Need and Importance of International Accounting Standards - 550 Words

Need and Importance of International Accounting Standards (Coursework Sample) Content: Need and Importance of International Accounting StandardsNameInstitution Need and Importance of International Accounting Standards International Accounting Standards are a set of rules that remove variations in treatment of accounting prospects. I do agree that the standards are essential in accounting practices. The convergence efforts between GAAP and IFRS have played a significant role in internationalization of accounting standards (Frank, 2008). This way, the standards will serve their purpose with international recognition and hopefully, future application. Research carried out in auditing and loan borrowing has showed the need for integration in accounting standards. Khanna (2014) says that they are important because the users of accounting information differ. For example, universal standards would make it easier for banks to scrutinize potential overdraft and long-term loan borrowers by comparing risks evident from the cash flow statements. From this, liquidi ty and solvency levels calculated would not only help the banks, but the government, shareholders, and even labor unions. Most companies require financial leverage for expansion at some point and creditors need not necessarily have accounting knowledge. In effect, a common practice in recording the net profit or loss for fiscal years, would make it easier for owners, creditors, and potential investors to understand financial statements and disburse funds (Alford, 2012). Besides, one role of accounting is to communicate and describe economic activity. Therefore, it is important that the standards be international for them to support this actual role. . IAS 23 now recognizes that assets and their costs should be capitalized and IFRS is now in line with GAAP. The former required them to be expensed but this would make it easier for a company to write off costs and cause moral hazard within accounting practices. With the convergence of their differences, companies are more accountable to their losses and has helped the public/shareholders to know how their funds are being used. With the non-current assets/fixed assets being treated with regard to the historical cost convention, contrary to IFRS valuation and historical cost principle, the international framework now recognizes only the historical cost convention as a way of measuring fixed assets with depreciation being done in straight line or any other method (Barth, 2009). This is essential since, companies have always used historical value because it is verifiable and using another method would cause a lot of contradiction, confusion, and malpractice especially with international firms since inflation levels, exchange rates, and interest rates differ for all nations (Chen Sui, 2012). Therefore, it would be better to stick to the original value of an asset than sort to revaluation. Worldwide, internationalization and convergence of IFRS and GAAP would help solve a lot of issues. For example, in the Enron Comp any Scandal, their biggest competitor (Dynegy Inc.) nearly saw the company go down after trying to buy Enron (Alford, 2012). The latter being an accounting firm, Dynegy Inc. only assumed their financial records were perfect until the discovery that Enron had millions of dolla...