You are on page 1of 5

Question: 1

Accounting standards are to be derived with logic, have to have practical use and then be
accepted by the accounting body. After these three steps being undertaken I dont assume that
their remains any doubt that the accepted accounting standard lacks reliability.
As far as undertaking a project is concerned prior knowledge in the field is an added advantage
but it might not always be the case that the event or the project has been undertaken in the past.
The board might come across some issues or may have to take some steps that have never been
taken before.
However, the dependence on the accounting standards can be questionable as there is no defined
way as to which standard should be used in which given situation. There remains a question of
how do we determine that the accounting standard chosen to represent a particular situation or
used to serve the purpose of a project was in fact the right one was in fact driven from no
external pressure.
Accounting standards are not a verdict or a word of God they can be challenged everyday and
their implications can be challenged. The financial accounting guide used in the past is not a very
good counter measure for the problems at hand. The standards set by the responsible body is not
working very well for the current crises faced by the financial institutions or for the firms listed
in the stock exchange. Theres no proof as to why a particular set accounting policy is the best fit
for all organizations. There can possibly be political reasons behind setting the accounting
standards as to what we see today, nothing can be said for sure. (A. Niskanen, 2010)
The question remains standing what was the reason behind setting of this
particular accounting standard. How did the body responsible for setting up this
standard came up to this conclusion that this standard is the best fit for the given
situation and it can help solve in the future if this particular problem arises. How
come those setting the standards arrived at the position that they were allowed to
make universal settings. Were those the people who have had numerous
experiences in the business world and had the complete knowledge of what the
future industrial and economical problems will be and what standards will be
required to counter them.
The security and exchange commission predicts that those situations where the pre
set standards cant be of any use are very rare and most of the problems are under
the umbrella of accounting standards. Many of the countries have set up their own
accounting bodies and have made changes to the policies according to the
requirement of their country. If these countries indulge in business transactions with
other countries again their accounting standards will not match and this will create
problems for them in doing fair trade. The accounting standards have tried their
best to make the standards unified across the world to make it possible for the
financial standings of two different companies in two different parts of the world to

become easy. If two companies of the same industry cant be compared with each
other than those companies cant be listed on the stock exchange a no guarantee of
the financial position shown by the company exists. ("Eternal convergence", 2012)
The data which is based on estimates and is not statistical is always difficult to be
countered with the accounting standards. Also it may or may not be necessary to
make the accounting standards complex, the board at times creates complexities on
purpose to try to make it impossible to bring out changes in the standards. This
raises the question that is the accounting bodies trying their best to set up and keep
their control on the business world and the companies operating worldwide. If so
again the fairness of the accounting standards are questionable. Even the
professional experience of those setting the accounting standards is more than that
of those following the accounting standards. So if people with ordinary experience
of the financial world are elected to set the standards how the accounting standards
in practices can be trusted? (W. Trott, 2015)
If the not for profit organization goes in business with other for profit organization
than what accounting standards or policies will apply to those transactions. How can
these two firms have the same valuation methods for their assets? The not for profit
organization may not be able to value most of the assets they use as their own
because these firms have not actually spent their own money in buying any of those
assets. These firms have received money as a charity and will be sing money not for
the betterment of their company but for the betterment of the society. These firms
do defy the principles of accounts as the obligation to their business setting.
Each and every country is following their own accounting standards and are yet
indulging in world trade as well as are selling and buying stocks in the international
market. How did those country came up with a particular accounting approach or
standard and how does it ensures that their stocks are not overvalued to attract
investors or undervalued to avoid taxes.
In a nutshell, there has been no criteria to determine the authenticity of the
accounting standards or the authenticity of those who are making those accounting
standards. Moreover, it was found that those who are responsible for making those
accounting standards dont rightly qualify for the position. The accounting standards
are also set sometimes under the influence of politician and the politicians may
force the accounting bodies to make standards according to what best suits their
interest in the business world.

W. Trott, E. (2015). The Struggle to Simplify Accounting Standards. CFO. Retrieved

25 April 2016, from
Eternal convergence. (2012). The Economist. Retrieved 25 April 2016, from
A. Niskanen, W. (2010). Problems with Accounting Standards. Cato Institute.
Retrieved 25 April 2016, from

Question: 2
When it has been defined in the books that their exists more than one accounting policy for a
given situation than it is entirely up to the firm that which policy they want to use. But it should
be obligatory that a firm follows a particular accounting body or follow their polices otherwise
the integrity of the reports they produce may become questionable.
If a firm has used first in and first out method in the past than they are out supposed to use the
same in all of their financial reporting otherwise they will be able to easily manipulate their
financial statements.
However, theres no pre set criteria as to which firm should use which accounting standards also
theres no law under practices which obligates a firm to use a standard which can be understood
as the best fit for that particular organization universally.
Also there can be a sort of politics involved in a firm trying to adopt a particular accounting
standard. Maybe, the firm is using a particular accounting method because merely that method
was designed and used in their own country or because maybe it suits them better for the purpose
of avoiding taxes or attracting investors. It might also be the other way around because the firm
supports a particular community making accounting method so in turn the community makes
accounting standards as a return favor to those firms.
Moreover what criteria is present in the current book of accounting practices or what law is
present in the industrial law books that will compel a firm to use a particular accounting
standard. Also survey revels that non of the firm is fully prepared to adopt all the accounting
methods, polices or procedures because these are not very well suited to the nature of the
business they are involved in. Neither any of the firms are ready to accept any change in the
accounting methods already in use in the companies because maybe these companies are now
well versed with those standards.
The companies need to do a lot of preparations and have to make a lot of changes to their daily
business practices if any change in the accounting standard is every brought forward. This means
that these companies are very comfortable with the accounting blanket they have rounded around

themselves. When the new accounting method is proposed than the companies are not sure as to
how this new method will be impacting them in the future and start to doubt the intentions of
those in charge of setting those methods. Not bringing about sudden changes in the accounting
standards even if the situation so demands might be the policy of those accounting bodies trying
to keep the companies around them happy. ("Companies Not Fully Prepared for
Implementation of New Revenue Recognition Standard, According to PwC / FERF
Survey", 2015)
Moreover, it may be easier to predict which firm will or will not use a particular
accounting standard given a situation where they either trying to avoid taxes by
devaluing the stocks or showing low profits by adding other irrelevant cost as the
cost of sales. Also sometimes a company under pressure of crashing in the stock
market manipulates their financial statements as part of their policies to attract the
investors and save themselves from going bankrupt. It becomes easier this way to
know what move a particular company is trying to make or what method they will
use given their present situation of profits and losses. But the answer to the
question as to which method a firm should actually use demands an insight as to
what accounting standards are set by the country in which the firm is operating in.
Also the company should be sticking to the methods they have always used and the
company should kept on using the same standards regardless of the situation.
Which method a firm should use may also depend on the firms overall financial
position or the policy a firm is trying to adopt for the betterment of the budget in
the upcoming financial year. How can anyone define as to what method a firm
should use if there are more than one method available to deal with a particular
situation. Accounting standards change regularly and that also makes it impossible
to answer the question as to which accounting policy a firm should ever use. If a
firm keeps on using the same method over and over again even if those methods
have been changed than the finical statements being produced by that company
will be deemed as outdated and will not be applicable for the global financial
Moreover, how can an article or a piece of writing by any writer no matter the
financial knowledge or the experience in the field of finical method can determine
which accounting method a particular firm should be using. Prediction is something
very different from determining which accounting method a particular firm should
Determination is not possible because the firm is not obligated to use any of the
method if there was any such obligation than there has to be only one method for a
particular situation. Apart from the given facts in the accounting standards books
the firms keep on facing situations which have not been incurred any time in the

This makes it impossible for a firm to stick to a given method. Maybe the accounting
bodies can help the firms decide which method to use but most of the situations
require quick action and firms cant wait every time for a decision to arrive from the
accounting body to say that this particular method should be dealt with this
particular method and the given solution can now be added in the books of
accounting methods.
In the ongoing economic conditions the stock markets go up and down everyday
and new firms enter and the old one exit it cant be ver said for sure as to which
firm is going to use which method.

("Companies Not Fully Prepared for Implementation of New Revenue Recognition

Standard, According to PwC / FERF Survey", 2015