The Importance Of Accounting Standards In Accounting

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The accounting standards have been developed and criticised over the years for just dealing with past abuses. But before the standards were put in place many companies were getting away with altering their accounts or not structuring them in such a way that it was materially correct. In the UK in the 1960’s the financial sector lost faith in the accounting profession because the accountants fell to management pressures and published faulty accounts. In 1968 Pergamon Press Ltd showed a profit of 2 million pounds. Price Waterhouse then did an independent investigation and suggested that they should reduce their profits of up to 75% because they didn’t reduce certain stock append lower the cost of net realisable value (Barry Elliott, 2013). This…show more content…
There is research that shows that the cost of capital falls with the mandatory adoption, the standards show that there is an increase of foreign direct investment, there is also more shareholder protection when they are adopted. The advantages of a global standard policy are that it reduces the cost of reporting in different standards, makes it easier to raise cross-border finance and enables investors to compare performance. There are some factors which contribute to financial statement manipulation more than others such as management has a direct link to make the companies financials look good because then they will meet performance expectation and therefore helping themselves by boosting their personal compensation. The GAAP standards are relatively easy to get around because they provide a lot of flexibility making it easy for management to make the accounts seem better than they actually are. Manipulation of financial statements is still a substantial problem for investors. The manipulation of revenue in the financial statements is relatively easy to do because of the flexibility of the…show more content…
The way accounts are manipulated are very simply done by only leaving out a figure our not fully inputting one it can change a lot on financial statements. The first manipulation is accelerating revenues. One way to do this is putting a lump sum payment into your revenue stream even though the work will take place over a number of years. So you are only taking it into account for that year even though it should be spread over a number of years (Waymen, n.d.). Recording revenue prematurely or of questionable quality this where a company records revenue before they have completed the service so they have not been paid. The recording of fictitious revenue this is where a business records sales that do not take place. Increasing income with one-time gains this is where a company sells its assets and records the proceeds as revenue (Adkins, n.d.). Enron was an energy-trading and utilities company which had one of the biggest accounting frauds in history. It had extremely bad accounting practises that raised the revenue of the company to massive heights that the company was the seventh biggest company in the United States. Once they were caught the company dispersed and filed for bankruptcy on

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