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Accounting Theory & Contemporary Issues: PDF

   

Added on  2021-04-17

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Accounting Theory & Contemporary Issues1

Executive SummaryThis research report has been developed for examining the influence of corporate failureon causing changes in the accounting standards and regulations. The corporate failures of Enronand Lehman Brothers have been examined in relation to measuring the impact of the downfall ofthese corporations on the accounting standard development process. These corporate crises areregarded to be associated with causing changes in the accounting standard relating to the use offair value accounting. The changes in relation to the classification and measurement approach forassets and liabilities under the fair value accounting have been introduced in response to theglobal financial crisis. In addition to this, the report has also inferred that political influence onthe accounting standard-setting process has been increased post the global financial crisis. 2

ContentsIntroduction.................................................................................................................................................4Improvement in the Accounting Regulations due to Occurrence of Corporate Failures.............................4Literature review on the evaluation of political process of accounting standard setting............................7Section A: Discussion on the lobbies or influences on the political lobbying or influences in the processof accounting standard setting................................................................................................................7Political lobbying examples with specific context to Australia, US and Global level................................9Conclusion.................................................................................................................................................10References.................................................................................................................................................113

IntroductionThe IASB (International Accounting Standard Board) is responsible for the developmentof accounting standards and regulations for monitoring and controlling the financial reportingpractices of corporations. The application of relevant accounting standards and regulationsensures the reliability and integrity of financial reporting for the investors. It has been identifiedin this regard that the occurrence of the corporate scandals leads in improving the accountingregulation and standards by overcoming the shortcomings in the accounting practices that areresponsible for the occurrence of the crisis. The report has evaluated this aspect in detail byproviding relevant arguments and also emphasized in detail about the influence of politicalcontext in the accounting standard-setting process.Improvement in the Accounting Regulations due to Occurrence of Corporate FailuresAs per Akpotu (2013) the corporate failures of the businesses can be regarded as a majorthreat for sustained economic growth around the globe. The era of 2000 have witnessed a largenumber of corporate failures such as Enron, Worldcom and others have mainly occurred mainlydue to the global recession witnessed in this financial period. The major reason for the downfallof these business corporations is the due to use of unethical accounting practices that lead tomanipulation of the accounting information. The corporate failure of Enron and Worldcom haveoccurred mainly due to the use of fraudulent and unreliable accounting practices that lead todevelopment of manipulated financial results. For example, Enron, an American energycompany that collapsed in the financial year 2001 mainly due to use of fraudulent accountingtechniques. It has been identified by the SEC (Securities Exchange Commission) that the use ofsophisticated accounting practices has been adopted by the company to increase its share price,raising investment against its own assets and stock and developing a false impression among itsinvestors regarding to being a successful company. The accounting techniques that have beenused by the company can be regarded as aggressive earnings management accounting practicesthat resulted in depiction of its higher profitability position and subsequently leading to increasein the share prices. Enron depicted increase in its investment money from its partnerships eventhough the ventures are not being carried out (Akpotu, 2013). 4

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