Accounting standards dominate the accountant’s work. These standards are being constantly changed, deleted, and/or added to, both in the United States and abroad. They provide practical and handy rules for the conduct of the accountant’s work. They are generally accepted as firm rules, backed by sanctions for nonconformity. Accounting standards usually consist of three parts: * A description of the problem to be tackled
* A reasoned discussion (possibly exploring fundamental theory) or ways of solving the problem * In line with decision or theory, the prescribed solution In general, standards, especially auditing standards, have been restricted to the prescribed solution, which has generated a lot of controversy about the absence of supporting theories and the use of an ad hoc formulating approach. The general trend, however, is to include the description and the reasoned discussion, thereby providing a concise, theoretically supported rule of action. The Public Interest Theory was implicit in our examination of standard-setting. The theory suggests that regulation is required to answer the demand of the public for correction of market failures. The theory assumes that the central authority has the best interests of the society as its objective. In other words it does its best to maximize social welfare. The regulation is a trade off between the costs involved and the benefits received by society. The Interest Group Theory takes the view that an industry operates in the situation where there are a number of interest groups (constituencies).
Development of standard setting approaches in various countries IASB
The International Accounting Standard Board (IASB) is the independent, accounting standard-setting body of the IFRS. The IASB was founded on April 1, 2001 as the successor to the International Accounting Standard Committee (IASC). It is responsible for developing IFRS and promoting the use and application of these standards. The International Financial Reporting Standard (IFRS) was incorporated as a tax-exempt organization in the US state of Delaware. The IFRS also the parent entity of the IASB, an independent accounting standard-setter based in London, England.
The IASB has 14 Board members. They are selected as a group of experts with a mix of experience of standard-setting, preparing and using accounts, and academic work. In January 2009, they have their meeting with the Trustees of the Foundation concluded the first part of the second Constitution Review, announcing the creation of a Monitoring Board and the expansion of the IASB to 16 members and giving more consideration to the geographical composition of the IASB.
Since 1973, the Financial Accounting Standards Board (FASB) has been the designated organization in the private sector for establishing standards of financial accounting that governs the preparation of financial reports by nongovernmental entities. Those standards are officially recognized as authoritative by the Securities and Exchange Commission (SEC) and the American Institute of Certified Public Accountants. The SEC has statutory authority to establish financial accounting and reporting standards for publicly held companies under the Securities Exchange Act of 1934. Throughout its history, however, the Commission’s policy has been to rely on the private sector for this function to the extent that the private sector demonstrates ability to fulfill the responsibility in the public interest.
The mission of the FASB is to establish and improve standards of financial accounting and reporting that foster financial reporting by nongovernmental entities that provides decision-useful information to investors and other users of financial reports. That mission is accomplished through a comprehensive and independent process that encourages broad participation, objectively considers all stakeholder views, and is subject to oversight by the Financial Accounting...