Discuss the advantages and limitations of standardising corporate financial reporting. (25 marks) A.
Accounting is regulated by an intervention through accounting standards B.
These could be prescribed by law or by ostensibly independent professional bodies (and the latter’s prescriptions may then in some way be backed by law). C.
It is sometimes argued that companies should be given a choice in matters of financial reporting on the grounds that accounting standards are detrimental to the quality of such reporting. There are arguments on both sides Advantages
Eliminates under provision of information – omission of data is detrimental to the users of financial statement as it may cloud their judgement leading to undesirable or incorrect economic [MINIMUM INFO QUOTA] E.
STANDARDS BOOST CREDIBILITY OF FINANCIAL REPORTS – assures users of financial statement that a true and fair view is given F.
To enhance Uniformity between FS - To facilitate inter-company performance and ascertain trends, investors require relevant and reliable data that are standardized. They reduce or eliminate confusing variations in the methods used to prepare accounts & allow investors to predict future cash flows reliably. G.
Potential Financial Information is at the liberty of the managers - Disclosure of Vital financial information, both favourable and unfavourable, is at the liberty of the managers. In other words, managers could choose not to disclose information which they deem as vulnerable to the reputation of the company. By imposing a strict regulation, managers will be obliged to reveal favourable and unfavourable information to the public so that investors can assess the profitability of the company effectively. H.
They are a less rigid alternative to enforcing conformity -by means of legislation – Imposing accounting laws may seem too restrictive and appear as rules without comprehension of the rationale behind. Standards however, give a diluted image of a law imposed. I....
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