Monday, September 29, 2008

International Accounting Standards

A positive approach by the securities and Exchange board

• US move towards International Accounting Rules

There are a lot of people who has come across the name Securities and Exchange Commission; what a large chunk is still clueless about is their decision regarding allowing certain big-scale American companies to use international accounting standards from 2009. The figure is expected to reach 100% by the end of 2016 and if everything goes right, the world shall move towards using one fixed set of standards to facilitate the comparison of different companies by investors. Differing regions are not going to be an issue in this endeavor; moreover, raising capitals for an attractive market shall become easier for firms interested in that particular sector.

To fit the criteria as presented by the proposal, a company needs to be one among the 20 largest companies in that industry sector worldwide. The commission shall also require the large American companies to comply to the new set of international standards to prepare their financial statements for the year 2014, with the smaller ones following the path in 2015. The smallest companies; however, may delay adopting to the new standards until 2016, since the final decisions on these shall be pending till 2011 and shall be in the hands of S.E.C.

The only problem that experts are speculating is regarding learning new accounting rules by the auditors and other accounting professionals, but considering the advantages, it shall be a small burden to bear. And facilitated by a new monitoring body comprising regulators from many countries and soon to be established by international authorities, the chances of political influences can simply be overruled. That leaves us only with the question of uniform application of the rules, which, though being tried to be converged by the international and the American board, are still showing signs of differences with the international rules.

• Advantages & Disadvantages of a common accounting system

In a common accounting system, accountants stay responsible for recording the revenues and every form of expenditure along with acquisition of assets and disposal according to an actual amount of money (or money equivalent) that is received/paid to complete a transaction. However, the common accounting methods only consider an acquisition cost of assets without recognizing their values in a current market. That’s cost allocation and not determining an asset’s value; despite the methods being informative regarding acquisition costs of assets as well as their deprecations, they ignore every possibility of determining the current market value of the same asset, which may be either higher or lower than is suggested.

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