Accounting Reporting Criteria Paper
Accounting Reporting Criteria Paper
Accounting Reporting Criteria Paper
Accounting reporting criteria includes many factors and covers many elements. From Fundamental Financial Accounting Concepts, “accounting is so important that it is often called the language of business. In fact, accounting affects not only individual businesses but also society as a whole” (Edmonds, Edmonds, McNair, Olds, & Schneider, 2006, p. 4). Global business requires added consideration in the way of accounting reporting criteria. With heightened consumer protection becoming increasingly important, regulation of American reporting criteria such as The Sarbanes-Oxley Act (SOX) is common to hear or the Security Exchange Commission’s (SEC) requirement of management submitting a financial statement in an organization’s report. Since so much publicity has been given to U.S. reporting regulations even more difficultly is to identify the regulations in foreign reporting criteria. Many countries do not have the high level of regulations that America has. This makes it extremely important for internationally operating organizations to understand and embrace best practices in financial reporting across borders. The challenges for a U.S. company to deal with a foreign company are regulatory environment, issues with foreign currency, and the differences in general accepted accounting principles.
One example of a collaborative effort to create and unify reporting standards across borders is the International Accounting Standards Board (IASB). The IASB is a regulatory environment and was formed in hopes of overseeing unification in the way of international accounting standards (International Accounting Standards Board, 2008). The IASB is a strong supporter of the International Financial Reporting Standards (IFRS) (International Accounting Standards Board, 2008). The IFRS is a standard best practices guide for financial reporting covering many areas in the content of financial statements and reporting (Wikipedia, 2008). Although its guidelines cannot be enforced, over 100 countries are members to comply with its practices (Edmonds, Edmonds, McNair, Olds, & Schneider, 2006). Some areas covered by the IFRS are statements of cash flow, accounting acquisition, good will and consolidated financial statements (Wikipedia, 2008). The IFRS offers a solution to the difficult task of getting all countries on the same page to reporting regulations.
With foreign currency effecting the activities and interests of investors and lenders, companies are becoming increasingly global, the SEC is increasing its involvement. Forums are created to develop a globally accepted, high quality financial reporting framework. The efforts, at both a domestic and international level, consistently have been based on the view that the only way to achieve fair, liquid, and efficient capital markets worldwide is by providing investors with information that is comparable, transparent, and reliable.
A dual objective is to uphold the quality of financial reporting domestically and encouraging convergence towards a high quality global financial reporting framework internationally. One major contrast is to determine under what conditions financial statements of foreign private issuers should be accepted that are prepared using the standards promulgated by the ISAB. Currently, issuers wishing to access capital markets in different jurisdictions must comply with the requirements of each jurisdiction, which differ in many respects. Different listing and reporting requirements may increase the costs of accessing multiple capital markets and create inefficiencies in cross-border capital flows.
The SEC is working with other securities regulators around the world to reduce these differences. IOSCO, and focusing on the work of the International Accounting Standards Committee (IASC).When focusing on this effort, it advocates capital markets to operate most efficiently when investors have access to high quality financial information.
In the United States, Generally Accepted Accounting Principles (GAAP) is a set of certain rules and standards that are used to guide accountants in preparing financial statements and recording transactions. GAAP procedures, standards and rules change as the needs of society changes. Although must foreign companies convert to the U.S GAAP the person at the foreign company applying the GAAP principles may not be up to date on the rules and regulation (AICPA, 2008). The differences in accounting procedures make accounting difficult to understand. In addition GAAP standards and terminology of the financial statements and accounting procedures are different in the U.S than in other counties. For example, annual reporting is quite different in foreign countries. The following graph demonstrates such examples.
U.K. terminology