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The information of this essay will examine the Accounting’s Perfect Storm and its elements. The development of these elements changes the work of accountant so there is a need to determine the influence of these elements and describe the possible changes in the accounting that may arise in the future.
The first element is the adoption of International Financial Reporting Standards (IFRS). The IFRS is based on principles but not on the rules (as the GAAP). This means that the IFRS is not aimed on providing details of procedures and mechanisms which are used in financial accounting. It prefers to trust the professional independence of accountants who generally have to rely on official conscience and personal judgment.
The IFRS will help the accountants to avoid a chaos. If the company generates reports according to some national and international requirements, they in turn can be confusing to investors, creditors and other users of information. The IFRS will also help accountants in forming fast, accurate and reliable information. Thirdly, these standards will help to react on fluctuations and changes on the capital market.
In practice, traditionally, companies report only to the state (particularly to the tax administrations). But still some representatives of the government require to report according to the traditional form. All this forces the accountants to carry a double accounting system.
The accountings are carried out primarily in the interests of business owners. The IFRS clearly defines the property status of the owners of the enterprise. That is why the accounting is carried out not just for the sake of fixing the business operations of the enterprise, but it also allows everyone to monitor the implementation of commitments, the presence and movement of assets, efficient use of material and financial resources.
For the accountants the IFRS also helps to make real prediction about the future of the enterprise. This will explain if there is a reason to stay in the company, to continue working in it or to find a better job. The financial statements prepared in accordance with international standards are accessible for a wide range of users, so the future employees can observe the data of the company.
Second element is the convergence project. In 2002 IASB signed a memorandum of understanding with the Financial Accounting Standard Board (FASB). The purpose of it is to convergence two largest systems of standardization and to introduce common global financial reporting standards.
If we are talking about this convergence project, it affects the accountants in some cases. Firstly, there will be a need to learn new principles. Obviously, the project will establish new and modified principles which are to be followed by accountants, managers and auditors.
Secondly, there will be a need for accountant and auditor to pass a qualification examination and obtain a certificate (new standards require new knowledge and skills).
Thirdly, there is a need to attract professionals to make financial statements; there is also a need for additional consultations with professional organizations or other enterprises.
And finally, for enterprises there is a need to replace the automated exchange programs or improve of the old ones.
As a result, for current accountants it will be hard to learn new standards. The employers will dismiss those who do not manage to adapt to the new requirements and will work with new employees who, probably, may not have enough experience, but will have appropriate relevant knowledge.
Third element is the revision of GAAP for private companies and its introduction. Different companies represent different sectors. That is why some exceptions should be made for small companies. For this reason Financial Accounting Foundation is to establish the modifications to GAAP for such kind of companies.
On the other hand, it remains unknown how other companies will accept these concessions for small companies. Indeed, in this case, the principle of equality is violated. Although small economy needs some support, but big companies may disagree with this statement. All these will result actions against it.
In addition, the accountants will need to study not only the general requirements for documentation, but also special features of documentation for small and medium businesses. On the other hand, the documentation will be simplified and it will facilitate the work of accountants.
The last element of Accounting’s Perfect Storm is the reformatting of the financial statements. On the one hand, reforming the financial statements will help to clarify the revenues and expenditures of the company; however, on the other hand, it will complicate the work of accountants. As a result, for the proper reporting it is necessary not only quality work of accountants, but also of other employees.
For me, as a future Certified Public Accountant (CPA), whom I hope to become, all these processes are important. To become an accountant I have to pass financial accounting exams. Right now it is complicate to study the processes of the financial accounting as we have to check the data all the time. The knowledge gathered today need to be improved in future. All these take time, which I could devote to work. There is also a need for current accountants to update the information constantly. Each level of business requires qualified personnel with specific knowledge which is hard to gather, but it helps control authorities to facilitate their inspection reports.
It is all a matter of time. When all the data are clear and set, the accountants can work for a system that has to be established for each level of business.