CORPORATIVE INTERNATIONAL ACCOUNTING

Corporative International Accounting

Corporative International Accounting

Part A

The most basic transactions are classified as Assets, Liabilities and Owner's equity. To reinforce your understanding, I have applied each definition to realistic examples where possible. I then explore the relationships between the three classifications which make up the basic Accounting Equation as well as the debit and credit rules (www.fso.arizona.edu).

Q1: Explanation of the reasons for classifying accounting systems

Originally, financial records were kept by and for the person who used the information. As economic and market systems grew more complex, the nature of the information required for the successful functioning of the economic systems became more complex as well and the demand for this information by various stakeholders increased. These two factors combined with the ever increasing volume of data led business owners and decision makers to request the services of a professional accountant.

To fully understand this definition, it is necessary to examine each of the three constituent parts; the first requirement is to record information (www.tpub.com). The accountant is required to accurately record the debit and credit entries produced by a specific person or organization. The second requirement is to provide this record to the legitimate users of the information. Legitimate users span the spectrum of stakeholders and there are four different reasons why users would seek this information: The first is that managers of the organization need the information provided by professional accountants to effectively plan and control the organization's operations. For example, if a certain division is consistently losing money despite repeated investments of time and treasure, it would be very helpful for a manager to have this information. The second is that investors use the information to determine which organizations would be a good investment for them based on their own risk tolerance and other factors (Bagranoff, 2008).

Third, rating agencies, lenders, and other groups use this information to assess the value of the organization and make decisions about its viability and future (Hall, 2008). Finally, the government uses this information to determine how much tax should be levied on an organization.

The third obligation requires the accountant to attest to the truthfulness of the information they provide to the users. Accountants, then, are asked to affirm that the information that they have recorded and provided to legitimate users is true to the best of their knowledge. This formal act of attestation is manifested through the signature of the accountant.

However, the notion of a “true” and “accurate” picture presents a problem. Similar to the adage regarding the malleability of statistics, there are any number of ways to interpret the economic data of an organization. Therefore, it is possible to present several different pictures of a company that either highlight or shadow the strengths and weaknesses of the organization depending on the circumstances (Romney, 2008). For example, a picture developed by a corporate accountant for the purposes of securing a loan can make an organization appear healthy and strong. On the other hand, if the picture is being developed for submission to ...