A Sound Financial Reporting System, Supported by High Quality Accounting Standards and Backed by a Solid Regulatory, Governance and Ethical Framework, Is a Pre-Requisite for Economic Development.

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“A sound financial reporting system, supported by high quality accounting standards and backed by a solid regulatory, governance and ethical framework, is a pre-requisite for economic development”.

Accounting has been around since the beginning of civilization and played an important role in the development of cities, trade and the concepts of wealth. Nowadays, business is very complex and therefore there is an increased need for providing accurate and reliable financial information. Moreover, according to ACCA’s beliefs, the importance of financial reporting and accounting standards is significant not only for the accountancy profession, but also for the world economy. [1] Dr Joe Sumners, Auburn University, defines economic development as “the process by which a community creates, retains, and reinvests wealth and improves the quality of life”.[2] Economic development encompasses diverse disciplines, including economics, business, political science, public administration, marketing and communications, sociology, community planning, education. In that case, it can be questioned whether good financial reporting system, supported by accounting standards, regulatory framework, good corporate governance and ethical standards, plays also an important role for further economic development.

The purpose of this report is to critically evaluate the relationship between above-mentioned terms with reference to economic development. The first part of this paper describes individual terms which are significant for accountancy field. On the other hand, the second part represents the relationship between these terms and economic development, supported by subjective discussions.

Financial reporting objectives are the key determinants of the nature of a financial reporting system. The primary objective is to provide information useful for making investment and credit decisions. To be useful, information must be relevant, reliable, and comparable, and should be directed at these people with a reasonable level of understanding business and economic activities. IFRS (International Financial Reporting Standards) is “a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements”.[3] IFRS are issued by the International Accounting Standards Board. Furthermore, international accounting standards are rules and guidelines which should be followed by those who prepare the financial statements of companies. These standards are an important part of financial reporting as they define what is meant by “a true and fair view, in various contexts and circumstances” (Atrill & McLaney, 2004). The objective of IAS 1 (2007) is “to prescribe the basis for presentation of general purpose financial statements, to ensure comparability both with the entity’s financial statements of previous periods and with the financial statements of other entities.”[4] IAS apply to all financial statements based on IFRS. Another important issues relate to solid regulatory and corporate governance. Good corporate governance aims to provide incentives for the board and management to pursue the objectives that are in the interests of the company and its shareholders. The concept of corporate governance, although analysed from many different perspectives, is usually understood as a complex set of constraints that managers put on themselves, or that investors put on managers to reduce the ex post misallocation and to induce investors to provide more funds ex ante. The main tasks of corporate governance include assuring corporate efficiency and mitigating arising conflicts, providing for transparency and legitimacy of corporate activity, lowering risk for investments and providing high returns for investors, and in addition delivering framework for managerial accountability. Corporate governance encompasses the combination of laws, regulations, listing rules that enable the...
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