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Accounting Standards - Essay Example

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Politics have a lot of influences when setting the acceptable accounting standards. People who have their economic personal interests have used politics to set accounting standards, which are beneficial to them…
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Accounting Standards
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Accounting Standards

Download file to see previous pages... In china they follow the Chinese Accounting Standards (CAS) while companies in the United States of America follow the Genarally Accepted Accounting Principles (GAAP). Phelps (2003), states that a political influence is one of the serious problems facing accounting standard setting. This is because political influence will tend to make the standards in a certain way either to benefit some people or to be damaging to some. Some countries have come up with their own accounting standards which are somehow different from the internationally accepted standards. By doing so, they favor their respective economy for it to do better than the other economies. Members of the Financial Accounting Standards Board responded to accusations that they had given in to political pressure by saying that they could not do anything to stop political influence, but they were lobbying for the independence of the Financial Accounting Standards Board from political influence and that more should be done to stop political influences from interfering in accounting standards issues (Phelps, 2003). Politically influencing accounting standards has resulted in negative effects. For example, the current economic crisis in Europe and other countries can be partly attributed to political influence in the standardization on accounting (Botzem, 2012). Since governments influenced on accounting issues such as lending, banks gave out a lot of money without following the internationally accepted guidelines of accounting. This led to enormous debts and fallouts leading to companies and business institution falling. It also resulted in job cuts and general poor economy. Another effect of political influence on accounting standardization is that it results in some people gaining a lot of income at the expense of others suffering tremendously huge loses. This happens when the standards are intentionally set to benefit some people thereby making them to benefit from intentional manipulation of standards. This goes against the accounting principle which stipulates that all accounting standards should be of equal benefit to all parties. According to Botzem (2012), political influence on standardization of accounts results in increased fraud, criminal activities, terrorism and money laundering. This is because people involved in fraud and money laundering use political influence to make changes in accounting standards in order for them to legitimize their illegal income. This has played a huge role particularly in the drug business, money laundry and terrorism. Terrorist activities have been funded through accounting loopholes created as a result of political influences. Drug lords and money launders have used political influence to create loopholes in accounting standards for them to legitimize the money there have acquired through their illegal business. Executives of large business organization have used political influence in accounting standards to avoid releasing poor results. This results in investors and stockholders losing their money since they invest in companies which fail to post financial accounts revealing loses. Investors and stockholders invest a lot of funds in business organizations that are falling without their knowledge hence losing a lot of money. Political influences in the setting of accounting standards have limited and hindered international trading. This occurs  as a result of different accounting standards in different regions. Some business organizations have been limited to doing business with other firms in their respective regions due to the presence of different acco ...Download file to see next pagesRead More
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