Accounting standards and their importance

If you were the only one who ever needed to see your accounting, they wouldn't be, but investors and regulators may go over your ledgers, too. When you follow accounting standards, outsiders can understand what they're reading.

Accounting standards and their importance

Introduction by Catherine Swift: A key part of the fallout from the Enron, WorldCom, etc. Another important recent trend is the need to harmonize accounting standards around the world as economies and businesses become more global in scope.

Accounting standards and their importance

As a result of these important changes, we are very fortunate today to have as our speaker the Chairman of the International Accounting Standards Board, Sir David Tweedie.

He qualified as a Chartered Accountant in and was a Lecturer in Accounting at the University of Edinburgh from to He was knighted in for his services to the accounting profession. Please join me in welcoming Sir David Tweedie.

It is a great honour to be invited by the Empire Club of Canada to speak today. You have had royalty, past presidents, prime ministers, and military heroes.

Accounting standards and their importance

I did not want to read too much into the invitation, but I assume that my presence here means that accounting standard-setters have been conferred new, exalted status. Or maybe the invitation to an accounting standard-setter is a reflection of the times.

Somehow, the current credit crisis has brought the normally arcane area of accounting standards to the front pages of the financial press.

Some have pointed their finger at accounting standards as the cause of the crisis. Not surprisingly, I tend to disagree. Addressing the Credit Crisis Time is too short to provide a thorough analysis of the current credit crisis, but it is evident that at the heart of the crisis were bad lending practices.

Bad lending was then compounded by the absence of prices in the secondary markets for some structured credit products and concerns about the location and size of potential losses.

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This in turn led to funding difficulties caused by the reluctance to extend credit to a number of financial institutions thought to hold low-quality liquid assets. Financial reporting enters the scene by way of its requirements to value these assets and to alert the markets to risks associated with their existence.

It is undoubtedly difficult to value complex, illiquid, structured credit securities. Many of the loans were in fact shown at cost in the books of financial institutions.

When recoverability of a loan is doubtful the loan has to be marked down, even under historic cost accounting, to the present value of the cash flows expected from the loan; that value would be fair value.

No entity is ever allowed to disclose assets valued at more than their recoverable amount in its financial statements. My personal view is that showing the changes in values of these securities, even if imperfect, provides much needed transparency and enables markets to adjust in a necessary, even if painful, manner.

I am not alone in this assessment. The CFA Institute, representing financial analysts throughout the world, asked its members whether fair value requirements for financial institutions improve transparency and contribute to investor understanding of the risk profiles of these institutions.

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Seventy-nine per cent said yes. While a slight majority believed that fair value is aggravating the credit crisis, 74 per cent surveyed believed that fair value accounting improved market integrity. None of this is to say that the existing IFRSs are perfect, and clearly the IASB is willing to examine how to improve its standards in light of developments.

For our consolidations and derecognition projects, ones that directly address off-balance sheet issues, the IASB is committed to move the projects forward expeditiously.

The IASB will also put together an advisory group to help us address the issue of valuing financial instruments in illiquid markets. The credit crisis also has a broader lesson for the IASB as an international standard-setter.

In a world increasingly dependent on international capital flows, accounting has an important role to play.

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This afternoon, I would like to share my vision of how the global adoption of IFRSs can play a positive role in the effective functioning of capital markets. The Possibility of a Global Standard The real impetus towards global accounting standards began some 10 years ago.

In the midst of the Asian financial crisis, several companies whose financial statements seemed to indicate that they were secure, suddenly went bankrupt, casting great doubt on the veracity of the statements and in particular the national accounting standards in use.Importance of Accounting Principles These guidelines were developed over time by the Financial Accounting Standards Board (FASB), and the American Institute of Certified Public Accountants.

The accounting standards developed and established by the FASB and the GASB are used to communicate information about the financial condition of a company, public or private, a not-for-profit organization, or a state or local government.

>> More The accounting standards developed and established by. Jun 27,  · Accounting standards keep investors, business owners and regulators on the same page. When all businesses follow the same accounting practices, it easy to evaluate performance. The rules also.

Generally accepted accounting principles (GAAP) refer to a common set of accepted accounting principles, standards, and procedures that companies and their accountants must follow when they.

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ROLE AND IMPORTANCE OF ACCOUNTING STANDARDS AND AUDITING ROLE AND IMPORTANCE OF ACCOUNTING STANDARDS Operating a line of work is not simply to make profits, deposit money in the interested to know that their money will eventually pull ahead and come back to them.

Jun 27,  · Accounting standards keep investors, business owners and regulators on the same page. When all businesses follow the same accounting practices, it easy to .

The Importance of Generally Accepted Accounting Principles (GAAP)