Accounting rules have become highly complex, even confusing. Like alcohol prohibition laws, they are easily evaded. Some companies evade them to improve accuracy, while others do it to artificially inflate their earnings. Slightly altering the nature of a transaction can generate a unique set of circumstances not covered by the overly specific accounting rules. By micromanaging accounting standards, the government has merely encouraged firms to expend resources restructuring their transactions to achieve accounting results that conform technically to the rules. Granting the SEC more power, larger budgets, and staff will not solve anything, because accounting rules cannot possibly keep up with rapidly changing events in business.
Even if the government doesn’t know how to regulate accounting, many observers think that mandating more disclosure will help investors discover fraud on their own. Unfortunately, investors do not know how to evaluate the “transparent” data. Only a tiny proportion of ordinary investors actually reads a company’s financial statements before buying the stock. A smaller number understand what they are looking at. The average investor is not inclined to engage in detailed analysis, nor is he capable of it. Those who are trained in financial statement analysis already do it, and more rules will not help them.
The Term Paper on Harmonisation Of Accounting Standards
... the work of the International Accounting Standards Committee (IASC). Yet global accounting policies may soon change as key accounting rule makers worldwide work toward ... would interpret them as well, because it wants to assure investors protection and efficient functioning of the capital market. Therefore there ...
In accounting systems, certain controls are needed to ensure that employees are doing their jobs properly and ensure that the system runs properly. These checks are in the best interest of the organization. These controls come in the form of internal and external controls for the system. The internal controls are the checks that are placed in the system by the company’s own management and directors. Today more and more companies are moving from the manual accounting systems to computerized accounting information systems. The advantages of a computerized system are increases in the speed and accuracy of processing accounting information.
Since government decisions are not motivated by profits, there is no motivation to provide accurate accounting statements. In fact, bureaucrats have an incentive to hide the costs of their agencies. An accurate accounting of an agency’s activities would generate demands for reform. Wasteful spending could be discerned more easily.
Congress could spot politically acceptable spending cuts, given accurate information. It’s in the bureaucrat’s interest to distort his agency’s financial picture. This allows him to demand greater funding. An accurate accounting would only lead to funding reductions. No bureaucrat wants this. Therefore, we should expect agencies to have unsatisfactory accounting practices..
