting is truthful and is able to be verified can be compared among different companies (Riahi-Belkaoui, 23). The IASB outline IFRS (International financial reporting standards) to be applied to many countries internationally. IFRS has its set rules and guidelines in its accounting framework principles: that is constant item purchasing power and historical cost (Benston, 52). Historical cost is the cost a company is required to pay for the previous period item and the constant item purchasing power makes sure the company should not be involved in the maintenance of financial capital, which would otherwise give a false account of financial accounting data in times of rapid inflation (Riahi-Belkaoui, 71). A country’s law determines the company’s selection of accounting framework methods.

Accounting standards and IFRS ensure the accounting practices are transparent and it also facilitates its convergence. Transparency and convergence ensure the smooth flow of capital in the international market (Benston, 25). This makes it conducive for various stakeholders to compare the performance of their business to other international companies and hence it makes it cheaper to raise capital from other investors (Riahi-Belkaoui, 121). The IFRS ensures a business is not restricted from the scope of national-level accounting standards. In IFRS compliant countries reports arising from financial are used without fear of preparing alternatives set of financial reports when doing business in other countries (Riahi-Belkaoui, 136). The other benefit includes a standard-setting that is generalized.  IFRS ensures a plain level ground by ensuring flexibilities in both predictable and unpredictable global market trends (Warren et al., 41). The business can choose a presentation that suits the financial reports of its users (Benston, 111). The last benefit ensures financial reporting is enhanced. IFRS makes sure the accounting standards' objectives and principles are not compromised and therefore the quality of financial reports is enhanced. The investor’s confidence in a business is usually boosted by quality financial reports (Drury, 90).

The limitations of accounting standard is that small business has to adapt to the new system from their initial accounting system hence they have to incur costs to change to the new system. Even with the standardization of accounting systems across countries, varied laws and regulations hamper the coherent financial statement in various countries (Riahi-Belkaoui, 171).

In conclusion, the accounting standard development has made it possible for all stakeholders to conduct their business on a level plain field that has been brought about by a generalized standard-setting financial framework (Drury, 95). In my opinion, IFRS for Small and Medium Enterprises (SME) should be adopted to accommodate small businesses.