Accounting Principles essay
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According to Levitt (1998) high quality accounting standards can be measured in different ways.In capital markets it is very important that the welfare of the investors is well catered for. Their interests in the company they invest their money in should be well guarded through very transparent financial statements. This is very important because it prevents providing misleading accounting information that could not provide a true reflection when investigated by the accounting standards. It is also very essential to note that an attribute of a good accounting principle is when the financial statements are provided for in the current period but not later or earlier than it should be.
The financial records provided yearly should be conscious of preventing unnecessary losses and should not defer losses. In addition it is very crucial that they represent a true reflection of what is going on in the company in terms of all the good and bad times that the listed company is experiencing. The operating expenses should be true and not in any way interfered with. For international accounting standards to be termed as of high quality they must have used an accounting criteria that is generally acceptable. Apart from that, the criteria should be of high quality in the sense that the accounting basis of the main financial accounting framework should be comprehensive and conceptual.
The globalization of capital markets has in a way increased the quality of the accounting standards worldwide. Levitt stated the importance of seriously abiding to the international accounting standards. Such high valued information of accounting systems will make sure that they can be compared and are very transparent not forgetting that the information disclosed is enough.
The information will be necessary for the investors to analyze the company's performance under the laid down guidelines to their satisfaction. It is also very core to set up a model with setting standards and characteristics. In the past Accounting fraud has been reported in various big companies like Enron in 2001 forcing it to sign for bankruptcy throwing the investors investment in turmoil. Many companies followed suit which included Arthur Andersen, Xerox, worldcom and many more. It eventually led to the collapse of New York stock company These is a clear indication that high quality accounting principles should be a must when managing listed companies at the stock exchange (Greuning & Eqbal, 2008)
These brought forward the issue of big accounting firms finding the need to change or improve their accounting standards for the companies showed no indication to their investors that they were about to go bankrupt.
Another true reflection of a high standard accounting principles concerns the fact of it being principle-based rather than Rule-based. Principle based financial reports are more feasible, comprehensive, more transparent and well understood by the investors. This is so because they expound in deep about the economic activity the company is engaging in very comprehensively. After The President of the United States of America signed into law the use of principle-based accounting systems FASB adopted it as a guided accounting standards moving away from the rule-based principle. It only means that in this time and age a high quality Accounting principle should always be principle-based (Riccihiuate, 2005)
However it is important to note that both principle-based and rule-based principles all have some drawbacks. This draw backs have led to the need of coming up with more high-quality standards. In addition to the above accounting principles should be detailed, consistent, less normalized and have a conceptualized framework. We should also not forget that any quality-based accounting principle should be the one prepared by scholars and experts in the field of accounting (Epstein & Saafir, 2008).
Levitt (1998) observed that a quality accounting principle is adhered to when the listed company's make public the financial statements to all the stakeholders involved. This will enable all the stakeholders and interested parties an opportunity to understand what is going on in their company. This will enable them fully participate in every process going on in the company. The Accounting principles should allow even for the smallest shareholders to vote and enjoy all the rights other "big" shareholders do enjoy.
According to Murinde,(2006) an eligible Accounting system should have credible auditing standards that are free and fair and meet the quality assurance standards with a regulatory oversight that is active. The financial reports should be made simple hence easily understood by even the small shareholders who can't understand the big jargon of Accounting. The issue of back-dating or front-dating information in the current financial year should be strictly avoided so as to maintain high-quality standards.