ACCOUNTING AND FINANCE.

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ACCOUNTING AND FINANCE
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Accounting Standards Lead To Misleading Accounts
The current range of accounting standards lead to misleading accounts and encourage
dysfunctional behavior. This has resulted in numerous corporate failures in both the United
Kingdom and other parts of the world. The shortfalls of the financial reporting have made
investors, executives and board members to lack full confidence in the financial statements of
companies (Barth and Landsman 2010, pp. 405).
In 2002, the massive accounting revolution led to the creation of a single set of
International Accounting Standards (IAS). The aim was to unite the Generally Accepted
Accounting Principles (GAAP) of the U.S and the IFRS that most European countries adopted.
According to Barth and Landsman (2010, pp. 408), the adopted universal standards continue to
be a significant challenge in understanding the actual value of a company as well as comparing
accounts of companies across nations. Besides, different countries apply IFRS regulations in
varying ways, as each has a unique system of regulation and compliance (Benston, Bromwich,
Litan and Wagenhofer 2016, pp. 39).
Additionally, the current GAAP rules do not provide objective ways of measuring costs
beforehand. A company is not allowed to recognize or record any revenue from the sale, before
delivering the upgraded requirements and knowing their costs, which may take extremely long
(Barth and Landsman 2010, pp. 419). It leads to a perverse system that allows accounting rules
to impact significantly on the way companies do their business, instead of reporting on their
performance.
Furthermore, the Sarbanes-Oxley Act requires firms to reconcile the GAAP earnings
measures to non-GAAP measures. Additionally, the IFRS has a similar requirement on

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companies. Also, SEC requires company management to have practical support for the reasoning
behind the inclusion of an alternative measure in the financial disclosures. However, these
changes have not helped in solving the problems. According to Benston et al., (2016, pp. 69),
huge discrepancies continue to occur in financial reporting. For instance, Twitter reported a
$0.96 GAAP loss per share in 2014 and $0.34 non-GAAP profit per share.

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References
Barth, M.E. and Landsman, W.R., 2010. How did financial reporting contribute to the financial
crisis? European accounting review, 19(3), pp.399-423.
Benston, G.J., Bromwich, M., Litan, R.E. and Wagenhofer, A., 2016. Worldwide financial
reporting: The development and future of accounting standards. Oxford University Press.