Essay about Accounting Standard-Setters

Decent Essays

2.1 Accounting standard-setters have an expectation that the readers of general purpose financial reports have a ‘reasonable knowledge’ of accounting. Specifically, the IASB Framework states that ‘users are expected to have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information with reasonable diligence’. Hence, there is an expectation that financial statements are not tailored to meet the needs of people who have not, in some way, studied financial accounting. Students should be encouraged to consider whether this expectation is in itself ‘reasonable’.

2.2 As Chapter 2 states, there is an expectation held by accounting standard-setters that users of financial statements have …show more content…

Of course, such advice will generally be at a cost which does raise the issue that it can be costly for some individuals to gain an understanding about the operations of organisations that perhaps have an impact on their ongoing existence. Hence, while there is arguably a ‘right-to-know’, for people without an accounting knowledge this right can only be exercised at some cost.

2.3 In making this judgement, students should consider the various articles that frequently appear in newspapers, and various discussions that occur on television and radio in relation to an organisation’s profits. Rarely is any mention made of the accounting methods used, even though the profits ultimately reported are directly a product of the many decisions that would have been made regarding how particular items should be accounted for (if possible, direct reference should be made to a number of articles which discuss organisations’ reported profits). Hence, it does appear as if profits are often held out as some form of ‘hard’, objective measure of organisational performance.

In considering why the media might behave in this manner, one possibility is that those responsible for writing the stories are ignorant that financial accounting relies upon a great deal of professional judgement and they might believe that every decision made by accountants is clearly mapped out by a comprehensive system of rules.

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