Sunday, December 15, 2019

History of Accounting Indicates That Accounting Process Has Evolved Free Essays

The American Accounting Association defined accounting as:†the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the users of the information† (Aryasri, 2008). The history of accounting indicates that accounting process has evolved throughout the history. Although, identification, measurement and communication still remain as core activities of accounting process, the methods of doing them have significantly changed. We will write a custom essay sample on History of Accounting Indicates That Accounting Process Has Evolved or any similar topic only for you Order Now What was once considered to be acceptable in the past may not be suitable for today as its environment has changed. However, the demand for changes usually comes from the environment rather than accounting profession itself. History has shown that unless there is a severe demand for changing, the natural tendency of accounting profession is to follow the convention. This has been proven by the era of stagnation. During this period, despite the invention of double entry accounting process and its advantages, businesses were redundant to adopt. However, when the industrial revolution took place, there was a great increase in the number of corporation which demanded further developments in accounting process. Many companies which are unable to adopt the accounting changes have failed badly. Nevertheless, through these failures, the problems in accounting process have been recognized and addressed promptly. For example, the problem of not distinguishing between capital and revenue and the allocation of asset depreciation to expenses were identified by the collapses of many railway companies. Accountants were then required to distinguish between capital and revenue items, measure the value of fixed assets, and determine depreciation rates (Hooper, Davey, Liyanarachchi Prescott, 2008).. In the same sense, in today’s ever changing business environment, accounting process will face a great deal of challenges and demands, it is certain that accounting process will continue to evolve in order to adapt the changing environment. The implications of paragraph 12 of the New Zealand Framework can be summarized into answers to three interrelated questions below: What are financial statements to be prepared? 2. Who are they prepared for? 3. What is the purpose of the financial statements? First, there three types of information the preparers should be able to prepare according to the framework: 1. information which reflects the financial position of an entity, the balance sheet presents this kind of information; 2. information which indicates an entity’s financial performance, which normally refers to as an income statement; 3. nformation that reflects changes in financial position, cash flow statement provides this kind of information (Deegan, 2009). Secondly, it is also important for preparers to consider who the users are and identify the potential users. Because different users require different information as they may make different decisions. However, â€Å"A wide range of users† the framework here stated, it is defined by framework that include: investors, employees, lenders, suppliers and trade creditors, customers, gove rnments and their agencies, and public (Drever, Stanton McGowan, 2007). Thirdly, it is important to make sure the financial statements have served their primary objective which is the information need of the users. In line with the decision-usefulness approach adopted by the current New Zealand Framework, when the preparers preparing financial statements they should always bear in mind that the financial statements they prepared should provide information that is useful to end-users in making economic decision. This includes providing information to help users to predict what may happen in the future and providing feedback on previous decision. Base the financial statements prepared by preparer, the users should be able to decide whether past decisions, and the information used to make them, were correct, and this can help they to make better decision in the future (Deegan, 2009). . How to cite History of Accounting Indicates That Accounting Process Has Evolved, Essays

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.