History of Accounting Standards in the United States and the United Kingdom - Case Study Example

 The history of the accounting standards ranges from nearly 60 years as the accounting standards were just a myth for people back then. Since then, the role of standard based accounting has become widely accepted in order to bring in line the basis and presentation of the accounting which is being conducted all over the globe. Presence of Accounting Standards Since the idea of the accounting standards has come to thought and people started working on the basis of the accounting standards, many questions were raised as to whether there should be guidance for the accounting to be carried out and whether accounting of any sort should be based on any standards to be followed throughout the world. There comes the question of consideration whether the presence of the accounting standards is a good or bad thing. There have been several arguments, in though of Baxter, regarding the presence of the accounting standards because there can be commands as well as regulations which help to run life more smoothly while there is the requirement of flexibility in dealing with certain aspects. It should be considered about the benefits that prevail through the presence of the accounting standards because the standards lay emphasis on what should be done rather than why and how it should be done. Therefore, it is quite important to consider whether having the accounting standards is good or bad because at one side they may make life easy by providing a set of rules and on the other hand it may create life difficult by taking away the flexibility of an accountant. History of Accounting Standards The history of the accounting standards began in the late 1930’s when the idea of accounting based on the standard came to light. United States and the United Kingdom were among the countries which were thoroughly involved in the development of the accounting standards at the start and gave the accounting standards some initial touches. The history of both the countries which brought us the accounting standards today is outlined below with their levels of development in both the United States and United Kingdom. History of accounting standards in US: The US based standards took a series of stages to develop and come into a shape. In the beginning, the process was initiated by the committee on accounting procedures in 1939 who issued Accounting research bulletins. The committee worked for around 20 years and issued 50 Accounting Research Bulletins. There was a lot of criticism on that committee and their work because they were accused of not relying on the research that much. Therefore, in its place an Accounting Principles Board came in to being which had better resources and were engaged in better research. (Baxter 1981) The Accounting Principles Board formulated around 31 opinions which formed the basis of numerous accounting concepts. Along with this, they also took measures to put forward models for the accounting of oil, gas and investment credit which had many controversies. The Accounting Principles Board also failed and was criticized that their members did not put up much efforts and were dependent on the research department. Furthermore, the managers were interested in flexibility as compared to the obligatory regulations which were not accepted by the managers of the company. This failure directed way for another committee, this was known as the Financial Accounting Standards Board formulated in 1973. It was made up of 7 members that worked full time and had all the resources in formulating ‘standards’ rather than opinions and bulletins. History of Accounting standards in the UK The UK had a different story than that of the US because many of the different professional bodies came up together to work for the cause of formulating the standards. Till 1969 the English Institute started to give recommendations along with Consultative Committee of Accounting bodies which lead to the creation of the Accounting Standards Committee. In the beginning of their journey to formulate the standards, when a standard for the accounting for inflation was about to be put forth, the English Institute initiated a movement to refuse the standard. This shows the early descent of the accounting standards committee. Development of accounting standards since Baxter’s Article Since the publication of the Baxter’s article, the accounting standards have reached a new dimension as new standards and new techniques have come up to provide leverage to the accounting standards. In the UK, Accounting Standards Board and the Financial Reporting Council were established in 1988. In the 1990s, the government of the UK took eager part in this regard as the Financial Reporting Review panel and the Urgent Issues task force came in to being for resolution of different matters regarding the accounting standards. In 1991, an abstract was issued by Urgent Issues Task Force by the name of “Convertible Bonds” (ICAEW n.d.) Since then, the Generally Accepted Accounting Principles which are better known as GAAP were produced which gave the general principles to carry out the accounting which was accepted generally. On the other hand, the Accounting Standards Board has also issued numerous standards covering many areas of accounting and the standards are known as the International Accounting Standards and their further modifications which give explanations and alternate methods arising due to certain argument are known as IFRICs. On the other hand, US has also been quite steadfast in the procurement of Accounting Standards as the Financial Accounting Standards Board and the American Institute of Certified Public Accountants has carried out a lot of work in this regard which has lead to the making of US GAAP. (ICAEW Library n.d.) Arguments in favour of accounting standards In spite of the arguments that the initial developments of the accounting standards has put forth, there also stays an argument in favour of the establishment of accounting standards. The accounting standards provide the regulations for the daily work to be done by the accountants as they provide the work of accounting manuals. The accounting standards have also helped the shareholders to get a better picture of their investment as both the shareholders and he investors can obtain a more clear and consistent view of the position of the company. From the government’s point of view the standards also provide better approach for the control of the prices. E.g. if the US government has to gain an understanding of the oil prices, all the producers of the oil industry are required to present their data in the same way. The standards have also provided protection to the accountants who can find the standards to be the safe heaven when a higher authority tries to dominate him in order to use the standards for his own benefit. The most realistic argument in support of standard is that they provide us the best possible figures and methods to deal with accounting. Arguments against accounting standards Even though there are numerous arguments in favour of the accounting standards, there are some negative aspects of accounting standards put forward by Baxter. The formulation of the accounting standards requires a huge amount of resources and their drafting is fairly costly. Furthermore, where the drafting cost may be incurred once but the implementation and the running cost of standards will still be eternal. Another demerit of the standard is that even though if it provides the guidance for a certain area of accounting, it will nonetheless leave ground for certain estimates to be made by the personnel who is conducting the accounting process and where such matter arises there will still be room for disagreement. There is still argument regarding the interpretation of the standards as certain difficulties may arise for several different ways of accounting for the accounting standards to cover. Accounting standard that is better than others Baxter argues that the Type-1 which explains the policies used by the accountants in the reports is the better of the rest as there is little argument regarding the aim and objective of this type. It is ac accepted fact that accountants must provide explanations regarding the assumptions that they have taken and policies they have adopted to reach the conclusion in order to give a clear idea for the users to grasp how the figures have been accumulated. Baxter has disregarded the other three types because he thinks that uniformity can be a waste of time as hunting the figures may be required. As for Type-3, which requires the disclosures, he thinks it will not be able to prevent judgment differences. The type-4 is the most dubious one as it only informs regarding the right picture and does less about the accounting. REFERENCES Baxter, William T. "Accounting Standards - Boon or Curse." 1981. ICAEW. http://www.icaew.com/en/library/subject-gateways/accounting-standards/knowledge-guide-to-uk-accounting-standards. ICAEW Library. http://www.icaew.com/en/library/subject-gateways/accounting-standards/us-accounting-standards. Read More