Module 1 Discussion 1-Answer the initial question (About 250 words) What are some of the economic consequences of accounting standards? 2-Reply to 2 student posts by commenting about their posts...

Module 1 Discussion

1-Answer the initial question (About 250 words)

What are some of the economic consequences of accounting standards?

2-Reply to 2 student posts by commenting about their posts and building on the subject

(About 100 words each)

APA reference.

Student posts:

1-Laura Huguenel

The development of a general theory of accounting is important because it gives companies a set of principles and guidelines to follow in order to explain why they have used specific accounting methods. Furthermore, “the development of a general theory of accounting is important because of the role accounting plays in our economic society” (Schroeder, Clark, & Cathy, 2017). Reporting is required to give useful financial information to those that would invest in the company and to hold the company accountable to sound business practices. The fact is however, that companies still fall short in doing so.

One example that comes to mind is Enron because it was one of the biggest accounting scandals to date. They did this through hiding their financial losses by transferring them to a corporation that was not on the books, so they were never reported. To this day, “companies continue to find ways to game the system, while the emergence of online platforms, which has dramatically changed the competitive environment for all” (Sherman & Young, 2016). Until everyone abides by the standards given, absolute faith in a company’s financials will not happen.

References

Schroeder, R. G., Clark, M., & Cathey, J. M. (2017).Financial accounting theory and analysis: Text and cases. Hoboken, NJ: Wiley.

ShermanS, H. D., & Young, D. (2016, June 20). Where Financial Reporting Still Falls Short. Retrieved April 30, 2019, fromhttps://hbr.org/2016/07/where-financial-reporting-still-falls-short

2-Ekaterina Cafano

The development of general theory of accounting is of a great importance because it plays a crucial role in the development of the economic aspect of our society. We live in the world where economic resources are scarce and individuals and companies compete for those scarce resources in order to meet their economic goals. The main objective of accounting theory is usefulness of the financial information. Therefore, the companies should report on the state of their scarce resources in comparable and consistent manner which allows users of the reported information to make an educated decision on the company’s financial situation. FASB is the governing body which issues GAAP in order to achieve a goal of consistent financial reporting. To provide an example, one of the accounting principles that companies have to adhere to is the “Matching Principle”. Matching principle requires companies use accrual basis of accounting, which means that revenue must be reported in the same accounting period as the expenses that helped to generate that revenue. For example, companies report salaries paid to employees as an expense in the period when employees worked not in the period when the employees got paid.

References:

Schroeder, R. G., Clark, M., & Cathey, J. M. (2017).Financial accounting theory and analysis: Text and cases. Hoboken, NJ: Wiley.