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The Role Of Accountants In Todays Business Organizations Accounting Essay

In the past ten years, a significant amount of research attention was focused on recognizing, analyzing, contradicting, favoring, and critiquing the changing roles of accountants. In the past ten years, we witnessed accountants assuming additional tasks such as strategy formulation, systems development, organizational re-design and a whole lot more. In the 21st century, we have seen accountants devoting much less of their time to routine financial analysis, transaction processing, auditing and statutory reporting. The roles of accountants in the business environment have become business oriented. [1] These changes posed crisis for accountants as the profession’s credibility has been questioned. [2]
In this paper, we look into the traditional roles of accountants and compare such to that of the roles of the modern accounting profession. I discuss some ethical concerns binding these roles and express my opinion regarding these changes. This discussion leads to the main point of this paper- the importance of accountants in today’s business environment along with the demands for new roles of the accountants. Moreover, I also discuss various sources and types of information available to the accountants and the quality that this information should possess. Information, an increasingly important asset for all business organization, is necessary for accountants to satisfy these new demands for their expertise.
The Roles of Accountants Accountants face dilemma as they face two contrasting roles at the same time. First, they are seen as watchdogs for top management while they are also seen as helpers of the management. However, the second role seemed to have increased its importance in the recent years and accounting systems was seen as impetus for organization’s improvement. [3]
Specifically, the traditional roles of accountants include: auditing, managerial accounting, and tax accounting. These roles are the most basic functions that accountants are trained for as early as undergraduate education. On the other hand, the additional or modern roles of accountants are financial planning, business analysis and strategy, technology planning and consulting. Within these roles, the accountants serve more specified tasks. These are usually assumed in the actual practice; hence skills are acquired in the actual practice.
Auditing. This is theoretically, the basic and most important role of an independent accountant. The tasks of the accountant as an auditor are to check the organization’s estimate is in accordance to formulas that are used consistently every year. [4] However, the importance of auditing as a business process has decreased recently. In a survey done among academicians, practitioners and students, audit preparation only received a moderate rank in terms of importance of this task by accountants. [5]
Managerial Accounting. This is usually the role of in-house accountants who act as either controllers or internal auditors. The task of an in-house accountant is to give the most accurate picture of the economic status of the company and to respect the truth about the report. [6]
Tax Accounting. This is the role of a book keeper or tax preparatory. The tasks of the book keeper include: determination and estimation of tax liabilities of the clients whether individual or corporate. [7]
Financial Planning. This is a rising role for accountants. The demand for this new role is brought about by their knowledge and expertise on taxation laws and financial investment markets. [8] Additional tasks under this role include: performing due diligence, organizing share-holder meetings, supervising cash management and payroll handling. [9]
Business Planning and Strategy. This is the role of accountants to translate raw financial numbers into usable business information. Project accounting and knowledge management are also additional tasks under this new role for accountants. Under this role, accountants guide managers and business owners to improve productivity and maximize profitability. [10]
Technology Planning. With the automation of various business processes, accountants also become involved in development and implementation of new information systems. Now, owners and managers rely on accountants to choose the most suitable technology solutions for financial and business management. [11]
Consulting. Accountants also become consultants for financial management, income distribution, accounting and auditing functions as well. [12]
The Key Drivers of Role Changes It has been made clear in the literature that the roles of accounting have changed in the recent years and these changes are expected to continue. The roles of accounting shifted from information provision to extended information facilitation. Specifically, this shift in roles made accountants from book keeping, data analysis, and tax preparation into much wider range of duties in management. [13] This is to say that the roles of accountants shifted into business oriented or entrepreneurial roles. This shift is brought about by the following key drivers: changes in business market conditions, re-designing organization, new managerial philosophies, more complex business processes, systems development, innovations in management techniques, and human resource development. [14]
Because of these key drivers, changes in the roles of accountants are more likely to continue in at least another ten years. No longer bounded by numbers and formulas, accountants can feel free and rely on their creative and strategic side.
The Challenge for Accountants Accountants will always be as important to business enterprises today. While others argue that change in orientation of accountant’ is a blow to the credibility of the profession, I believe this is rather a challenge that accountants need to glorify. Business oriented or entrepreneurial roles for accountants call for additional skills in these fields. In order to achieve credibility “again,” as others claim that the profession has lost it, accountants should master these additional fields to be considered experts of the field. Hence, this does them not mere practitioners of these new fields but experts as well.
This is a call to the accounting education research to dwell more on these additional fields so accountants may gain more in sights as to how these fields may be associated firmly with the traditional accounting practices. This is also a call to the academe to train the aspiring accountants to be flexible and well rounded ones in order to for them to satisfy the demands that awaits them in the actual practice. This is also a call for students to be open minded and be willing to accept these changing roles not as insults but rather a challenge and opportunity to become more significant in today’s business environment. Lastly, this is a call for certified and practicing accountants to get out of numbers and formulas and be willing to use their creative minds to do more analysis and strategizing- and more opportunities that may prove that accountants can satisfy the demands of the present business environment to them; without sacrificing of course, the core ethics of the traditional accounting profession. Accountants should hold on traditional ethics and values. It is the roles, skills, and practice that will change and re-oriented.
Sources and Quality of Accounting Information Moreover, in order to satisfy the present demands for accountants, information is also a necessary. Now, information is a vital resource for the survival of all contemporary business organizations. It has become of the basic and most important resource for business intelligence and achievement of competitive advantage. In this section, I discuss the sources of information and the quality of this information needed by accountants.
In everyday business, various types and quantities on information flow to decision makers and users to meet internal organizational needs. The sources of information for the accountant may come from any of the components of information flow system within an organization. These include top management sources, middle management sources, operations management sources and operations personnel sources. This information flow is an exchange of performance information, day-to-day operations information and budget information and instructions. [15]
Moreover, in order to be useful, accounting information should have each of the following qualities at a minimum degree:
Understandability. Accounting information should be comprehensive and understandable to users who have reasonable knowledge of business and economic activities and economic information. This quality serves as a link between decision makers and the accounting information at hand.
Decision Usefulness. Decision usefulness is also a qualitative characteristic needed to judge quality of accounting information. This is dependent on the availability of information and ability of the user to process the information for it to be used in decision making.
Relevance. Accounting information should also be relevant in order to help the user of information analyze the outcomes of the past and present and predict the outcome of the future events according to prior expectations. In order to be relevant, the information must have predictive and feedback value and timeliness.
Reliability. Accounting information will also be useful if it is reliable. This is to say that information must be free from error and bias; hence presenting faithfully what is intended to be presented.
Verifiability. Accounting information must also be verifiable for measures to agree with the selected method without error or bias. Verification is useful in reducing measure bias because the same method can be used to repeat measurements to reduce intentional and unintentional errors.
Comparability and Consistency. Lastly, accounting information must be comparable because information becomes more useful when compared with information from other companies. This allows accountants to identify and explain similarities and differences between two or more economic facts. [16]

The Differences Between International Financial Reporting Standards Ifrs And Current U S Gaap Accounting Essay

The differences between International Financial Reporting Standards (IFRS) and current U.S. GAAP are numerous. International Financial Reporting Standards (IFRS) are principles-based Standards, Interpretations and the Framework (1989) adopted by the International Accounting Standard Board (IASB). Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). IAS was issued between 1973 and 2001 by the Board of the International Accounting Standard Committee (IASC). On 1 April 2001, the new IASB took over from the IASC the responsibility for setting International Accounting Standards. During its first meeting the new Board adopted existing IAS and SICs. The IASB has continued to develop standards calling the new standards IFRS. Generally Accepted Accounting Principles (GAAP) is a term used to refer to the standard framework of guidelines for financial accounting used in any given jurisdiction which are generally known as Accounting Standards. GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in the preparation of financial statement.
U.S. GAAP and IFRS differ in key ways, including their fundamental premise. At the highest level, U.S. GAAP is more of a rules-based system, whereas IFRS is more principles-based. This distinction may prove more difficulty than it initially appears, because most accounting and finance professionals in the U.S. have been schooled in the rules of U.S. GAAP. The overriding lesson from their years of study and work is this: If you have an issue, look it up. Under U.S. GAAP, voluminous guidance attempts to address nearly every conceivable accounting problem that might arise. And if that guidance doesn’t exist, it generally is created. On the other hand, IFRS is a far shorter volume of principles-based standards, and consequently requires more judgment than American accountants are accustomed to.
Companies involved in the exploration and development of crude oil and natural gas have the option of choosing between two accounting approaches: the “successful efforts” (SE) method and the “full cost” (FC) method. These differ in the treatment of specific operating expenses relating to the exploration of new oil and natural gas reserves.
The balance sheet includes items that differ between International Financial Reporting
Standards and Generally Accepted Accounting Principles will be addressed first. Balance sheet items include assets (inventory, property, plant and equipment), liabilities (accounts payable and other amounts owed) and equity (ownership interest, usually in the form of stock).
Inventory is any item available for sale or used in the production of an item that will be sold. In valuing this inventory, GAAP allows for First-In-First-Out, Last-In-First-Out, Moving Average and Weighted Average. These are the four main methods used. IFRS does not allow the LIFO method. In times of increasing prices and costs, inventory profits may result from using and inventory valuation method other than LIFO. These “inventory profits” result in improved reported earnings, but because the inventory profits are taxed, they reduce a company’s net cash flow. Depending on the system used, inventory values, profits and taxes can be affected. To give you some examples, “the financial statements of a company using the LIFO approach as opposed to FIFO generally reflect:
* Conservation profits, because LIFO buffers the effects of inflation.
* Better matching of current costs with current revenue.
* Lower liquidity, that is, a lower current ratio.
* Lower equity position, that is, a higher debt-to-worth ratio.” (Gibson)
IFRS takes this one option away. In addition to this, IFRS required that the same formula be applied to all inventory of a similar nature. GAAP allows for different methods to be used.
Asset retirement during the production of inventory is accounted for as a cost of the inventory using IFRS rules. Whereas, GAAP allows for it to be added to the carrying amount of the property, plant or equipment used to produce the inventory. With IFRS this cost will stay with the balance sheet. GAAP would move it to depreciation which lowers earnings but increases free cash flow.
A write-down of an asset is reducing the book value if it is overstated compared to current market values. If a need arises to reverse a write-down, IFRS allows it and GAAP does not. GAAP does not allow the revaluation of property, plant and equipment. It uses historical cost. IFRS, on the other hand, allows either historical cost or revalued amount (fair value at date of revaluation less subsequent accumulated depreciation and impairment losses).
The rules concerning residual value have some differences too. Residual value is the amount you expect to be able to sell a fixed asset for at the end of its useful life. IFRS calculates it as the current net selling price and it may be adjusted upwards or downwards. GAAP calculates it as the discounted present value and it may only be adjusted downward.
Next, items such as depreciation and leases will be addressed. Since these items are expenses, they will affect the income statement. Depreciation is an expense that reduces the value of an asset as a result of wear and tear, age or obsolescence.
IFRS requires more work when depreciating items. Depreciation of assets with differing patterns must be depreciated separately. This means that each item would have to be accounted for separately. GAAP allows this but it is not required. With GAAP, all the depreciation would be able to be grouped together and listed as a total requiring fewer entries. When capitalizing an asset, GAAP only allows interest. IFRS includes interest, certain ancillary costs and exchange differences that are regarded as an adjustment of interest. Being able to include these costs will increase the value of the asset and provide for more depreciation.
Land and building leases is another topic where differences occur. IFRS considers land and building separately and GAAP considers them as a single unit unless land represents more than 25% of the total fair value.
A couple of other items worth mentioning are contingent assets and extraordinary items. Contingent assets are assets in which the possibility of an economic benefit depends solely upon future events that can’t be controlled by the company. Due to the uncertainty of the future events, these assets are not placed on the balance sheet. However, they can be found in the company’s financial statement notes. These assets, which are often simply rights to a future potential claim, are based on past events. An example might be a potential settlement from a lawsuit. The company does not have enough certainty to place the settlement value on the balance sheet, so it can only talk about the potential in the notes. IFRS does not recognize contingent assets, GAAP does.
Extraordinary items include the sale of the subsidiary or the payment of a lawsuit. Extraordinary items are a liability that is unusual or infrequent in its occurrence. IFRS prohibits extraordinary items and GAAP allows them. Although rare and infrequent, extraordinary items can be substantial and being able to include them can have an impact on your financial statements.
As you may be able to tell, both have their advantages and disadvantages where compared to the other. There are some items in which benefits are drawn from IFRS and others that GAAP provides. There is an ongoing effort to address the differences and come to a consensus. At some point, the two different set of rules may be combined into one universal system.
Works Cited
Deloitte. IFRS and US GAAP: A Pocket Comparison. July 2008. IASplus.com.

Gibson, S.C. LIFO vs FIFO: A Return to the Basics. Oct. 2008. The RMA Journal.

Hughes, S.B. and Sander, J.F. A U.S. Manager’s Guide to Differences Between IFRS and U.S. GAAP. 2007. Management Accounting Quarterly.

Kumar, S. Differences Between IFRSs and US GAAP. 26 July 2006. Caclubindia.

PriceWaterhouseCoopers. IFRS and US GAAP: Similarities and Differences. Sept 2008. PWC.com.
Inventory
IFRS information on inventory can be found in IAS 2 and in Chapter 8 of the Wiley IFRS 2010 book. GAAP information on inventory can be found in ASC 330 and in Chapter 9 of the Wiley GAAP 2010 book.
GAAP Definition (ASC 330-10-20):
The aggregate of those items of tangible personal property that have any of the following characteristics: a.) held for sale in the ordinary course of business; b.) in process of production for such sale; c.) to be currently consumed in the production of goods or services to be available for sale.
IFRS Definition (IAS 2):
Items that are held for sale in the ordinary course of business; in the process of production for such sale; or in the form of materials or supplies to be consumed in the production process or in the rendering of services.
GAAP IFRS
|Allowable costing methods include FIFO, average cost, and LIFO |Allowable costing methods include FIFO and the weighted-average |
| |cost. LIFO costing is prohibited |
|Presentation at lower of cost or market required |Presentation at lower of cost or net realizable required |
|Only in rare instances (mining of gold, etc.) are presentation |Certain defined situations, including agricultural products, |
|at fair value in excess of cost permitted |permit reporting at fair value in excess of actual cost |
|Lower of cost or market adjustments cannot be reversed |Lower of cost or market adjustments must be reversed under |
| |defined conditions |
|Recognition in interim periods of inventory losses from market |Recognition in interim periods of inventory losses from market |
|declines that reasonably can be expected to be restored in the |declines that reasonably can be expected to be restored in the |
|fiscal year is not required |fiscal year is required |
Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale (IAS 2).
Presently, there are two sets of accounting standards accepted for international use – U.S. GAAP and the International Financial Reporting Standards (IFRS).
US GAAP or simply GAAP are accounting rules used to prepare, present, and report financial statements for a wide variety of entities, including publicly-traded and privately-held companies, non-profit organizations, and governments. The Financial Accounting Standards Board (FASB) is a private, not-for-profit organization whose primary purpose is to develop GAAP within the United States in the public’s interest. The Securities and Exchange Commission (SEC) designated the FASB as the organization responsible for setting accounting standards for public companies in the U.S.
On the other hand, the second set of accounting standard is IFRS (International Financial Reporting Standards), which is issued by the International Accounting Standards Board (IASB), based in London. Nearly 100 countries use it or coordinate their financial instruments. These countries or groups of countries include the European Union, Australia, and South Africa. While some countries require all companies to adhere to IFRS, others merely allow it, or try to coordinate its own country’s standards to be similar. The IASB is working toward this goal in a partnership with some of the most influential accounting standard-setters across the globe.
The globalization of business and finance has led more than 12,000 companies in more than 100 countries to adopt IFRS. In the United States, the Securities and Exchange Commission (SEC) has been taking steps to set a date to allow U.S. public companies to use IFRS, and perhaps make its adoption mandatory. In fact, on November 14, 2008, the SEC released for public comment a proposed roadmap with a timeline and key milestones for adopting IFRS, beginning in 2014.
IFRS website states that the convergence between IFRS and US GAAP brings some benefits. Growing interest in the global acceptance of a single set of robust accounting standards comes from all participants in the capital markets. Many multinational companies and national regulators and users support it because they believe that the use of common standards, in the preparation of public company financial statements, will make it easier to compare the financial results of reporting entities from different countries. They believe it will help investors better understand opportunities. Large public companies with subsidiaries in multiple jurisdictions would be able to use one accounting language company-wide and present their financial statements in the same language as their competitors.
Another benefit some believe is that in a truly global economy, financial professionals, including CPAs, will be more mobile, and companies will be able to easily respond to the human capital needs of their subsidiaries around the world.
According to aicpa.com, the most important specific differences between IFRS and U.S. GAAP are:
• IFRS does not permit Last In, First Out (LIFO)
• IFRS uses a single-step method for impairment write-downs rather than the two-step method used in U.S. GAAP, making write-downs more likely
• IFRS has a different probability threshold and measurement objective for contingencies
• IFRS does not permit debt for which a covenant violation has occurred to be classified as non-current unless a lender waiver is obtained before the balance sheet date
Based on my research, I have read from some SEC and AICPA critics and also individuals in favor of the introduction of IFRS in U.S. Most of common critics against the adoption of IFRS focus on similar areas. Remi Forgeas, a CPA states in article published in AICPA website his critics:
– The usual difference noted between GAAP and IFRS is that the former is rule-based whereas the latter is principle-based. This principle-based concept generates concerns that it will be more difficult for a preparer to defend its position in case of litigation.
– Another point for discussion is the risk to see the standard setter becoming less independent and/or that the U.S. having less control on their accounting standards.
– The cost and the duration of the transition are often presented as a major hurdle, especially in this difficult economic environment. The complexity of the transition and then its cost will depend for the most part upon the completion of the convergence. The convergence process is expected be completed in 2011. Assuming the SEC decides on 2015 for the year of transition, changes for companies should be less complex, since both standards will be converged.
– Finally, the last issue is the human factor: are the preparers, users, auditors … experienced enough in IFRS? There is no doubt that specific training will be required to ensure IFRS are known by various categories of people dealing with IFRS. Focusing on the situation today is probably not the right approach: true there is today a lack in knowledge, but the situation is evolving rapidly.
People favoring the introduction of IFRS in the U.S. states that the harmonization of financial reporting around the world will help raise the confidence of investors, generally, in the information they are using to make their decisions and assess their risks. The opposite is perhaps the clearer case. If accounting for the same events and information produces radically different reported numbers, depending on the system of standards that are being used, then it is self-evident that accounting will be increasingly discredited in the eyes of those using the numbers.
For those companies with joint listings in both America and another country, there should be substantial savings, particularly in terms of preparation costs. Avoiding the burdensome U.S. GAAP reconciliation statement, required at present, would be a worthwhile prize.
The good reasons why convergence with the U.S. should be pursued has been noted. There is, however, a downside to all of this for IFRS – many people also believe that U.S. GAAP is the gold standard, and something will be lost with the full acceptance of IFRS. Other disadvantages are as follows:
• Extra costs in the preparation of financial statements by all IFRS companies – implementing new requirements and restating previously reported numbers.
• Changes have to be communicated and understood by all of those involved in preparing the accounts, auditing them and using them.
• Translations of the amended standards are required for the many languages in which IFRS are applicable.
• The changes have to be approved by the various national endorsement authorities and often incorporated into their legal systems.
• Continuous piecemeal changes undermine the reputation of IFRS. Some might justifiably ask why high quality standards need such frequent amendments.
WORKS CITED
“AICPA IFRS Resources” ifrs.com December 11, 2010. Web
“Accounting Standard Codification” fasb.org December 11, 2010. Web
Epstein, Barry. Nach, Ralph and Bragg, Steven GAAP 2010. New Jersey: Wiley, 2009. Print.
United States Accounting Standards vs International Accounting Standards
June 21, 2009
Introduction
This research project will inform the reader of the difference between the United States accounting standards and International accounting standards. The United States uses the Financial Accounting Standards Board (FASB) to issue financial reporting procedures. The International Financial Reporting Standards (IFRS) are issued by the International Accounting Standards Board (IASB). There are proposals for the United States to adopt the International standards. Financial reporting procedures are debated about the United States using the Generally Accepted Accounting Procedures (GAAP) or following the global procedures. This project will also examine, compare, and contrast this debate.
Discussion of Topic
In an article by Heidi Tribunella (2009),
“U.S. GAAP is considered rules based. Rules-based accounting standards, on the other hand, give strict rules that must be adhered to in order to properly account for particular transactions. For example, lease accounting in the United States gives four criteria for determining if a lease is a capital lease. If a lease contains any of the following, then it is considered a capital lease and must be accounted for as such: 1 ) a bargain purchase option; 2) ownership transfers at the end of the lease; 3) minimum lease payments
with a present value of at least 90% of the FMV of the asset; or 4) a lease length of at least 75% of the economic life of the asset. This is an example of very specific rules for
accounting for leases” (Tribunella, 2009).
Tribunella (2009) goes on to explain International accounting standards,
“International Financial Reporting Standards (IFRS) are issued by the
International Accounting Standards Board (IASB), which was created in 200l. Previously, the International Accounting Standards Committee (IASC), founded in 1973, issued International Accounting Standards (IAS). When the IASB was created, it adopted the IAS and continued the work of the IASC” (Tribunella, 2009).
Gary K. Meek and Wayne B. Thomas (2004) explain the influence of the IASB on the global reporting standards including the U.S. GAAP.
“In 2000, the International Organization of Securities Commissioners (IOSCO), of which the SEC is a member, recommended to member countries that IASC standards be used in cross-border offerings and listings. The enforcement of International Financial Reporting Standards (IFRS) by exchange regulators will be crucial to the eventual acceptance of the IFRS around the world…In October2002, the IASB and the Financial Standards Accounting Board (FASB) issued a memorandum of understanding, which formally stated their commitment to the convergence of IFRS and U.S. GAAP” (Meek and Wayne, 2004).
Jose Marrero and Thomas Brinker (2007) explain the efforts of the IASB and the FASB to merge their practices.
“Over the last two decades, research indicates that developing a framework of global
accounting standards favors the recognition of culture. Cultural differences will impact a nation’s final consensus regarding accounting standards. However, after years of discussion, a solution to the dilemma of merging culture or international cultures and accounting standards has yet to be found. Currently, the International Accounting Standards Board (IASB) and the FASB are working on a principle-based framework for global financial reporting standards the cooperation of both the IASB and FASB will yield a uniform body of accounting standards allowing financial and investment advisers to view global investment opportunities on a more level playing field…” (Marrero and Brinker, 2007). They also point out why certain business owners may not want to follow global practices, “Further, business owners are unwilling to abandon their localized business practices to appease the accounting standards imposed on the multinational companies, much less their bookkeeping and financial reporting standards to the jurisdiction of a U.S.-dominated accounting standard board” (Marrero

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