Accounting Standards - Sample Management Essay
Observation of standard accounting practices is a requirement for publicly traded companies. The companies are obligated to follow strict accounting rules in the presentation of their financial statements to enable the readers of such statements to compare performances by different companies easily. Financial institution and shareholders of various private companies may also require private companies to comply with certain accounting standard. Local governments being the form of public administration that exists at the very bottom of administration tiers within any given state, need to comply with accounting standards as they collect their revenue directly from the resident of a given county, municipality or township and as such, they residents of these areas would want to know what exactly happens with their money.
Accounting Standards are dynamic as they change to incorporate emerging issues including changes in technology such as accounting software, legal requirements, and development of new accounting principals that further enhance accountability. In fact, accounting standards have been changing from the Biblical times. In the Old Testament, during the reigns of Kings David and Solomon the level of trust between the king and his officials was so high and the public officials above reproach to the extent that there no records of accounts kept. The bible describes the accounting or lack of it during the building of the temple in Jerusalem was built
“No accounts were kept with the men to whom the money was paid over to be spent on workmen since they were honest in their dealings”
2 Kings 12: 16, World English Bible
By the time of Jesus, however, books of accounts were kept as depicted in the Parable of Talents. It is clear that good accounting practices are rewarded as shown in the parable where the master rewarded servants who invested the money entrusted to them wisely and kept proper books of accounts.
His lord said to him, "Well done, good and faithful servant. You have been faithful over a few things, I will set you over many things. Enter into the joy of your lord."
Since the year 2000, the accounting standards expected of local authorities have changed drastically. In addition to using GAAFR and GASB as the sole primary authorities for accounting purposes, legislation has been put in place that has made it mandatory to use other authorities in accounting practices chief of which is the Generally Accepted Government Auditing Standards (GAGAS) as provided for by the AICPA requirements. The standards are aimed at providing a comprehensive framework that lays ground for conduction high quality objective audits that are characterized by competence, integrity and independence. These standards are further aimed at ensuring that auditors who may use these accounts, fulfill the ethical principles of the profession by taking into account the public interest thus producing audit reports characterized by objectivity and integrity.
Major changes in the GAGAS standards include additional of a conceptual independence framework that gives auditors a way of assessing financial activities and transactions in the local authorities and ensuring that the auditor’s independence is maintained.
References to external, personal, and organizational impairments that were previously accepted have been removed. Overarching independence principles are also not part of the new accounting standards. The underlying concepts that relate to independence in these principles are still in use.
The reporting requirements on fraud in local authorities activities during audits now includes occurrences significant within audit objectives’ context only.
Peer review reports now have to be consistent with AICPA requirements: As such, they will be categorized as:
- Pass - for satisfactorily kept accounts,
- Pass with Deficiencies- for local authorities whose accounts are found to have flaws that fall out of the margin of error but can still be used authoritatively, and
- Fail- for poorly kept records.
Attestation engagements categories have now been fixed. These are
- examination- for the initial stage,
- review- second stage, and
Words count: 650
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