Regulatory and Conceptual Framework Essay Example | Topics and Well Written Essays - 750 words

Regulatory and Conceptual Framework - Essay Example International accounting standards will enhance the quality and transparency of accounting information. According to the principles of corporate governance, corporate reporting should ensure that the information is fair and transparent (AAA, 2003). Consequently, this results in the numbers getting beyond reproach in terms of integrity. It is very easy for companies to reduce the costs of transactions because there is a reduction in risk estimations by the market. However, the standards have the effect of increasing costs for small companies since they have few resources to implement the changes including training of accountants. Second, international accounting standards enhance flexibility in financial reporting because it is principle-based as opposed to the use of rules. This means that companies have many ways to arrive at a valuation that is reasonable and suitable to particular situations. This makes it very easy to read and interpret financial statements (FASB/IASB, 2008). On the downside, international accounting standards can promote manipulation because companies can selection a method of valuation of their choice. Most companies will decide to report only desired results while hiding financial problems. The result is that a company may appear more profitable than its real performance. Third, the use of international standards has the advantage of creating uniformity in financial reporting which improves comparability. It would be more accurate to compare the financial performance of companies using a uniform accounting standard than using different standards. It makes it easier for an investor to select an investment. On the downside, the international standard has not been accepted especially in the U.S. This has influenced other countries to hold out because they use the accounting standards adopted by the U.S. as a gold standard of measure. The situation is worse for foreign firms doing business in the U.S. because they