Politics and Accounting Standards Essay

Politics and bill StandardsIntroduction The crop of an enterprise is very authorised for twain internal and external s submitholders. It ass be expressed by guideing the genuine and fair conniption of a company using the monetary reports that figures the actual capital tryst of the enterprise. Therefore, monetary deeming is very important and it enhances the success of the affair. In this context, both the definition and the body that is involved in performting the type argon important in helping to understand clearly the meaning of financial be. Financial accounting is the process of preparing and establishing a report on the financial information of an enterprise (.Ball(a), Ray, 2006). It excessively shows the true and fair view of the financial statements which argon cash flow statement, isotropy mainsheet and profit and expiration statement. These statements are very essential for the enterprise s recurrenceholders. Financial accounting takes into reflect ion the management of the telephone line for example, its assets, liabilities and capital(Ball, Ray, 2006). Furthermore, it states its real capital and debts to enable the enterprise stakeholder measure out the performance of the business. The true and fair view of financial accounting discharge be achieved by following the rules and policies that govern the people setting the rules. The rules or rather the standards apply internationally to help ensure that the accounting standards utilise crosswise the world are uniform (Armstrong, et al 2010). These are the master key regulatory bodies that are responsible for setting the standards for example the International account statement Standards (IAS), and International Financial Reporting Standards (IFRS) among others. The card that is responsible for setting the standard is the Financial Accounting Standard Board (FASB) among other interested parties(Ball, Ray, 2006). FASB muses a process that is followed so that it stop be a ble to help in setting new accounting standards. First, the board has a duty to set up a mission that prepares an outline of the assess at hand. Secondly, the de setation board prepares the objectives for the board comments. After this, the board gives its view on the task outline and then passes it to the committee which in return prepares a sermon paper which entails the committees statement of the act proposal standards. Eventually, the committee also obtains views from interested parties and after their view is in the favor of the principle, they go ahead in drafting an exposure and the draft is then promulgated as the IFRS(Ball, Ray, 2006). In order, for these standard to be effective and efficient, they are categorized into varies group on that pointfore making it easy for the accounting. The IAS is classified into many classes for example,under the IAS 10, events that die after the balance sheet date,should not be part of the balance sheet. Every company is required to prepare a balance sheet at the end of the year. Therefore, any entity trying to avoid or redeem a mis cash in ones chipsing financial statement is liable and the board provides the confine of the balance sheet. Under the IAS 19, which talks about retirement benefit costs, and the board takes into consideration the accounting of the benefits accruing from the retirement (Aboody, et a l 2004). The board has a duty to see that no corruption is being practiced and therefore, companies are required to show the true and fair value in term of the retirement costs. This prevents corruption of the prominent politicians. The IAS 17talks about accounting for leases. It is very important for a company to account for every lease taken since it is a liability. This is made possible because the board provides policies and procedures to be followed in disclosure of the account on lease. Lease is an expense for the company and if not accounted for can lead to false financial statements (Aboody, e t a l, 2004).Furthermore, IAS 33talks about earnings per share,whereby all the companies are required to show their profit in terms of profit get from share. The earning per share is used to the performance of the company which is based on the shares. It is also important for the shareholders. Most company and influential parties do not give this standard and therefore it is criticized.IAS 39 is a financial standard which requires that accounting should have recognitionand measurement of assets as swell as liabilities. It states that all the entities should take into account of all the assets, liabilities and equity of the business and no relevant actual should be left out(Ball, Ray, 2006). The profit, loss and capital should be stated as they appear without any alterations. The IFRS is also divided into classes but in this context, the IFRS 13 is considered. This standard is concerned with the true and fair value of an entity (Armstrong, et al 2010). Itrequires all the entities to state real profit or loss incurred in their financial reports. However, accounting is not sparedfrom criticism and the board experience thrust for diametrical organization that are not in agreement with the standard. Political thrust is one of the areas whichexert pressure on the board. The standards of accounting requires the organizations or the enterprise to show the true and fair view of the performance of the business (.Ball, Ray,2006).Due to this, most business operating under a loss stand a bechance to be wound up and there will be no investors interested in the business. The political pressure that is experienced under the confused accounting standards is in terms of legislations which they politicians enact. Some of the legislations contradict the accounting standards whereby businesses in a definite country are required to follow certain regulations in addition to the IAS and IFRS. This creates pressure on companies to try and evade the masking of the IAS and IF RS in their reporting. The accounting standards are set to helpindicate the real performance of the business and therefore many world trading entities are affected by this since the competitors are in watch (.Ball, Ray,2006). The amendment of the standard brought about the reclassification of the IFRS and IAS so as to favor the entities that make losses in trading. It has been noted that politicians own businesses across the world and closely monitor their businesses the best way they can so that they can make more profits (Armstrong, et al 2010). Therefore, considering that the politicians have the cogency of adjusting the laws on businesses as they deem right, there is likelihood that the policies that they will formulate do not match or support the accounting standards ready(prenominal) (.Ball, Ray,2006). What this means is that there will be a lot of pressure on the accounting standards in terms of trying to ensure that the politician-owned businesses puzzle to the reporting standards. The other way through which politics may put pressure on the various accounting standards listed and discussed above is through the choice of the board members to the FASB (Armstrong, et al 2010). Politicians using their powers on provision of policies may be inclined to have people in the board that will take care of their personal interest by formulating standards which are not confirmative of all businesses equally. This means that whenever there are new standards to be introduced which can be beneficial to the whole business world, the politicians will al slipway make up ones mind the final decisions that the board will make pertaining to the new accounting standards (Aboody, et a l 2004). The other issue which is part of the political pressure and disruption with the standards is that of political incentives, whichthe major reason for the reclassification of the accounting standards. It is to be noted that the issue of countryseconomy is important but in natio nal where the growth does not reflect the true economic situation, the information shown does not indicate the true and fair values of economy (Aboody, et a l 2004). The same case applies to banks which hold government equity and using the reclassified standards will not show the true and fair value. Therefore, when politicians offer incentives to the board members through corrupt ways and with intentions of promoting their interests, the pressure on the standards continue to mount hence prevents the proper application of the standards. Therefore, in conclusion on the effects of politics and politicians on the formulation and application of the financial accounting standards, it can be noted that there is need to prevent political interference on the FASB as well as other regulatory bodies which formulate the standards. The accounting standards are sooner important in ensuring proper and accurate information which can be relied upon is produced and reported by companies and organiza tions.ReferencesAboody, D., M. E. Barth, and R. Kasznik. 2004. Firms voluntary recognition of stockbasedCompensation expense. Journal of Accounting inquiry 42 123-160.Armstrong, Christopher S./Barth, Mary E./Jagolinzer, Alan D./Riedl, Edward J. (2010). Market Reaction to the Adoption of IFRS in Europe.The Accounting Review, Vol. 85, No. 1, pp.3161.Ball, Ray (2006). International Financial Reporting Standards (IFRS) pros and cons for investors. Accounting and problem Research, Vol. 36, Special Issue, pp. 527.Source document