Evolution of Accounting Standards

Evolution of Accounting Standards
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Accounting Standards and Principles
One of the primary departments in any organizations is the accounting or finance department. The finance and accounting managers are responsible for smooth running of the business by ensuring that expenses and revenues are accounted for. They need to record every material transaction that affects the revenues or expenses of the business. To do this effectively, they need good financial reporting skills so as to enhance accuracy of their work. Good financial reporting ensures documents such as the income statements, statement of financial position and cash flow are presented in a comprehensive way. The financial statements are very useful to the parties such as the shareholders, suppliers, debtors and the consumers. The shareholders need the reports so that they monitor the performance of the companies in which they have invested. The suppliers need to be certain about the financial capability of the company to meet its debts in cases of credit sales. Therefore, it is crucial for a business to have accurate financial records for sound decision making. The users of financial information need to make sound decisions regarding issues such as donation of funds, the amount of money to lend capital investments. It is important for financial statements to be uniform so that the users can be able to compare the financial performance of different companies. For uniformity, there are accounting standards and principles that are used by the accountants. There has been evolution of accounting standards over the years and in the present there are numerous accounting standards. This paper discusses the development of accounting standards and the various financial reporting standards.
The accounting profession was not easy without the reporting and presentation standards. The trial and error method sued in the past proved to be challenging but it acted as a training ground for the professionals. The accountants had to devise a way of making their work easier. The standards were developed based on the similarities and differences of events that take place in a business operation ("Standards", 5). The most important factor that was considered in development of the standards is the future well-being of the company (Hope, 2003). The accounting standards are meant to secure the economic benefit of the business in the future. The differences between the events in businesses were used to ensure consistency and logical way of solving the accounting problems. The basis of development of the standards was the fundamental conceptual framework (Bradshaw, & Miller, 2008). The framework helped create a common premise with which to argue about standards, procedures, principles, and methods of accounting. It is therefore possible to solve problems concerned with issues such as taxation, income tax, leases, and business combinations that keep on changing ("The Development of Financial Accounting and Reporting Standards", para. 4). Broad discussions were held regarding the proposition of the most appropriate accounting standards (Lande, E. (2006). Majority of the respondents held that it was important to measure earnings by ensuring that the costs and revenues match ("Financial Accounting Standards Board (FASB) - latest developments", para. 2). It was also important to have a cost that was similar in all accounting records. The most appropriate was the historical cost.
The accrual basis is one of the vital concepts in accounting. It is purely concerned with the earnings in a business in form of revenues and the expenses incurred in running the business. Income is only recorded as revenue after it has actually been earned. This implies that once a service has been performed or a good has been sold, revenue is earned. It does not necessarily entail...