Far 600

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Accounting Standard Setting

What is Standard?

- method of or an approach to preparing accounts which has been chosen and establish by the bodies overseeing the profession. (M.Harvey & F.Kier)

Need For Accounting Standards

- Provide the profession with a manual of useful working rules

- Force improvement in the quality of the work of the acountant

- Strengthen the accountant’s resistance against presure from directors to use an accounting policy

- Ensure that the uses of financial statment get more complete & clearer information

Theory of Regulation Relevant to Accounting & Auditing

• Capital markets suggest that managers have many incentives to voluntarily provide accounting information to external parties.

• Managers also use to ensure that those information verified by independent auditors.

Theory Of Efficient Market

Free Market Approach

- Accounting can be seen as information industry.

- Demand and supply factors should operate

- An equilibrium price therefore can be found for accounting information.

- The price will finally adjust to one where the supplier still find it advantages to furnish the information and where users believe the cost less than bnefit of the information.

Goals of Accounting Standard Setting

To make sure that the accounting information is-represented with fulfilness & presented for the purpose of good economic consequences

Standard Setting

The regulation of firms’ external information production decisions by some central authority (W.R Scott)

Regulation of Economic Activity

Those firms that have a monopoly – electricity distribution, local telephones companies, transportation companies.

Primary reasons:

- To protect individuals who are at the information disadvantage.

- To improve operation of capital markets byenhancing public confidence in their fairness.

Role of Accounting and...