ACCOUNTING

Assessment Task - 1

Assessment Task - 1

Question # 1 (a)

It is important to achieve a single set of global accounting standards for numerous reasons. Following are the advantages of international standardization of accounting standards.

The achievement of one set of global accounting standard would benefit users of financial reports such as the multi-national companies and auditors from reduced costs in preparing or auditing additional financial statements due to the increased comparability.

It would benefit the investors and creditors from being able to make decisions so as to allocate their scarce resources more efficiently (Kimmel, et al. 2003).

Further, it would benefit the accounting standard setters worldwide since the resources devoted to standards writing would be optimised.

It is important to achieve a “common language” for the global financial market through the applications of comparable accounting standards. Secondly, it gives an advantage to achieve a single set of global accounting standards to enable the users of financial reports to understand and apply the accounting standards with confidence.

A single set of accounting standards is crucial for lowering preparation costs for cross-listed multinational entities (Saudagaran, 2004).

It would benefit the auditors through improved clarity in interpreting the standards.

This implies that a set of global accounting standards would be of high quality and that it would faithfully represent the underlying transactions affecting the company during the reporting period. Importantly, the financial information produced from a single set of global accounting standards would be crucial for its users such as the investors and creditors through its removal of barriers to international capital flows and the less complicated evaluation of risks across companies (CPA 2006 Handbook, p.1435). It would benefit the auditors through improved clarity in interpreting the standards. It would also give advantage to the investors and creditors from being able to make decisions so as to allocate their scarce resources more efficiently. Further, it would benefit the accounting standard setters worldwide since the resources devoted to standards writing would be optimized (Saudagaran, 2004).

Question # 1 (b)

Following are the disadvantages of international standardization of accounting standards. These includes,

The significant costs upon companies, its stakeholders and auditors in adapting by the process of developing a set of single global standards of accounting.

One set of accounting rules would not necessarily cater for users of financial reports from a diversity of contexts worldwide in useful decision making.

Although the development of a set of single global accounting standards, which would be costly for the issuers and the users of financial reports (shareholders and investors), the benefits would outweigh the costs (CPA 2006 Handbook, p.1435).

High quality accounting standards should be understood by users with a reasonable understanding of business activities. High quality standards should also be comparable between entities and across time so that they may be accepted internationally as the “common language”

Recently the SEC of Australia suggested high quality standards should discourage transactions motivated primarily by reporting considerations, rather than economics. High quality standards promote the quality and clarity of the audit function. Furthermore, high quality standards should allow the “toughest issues” ...