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Contemporary Issues in Accounting :

Evaluate of the following quote of Catlett :

Accounting has been created and developed to accomplish various desired objectives and, therefore, it is not based on fundamental laws or absolute precepts.

(Catlett, 1960, 44)

Requirements :
1. What does evaluate mean: an evaluation means to present a careful judgment of the problem, stressing both sides of the argument. Evaluation implies authoritative and, to a lesser degree, personal opinions/judgment of the question.
2. Use five paragraph, each paragraph should have a key words for the heading.
3. Focus difference example, articles, theories issue are crucial in the work.
4. My opinion is to Disagree.

Contemporary Issues in Accounting

Student’s Name

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Introduction

Accounting refers to the measurement, computing and processing of financial information of an economic entity. Accounting measures the financial performance of organizations. It also conveys financial information to individuals such as investors, shareholders, creditors, regulators and managements among others. The growth of accounting was attributed to the economic development and the ever changing needs of accounting information to individuals. According to Catlett (1960), accounting profession was created to help accomplish certain desired goals and does not depend on laws or precepts. This essay evaluates Catlett’s statement by disagreeing with his opinion. The statement by Catlett (1960) can be evaluated through consideration of both sides of the argument so as to determine whether the statement is true or false. The evaluation of the statement also provides various justifications on both sides of the argument to help determine if the argument is true or false.

The Concept of Accounting

According to Garrison et al (2003), the main role of accounting is to facilitate decision making by both external and internal stakeholders of organizations.  To ensure that there is fundamental accounting process, there should be a clear definition of an economic unit which is referred to as entities in accounting.  In accounting, entities vary in sizes and types and have different structure of management and shareholding (Biondi et al, 2008). Every entity in accounting acts and complies with a given set of local accounting standards and laws when reporting. This provides a clear picture of the business and its performance to the users. Melé (2005) indicated that rules such as true and fair value plays significant role in presentation and reporting of financial statements. According to Scott (2014), the rule of fair and true value remains to be fundamental to accounting both in the international and local laws.  Deegan & Unerman (2006) disputes this by arguing that accounting is not about rules but it is concerned with planning and management. Deegan & Unerman (2006) further argues that the general rules of accounting acts just like guidelines that shape the process of accounting.  In fact, majority of the regulated and listed companies are following the procedures and guidelines of IFRS when reporting and preparing their financial statements.  It is also worth to note that not all businesses are in the markets that are regulated.  For example, not all the goals and needs of UK organizations are met by the guideline of GAAP. This might be due to the transaction nature of a given entity. Frost & Meek (2002) suggested that trading has currently become global and majority of organizations that ranges from small to large enterprises and trades in different countries uses varied set of regulations and laws. This depends on a number of factors such as tax regimes, exchange rates and specific accounting standards.  Currently, there is a debate regarding the convergence of different accounting bodies such as GAAP of UK and IASB framework.  This is aimed at creating common accounting standards that is applicable across all countries.  From this, it is clear that accounting requires the establishment of some rules and regulations irrespective of the size, nature and origin of a business.

The Essence of Financial Statements

Financial statements are used by a number of businesses across different countries. The accounting professionals are, therefore, required to come up with financial statements that are uniform across different countries (Catlett, 1960). This is because financial statements are used to determine and compare the performance of organizations. For this to be realized, it is required that accountants come up with guidelines that govern the preparation of financial statements. Financial statements such as balance sheet, cash flow statements and profit and loss account are prepared in accordance to a given format that is applicable to all organizations. Frost & Meek (2002) indicated that these financial statements should adhere to the set standards so as to guarantee that they accurately measure the performance of organizations. However, Scott (2014) noted that some organizations prefer to use format that best suits their needs. An evaluation of the financial statements of a number organizations show significantly different approaches used to prepare financial statements. Karim (2001) suggested that accounting should not only be used to measure the financial performance of organizations but should also be used in strategic management. This implies that accountants have the freedom to align their financial statements to the organization’s goals.  Garrison et al (2003) disapprove this notion by arguing that implementing different standards and rules when preparing financial statement can lead to some accounting fraud. According to Deegan & Unerman (2006), government relies on financial statements to collect taxes from business and providing accountants with the privilege and freedom to design their own financial statements can lead to tax evasion. Reducing incidences of tax evasion not only requires strict accounting regulations and laws but also transparency in preparation and reporting of financial statements.

Accounting Code of Conduct

Accounting profession is not only based on certain principles and concepts but also on certain code of conduct and ethics (Catlett, 1960). In order to achieve the desired objective of accounting, it is appropriate that accounting professionals conduct themselves in a professional manner. This is an indication that the accounting profession should be based on some laws entailed in code of conduct.  In contrary, Neill Stovall & Jinkerson (2005) indicates that subjecting accounting to strict laws such as code of conduct can comprise the strategic role of accounting.  According to Melé (2005), accountants should not be subjected to code of conduct but should be provided with a chance to serve in a manner that can help improve the performance of organizations. This statement is opposed by Neill Stovall & Jinkerson (2005) by indicating that without proper code of conduct, accountants can engage in financial malpractices that can cause negative consequences to organizations. However, according to Scott (2014), codes of conduct cannot be effective if they are not made as laws. For example, some of the accounting professionals can act in a manner that is contrary to the established code of conduct. This can contribute to malpractices in the accounting profession. There are some cases where several accounting professionals have engaged in activities that have led to a number of financial malpractices.  Global financial crisis, collapse of companies, financial scandals and bankruptcy are examples of the result of accounting malpractices. Furthermore, the misconduct of accounting professionals has also resulted to cases where companies have lost significant amount of money. The laws have also been applied to some cases where several accounting professionals have been found to have engaged in financial malpractices. These individuals have been subjected to legal actions and charged with violation of accounting rules and principles. This shows that accounting is based on specific laws that must be followed by all the accounting professionals so as to ensure that they engage in best practices. Without the laws that govern the code of ethics, financial reporting should have been meaningless.

Conclusion

The statement that accounting profession was developed to help meet the desired goals and as such it is not based on the laws is, therefore, not true. Although, accounting was created to help meet certain goals, it is impossible for accounting to realize the desired goals without establishment of certain accounting principles. Laws play fundamental role in guiding the practices and operations of accounting. Through laws, accounting professionals are subjected to adhere to the best practices and standards that can guarantee that the financial reports and statements produced are relevant. Laws govern code of conduct, preparation of financial reports and statements. It also ensures uniformity of financial reports and statements in various organizations. Moreover, without appropriate laws in place, the accounting professions can become meaningless and fail to meet its objectives. This is because accounting professionals can tailor financial statements to serve their personal interest. This implies that laws are the basic foundation of accounting profession. This is a suggestion that accounting was created to help accomplish certain desired goals and depends on laws or precepts.

 References

Biondi, Y., Canziani, A., & Kirat, T. (2008). The firm as an entity: Implications for economics, accounting and the law. Routledge.

Catlett, G. R. (1960). Factors that influence accounting principles. Journal of Accountancy (pre-1986), 110(000004), 44

Deegan, C., & Unerman, J. (2006). Financial accounting theory. Maidenhead: McGraw-Hill Education.

Frost, C. A., & Meek, G. K. (2002). International accounting. prentice Hall.

Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2003). Managerial accounting. New York: McGraw-Hill/Irwin.

Karim, R. A. A. (2001). International accounting harmonization, banking regulation, and Islamic banks. The International Journal of Accounting, 36(2), 169-193.

Melé, D. (2005). Ethical education in accounting: Integrating rules, values and virtues. Journal of Business Ethics, 57(1), 97-109.

Neill, J. D., Stovall, O. S., & Jinkerson, D. L. (2005). A critical analysis of the accounting industry’s voluntary code of conduct. Journal of Business Ethics, 59(1-2), 101-108.

Scott, W. R. (2014). Financial accounting theory. Pearson Education Canada.

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