NOTE: Free essay sample provided on this page should be used for references or sample purposes only. The sample essay is available to anyone, so any direct quoting without mentioning the source will be considered plagiarism by schools, colleges and universities that use plagiarism detection software. To get a completely brand-new, plagiarism-free essay, please use our essay writing service.
One click instant price quote
'The view that accounting standard setters consider the economic, political and social consequences of accounting standards is consistent with the view that accounting reports, if compiled in accordance with accounting standards and other generally accepted principles, will be neutral and objective's YNOPSIS Objectivity and neutrality are the ultimate goals of general purpose financial reporting. However there are many factors involved that make this goal almost impossible to attain. Economic, political and social issues are huge influences on the Accounting Standard setting process, and these influences spill over into everyday accounting, with personal gain often ahead of reliability and objectivity. Users of financial reports have demands that need to be satisfied, and regulatory boards involved in Standard setting have done their best to ensure that information is clear and reliable.
Considering these factors, Accounting does not exist in a vacuum, Accountants are human beings, not robots and the profession has strict guidelines and heavy penalties for unprofessional or fraudulent activity. It is thus clear that every attempt is made to acknowledge the operating societal factors, gauge the impact they have on different industries at different times and move from that point. The result than, has to be, the best attempt at a neutral and objective report by the professional accountant. Economic, political and social issues are powerful driving forces within any society. These issues therefore need to be focused on when major decisions in industries, are being made.
One industry that heavily relies on, and incorporates economic, political and social issues in its' decision-making, is that of Accounting. The Accounting profession is made up of many standards and regulatory boards that govern the way in which entities maintain their general-purpose financial reports. Accounting standards set minimum benchmarks of the quality required in financial reporting. They specify that reporting entities shall prepare general-purpose financial reports and that these reports will comply with Statements of Accounting Concepts (SAC's) and Accounting Standards (Accounting Handbook 2001, SAC 1, pg. 3). The 'objective of general purpose financial reporting', (Accounting Handbook 2001, SAC 2, pg. 13) is that all general purpose financial reports are prepared to provide users with information about the reporting entity, which is useful for making and evaluating decisions about the allocation of scare resources (Accounting Handbook 2001, SAC 1, pg. 4). These reports 'should' be neutral and objective, free from bias, allowing users to make informed decisions.
Considering that the process of 'setting' these Accounting Standards incorporates economic, political and social factors, it is almost impossible for financial reporting to be totally objective and neutral and totally free from bias. Although in theory we would like to believe that financial reports, took a neutral and objective view, it is unlikely that in practice this could ever be attained with the huge influences that economic, political and social (external) issues have in our personal and business lives. The identified, major, influencing issues on Accounting Standard setting are the very same factors which have always and will continue to influence modern society, economic, political and social issues. These modern sociological issues impact all aspects of life and Accounting Standards too, must acknowledge them and be thus influenced.
Economic issues are those which relate to the production, distribution and use of wealth and income; Political issues refer to or are connected with political parties, or their principles, aims and activities; and Social issues are ones which affect the lives and relationships of human beings who live in a community (The Macquarie Dictionary, 1985). Each of theses issues have their own agendas, but as we can appreciate from our own life experiences it is possible that some of these issues can interrelate. '... To judge from current discussions of the standard setting process, accounting can no longer be thought of as non-political. The numbers that accountants have, or at least are widely thought to, have a significant impact on economic behaviour (Solomons, D. , 1978, Journal). Economic, political and social groups all have information needs to be satisfied through general purpose financial reporting.
This is highlighted further when stated that the 'economic or political importance/ influence refers to the ability of an entity to make a significant impact on the welfare of external parties. The greater the economic or political importance of an entity, the more likely it is that there will exist users dependent on general purpose financial reports as a basis for making and evaluating decisions (Accounting Handbook 2001, SAC 1, pg. 7). Accounting standards are set so as these dependent users will find the information in these reports to be relevant and reliable. 'Accounting rules therefore affect human behaviour' (Solomons, D. , 1978, Journal), but in response we can argue that human behaviour also affects Accounting rules. 'Accounting is coming to be regarded as an interested endeavour. Accounting is slowly starting to be related to the pursuit of particular economic, social and political interests... ' (Arrington, C. E. & Party, A. G. , 1991, vol 2) Thus, aligned with these 'interests' is a need for financial reports that are a 'true and fair' record in the view of a particular group at a particular point in time.
Financial reports intend to meet the information needs of common users who are unable to command the preparation of reports tailored to satisfy specific information needs (Shanahan, J. , 1990). Most entities publish financial reports that state the profitability and financial position of their company. Potential investors use these financial reports to assess the strengths or weaknesses of the company and these financial reports may also be examinable by potential creditors to determine the company's ability to repay loans. Because unlike the Tax Office, finance, or ASX who can all demand information in any form they want it, users of general purpose financial reports expect the information in these reports to be as neutral and objective as possible. Society as a whole through its government and citizen groups, also make use of financial information. Because general purpose financial reports reflect the current or future state of the company to current and potential stake / shareholders .
Company accountants can prepare these reports reflecting huge economic, political or social influences, allowing groups in the community to be largely impressed, (i. e. Lobby groups, Environmental groups, Trade Unions etc. ) but possibly not entirely well informed. These reports are regulated by the standards set out by the Australian Accounting Standards Board (AASB), Australian Securities and Investments Commission (ASIC) and the Australian Stock Exchange Ltd (ASX). Standards place restrictions on behaviour: Therefore, they must be accepted by the affected parties. Acceptance may be forced or voluntary or some of both (Solomons, D. , 1978, Journal).
Verifiability, objectivity, lack of bias, neutrality, and accuracy all relate to reliability. And reliability is the ultimate goal of the professional accountant. Reliability is however, not the same as impartiality nor does...
Free research essays on topics related to: accounting standards, political and social, economic political, financial reports, general purpose
Research essay sample on Political And Social Accounting Standards
