Accounting Issues in Business

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Introduction

Some might consider accounting as a boring profession, dealing only with numbers. Nevertheless, the importance of accounting should not be underestimated, where their provision of information can be considered as an important aspect of the job. Such aspect is essential, specifically when this information could be used to determine critical decisions and investments. Other than that, accounting emphasizes information as a resource. There are many other issues associated with accounting and which could be considered important, in terms of their implementation in practice. In that regard, this paper reports the most common accounting issues, based on a review of nine articles and their relevance to practice.

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Information approach

The manipulations that could be made with information are a difficult subject in the business, specifically because such manipulation might result in financial consequences. In that regard, the attempt of the government in limiting the market share information can be understood. The main point in “Aspects of Market Integrity”, a report from the Corporations and Markets Advisory Committee, was to enforce “corporate governance practice and enhance disclosure in dealings by directors and corporate officers” (KNIGHT, 2009).

Standardized Business Reporting

Additionally, in the case of reports issued by independent organizations, it was stated that the assessment of such reports is sometimes missing such factors as the limitedness of the information given by the company and the way this report will be used (Main, 2009). In that regard, linking the aforementioned statement to the information approach, where the influence of the information on the market can be measured, it can be seen that the market price of a firm’s share might respond to the financial statement information (Scott, 2008), which in turn might result in manipulations in the market.

Reporting can be seen as an issue that is taking wide importance, specifically in terms of regulations. In the Annual Review of Regulatory Burdens on Business, the recommendations that were made justified the application of standardized business reporting (SBR) to reduce the regulation in the sector of business in Australia. In that regard, summarizing the benefits of SBR, it can be stated that the main principle revolves around reusing the existent data.

Other benefits might include providing access to real-time information along with standardizing the reporting procedure (MacRae, 2009). Switching to SBR can be seen as beneficial, where specifically in business, the reliance on information imposes a certain complexity in accounting. This complexity can be apparent through the decisions that should be made on including certain information in the report. In that regard, the standardization introduced in SBR could help manage such aspects.

Lower cost or market

Regarding the credit crisis taking place worldwide, the placement of accounting standards on top of the crisis was an issue that was recently refuted. In a statement released by The Financial Crisis Advisory Group, the main point was that the “accounting standards were not a root cause of the financial crisis” (Bernard, 2009). On the contrary, it was stated that not following these rules contributed to the reduction of credibility in financial reporting. As an example of such practice, the rule of forcing banks to slash the value of assets could be considered as a factor in making the financial crisis worse. The lowering price of the asset can be seen as related to the lower cost or market, where it can be assumed that the price enforced on some assets was less than the lower limit of the cost.

Accounting Standards

The clarification of accounting standards is seen through the recent announcement of an international rule allowing the use of regulatory accounting (Carlsen, 2009). Although the comments would be announced later this year, it was already predicted that the introduction of such a rule would be affecting the recoverability of incurred costs and regulatory assets. Nevertheless, the introduction of this rule needs clarification, such as “the applicability to companies under formula-based and/or incentive rates, or some combination of those with cost-of-service regulation” (Carlsen, 2009).

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Assessing the introduction of such rules, it should be stated that setting standards should be based on several criteria, the most relevant of which are decision usefulness, and the economic consequences (Scott, 2008). The legitimate interests of management can be reflected through the various comments that were made after the introduction of this rule, which can be seen through the debates on the provision of support to the concept introduced by the rule (Carlsen, 2009).

Fair price

In terms of the accounting models, the limitations of the traditional approach, which were widely reviewed in the literature, promoted the consideration of the C, specifically in terms of fixation on assets price. Among the advantages of such a model in a different perspective are the values of the financial statements, the practicability, and the information value to the customers (Miller and Bahnson, 2009).

It can be seen that the essence of the aforementioned statement is also connected to the regulation of the price over time, and the way the assets should be stated and reported. In that regard, the theory behind fair accounting, i.e. mark-to-market- accounting, considers several options and propositions, based on which the value can be regulated. An example of such a proposition is the provision of a range of values, “rather than a single estimate, for so-called Level 3 assets, which are the hardest to value and for which no observable market exists” (Landy, 2009).

The usage of fair value can be also a costly issue, where the misinterpretation might enforce the usage of the recent market price, even if it is lower than the fair value. Generally, the usage of fair value is justified because of its relevancy to the market price, contrary to the historical costs.

Carbon Emission

Another issue that might seem irrelevant to accounting is the carbon emission trading concept. This concept implies a trading scheme, in which the government implements a carbon policy comprehension, through trading carbon reduction for incentives (PASCOE, 2009). Omitting such factors as the possible consequence that this scheme might lead to, the direct relation to accounting is the absence of accounting standards for emission trading and reporting (King, 2009).

In that regard, the tax treatment of carbon trading puts difficulties in the reporting system, which in turn should take a global approach, rather than domestic regulations. Generally, the introduction of international standards in such matters might be complicated by the fact that in some countries the governments influence financial reporting (Scott, 2008). Taking the position proposed in “The carbon trading truth” by Michael Pascoe, this difficulty might be understood.

Conclusion

It can be concluded that accounting, as a scientific field of study, has a direct connection to practice, which can be seen through the many aspects that can be linked to it. In that regard, an accountant not only has to be competent in the theoretical framework, but also in the way this framework is used and regularly updated. The update of accounting issues can be seen not only from financial news but also from government regulations, which might change the value and the impact of the information.

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References

Bernard, S. (2009) Credit Crisis: Don’t Blame Accounting Rules; The Financial Crisis Advisory Group says “mark-to-market” accounting didn’t cause the financial meltdown BusinessWeek. Web.

Carlsen, P. (2009) Proposed ‘IFRS’ on rate-regulated activities needs clarification, say E&Y accountants IN WEEK, E. U. (Ed.). Web.

King, A. (2009) Emissions bell tolls BRW, 1, 56.

Knight, E. (2009) Heard the whisper about integrity? The Sydeny Morning Herald. Web.

Landy, H. (2009) Mark-to-Market: Fair in Theory, But of What Value?. American Banker. Web.

Macrae, A. (2009) Data Defined. BRW, 45.

Main, A. (2009) Reach for a report when fudging facts is paramount. The Australian Business. Web.

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Miller, P. B. W. & Bahnson, P. R. (2009) THE SPIRIT OF ACCOUNTING: It’s not just academics who see value in fair value accounting. Accounting Today. Web.

Pascoe, M. (2009) The carbon trading truth: it will cost jobs. The Sydney Morning Herald. Web.

Scott, W. R. (2008) Financial accounting theory, Upper Saddle River, N.J., Prentice-Hall.

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